Why does Switzerland, a small country on the outside of the EU, care about Brexit?

 

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Will Brexit have an impact on the Swiss, and do their opinions and concerns actually matter? Richard Rigby, Consultant at CNC London, takes a look.

Switzerland and the UK have much in common. They are EU-sceptic nations, but with banking systems and wider economies heavily integrated into the continent’s financial ecosystem. The Swiss haven’t always paid the UK as much attention as they would their immediate neighbours. But after the Brexit vote, the Swiss started to look at what was going on in our islands with great interest. A telephone helpline for worried Swiss was even set up.

A whole range of reactions reverberated around the Alpine country. Switzerland’s President called it “a difficult day for Switzerland”. Some though, particularly in the finance industry, saw opportunities. Brexit should be “beneficial for Switzerland”, countered Boris Collardi, CEO of Julius Bär, the large Swiss private banking group.

So Swiss perspectives on Brexit are as diverse as the languages and cantons of Switzerland itself, as polarised as the views within the UK. That’s unsurprising because, in the background, Switzerland is wrestling with its own relationship with the EU.

Switzerland has always shunned membership of both the European Economic Area and the EU. However, it does have a deep intertwined relationship with it, financial and otherwise.

Though not a member, it has access to its single market. To enjoy this privilege, it has to contribute billions of Swiss francs every year to many European projects. It also has to comply with some EU laws, and accept the free movement of people in and out of the EU.

The “Swiss Way”

These arrangements are encoded in 120 bilateral agreements with the EU that cover everything from road traffic, agriculture and science through to security and participation in the Schengen Area.

It’s a complex deal that appears to give the Swiss the independence they crave, but also a place in the EU economic powerhouse.

After the vote, the British Bankers Association asked the UK Government for a similar arrangement based on bilateral deals that the UK media branded “Swiss Plus”. A former Swiss President said a Swiss type deal for the UK was “inevitable”.

A hindrance or a help?

In reality, though, the Swiss, just like the British, are in turmoil over their relationship with the EU. Those feelings came to a head in referendum in 2014 that the Swiss had of their own – on immigration. The Swiss decided immigration, including from the EU, should be limited through quotas. The problem is, this goes against the bilateral agreements Switzerland has with the EU.

The EU, unsurprisingly, reacted badly, saying if the Swiss break any single aspect of the bilateral agreements, then all of them automatically collapse.

Is there any room for negotiation? This is where the impact of Brexit is interesting the Swiss. Some think it will force Brussels to take a hard line with Switzerland. Others assume the opposite — that it will help the Swiss cause, by adding an ally into the mix and forcing the EU to soften its stance.

Either way, the Swiss don’t have much time to find a solution: the deadline for the implementation of their 2014 immigration referendum is February next year.

In September, with the clock ticking, the Swiss proposed a compromise solution ( a reduced version of their immigration cap) which privileges Swiss workers over foreigners. The EU Commission responded pointedly that “The four fundamental freedoms of the single market [free movement of goods, of people, of services and of capital] are inseparable.” A phrase the British are hearing from Brussels too at the moment.

Those threats from Brussels seemed to have worked. With just seven weeks to go to that February deadline for implementing the referendum decision, the Swiss parliament has performed a climb-down. The heavily diluted immigration package now just allows employers in regions or sectors with high unemployment levels to advertise in local jobcentres before recruiting outside Switzerland. Other than that, immigration from the EU will remain unchanged. Whether Brussels will accept even this heavily watered down version or continue to play hard ball will be seen when it reacts in the next few days. The EU could still reject this new compromise.

What the Swiss seem to have taken on board is that it they were to implement any “hard” variant of their referendum, the results would likely be political and economic uncertainty, a reduction in the pool of available talent and a major risk to the bilateral agreements with the EU and access to its single market. Whatever solution is found, Swiss-based firms will have to communicate particularly cleverly in order to minimise jitters and show they are treating the uncertainty with a leadership mentality. They will have to show investors they have a plan to work with potentially unfavourable legislation, and staff (and even customers) who are wary of international labour markets. And companies who are considering increasing their investments in Switzerland, or who already have investments there, will need to keep a watchful eye on events, in particular on how hard or soft the eventual agreement will be. Familiar guidance indeed for those who are scrutinising the unfolding of the Brexit result.

Richard Rigby

Richard Rigby

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