The Single Market is Not a Swiss Cheese

“The single market is not a Swiss cheese. You cannot have a single market with holes in it.” said Viviane Reding, vice-president of the European Commission,  when speaking to the FT

An historic vote in the Swiss cantons is sending ripples of surprise throughout the EU. Switzerland is not part of the EU but it has bilateral agreements that give it access to the single European market. The Swiss Peoples Party (SVP) led a campaign where a 50.3% majority of voters agreed with the need for immigration quotas on EU citizens. This directly contravenes their agreement on  one of the four EU fundamental freedoms – free movement. The others are capital and services and all four are part of a package and are not separable.

The Swiss government will now have to enforce the wishes of the electorate within the next three years.The voting reflects a growing hostility to immigrants across Europe’s big economies, with calls for tighter immigration curbs and a repatriation of powers from the EU.  Heinz-Christian Strache, the head of the Austria’s far right freedom Party, welcomed the decision, claiming that citizens in every other west European state would vote the same way if they were given the opportunity.

Net immigration levels in Switzerland have risen between 60,000-80,000 per annum for the last seven years and this equates to roughly 1% of the population. The immigrants hail mainly from Italy and Germany.

The SVP blame a host of ills on this immigration; higher rents, increased levels of crime and overcrowded trains. The election result has been celebrated as a display of Swiss power in the face of over-bearing EU pressure.

“This vote says that Switzerland is a deeply divided country” says Patrick Emmenegger,  Professor of Comparative Political Economy and Public Policy at the School of Economics and Political Science at the University of St. Gallen.

Others feel there will be a real economic cost to this vote. Brussels has already warned Switzerland that its access to the EU’s single market for goods and services could be under threat. The EU is the destination for 56% of Swiss exports and 80% of Swiss imports.

The Swiss Bankers Association (SBA) along with other businesses has been quick to urge the government to act in a concillatory fashion to the EU and so minimise any backlash. As well as the EU being the most important market for Swiss banks the SBA has fears over the supply of qualified staff in Switzerland with 25% currently coming from the EU. Financial services groups are some of their biggest exports and major Swiss outposts in London such as credit Suisse and UBS may be undermined.

Also like any uncertainty it leads to indecision with companies not willing to invest until there is a clearer picture. There are already rumblings in Brussels of cancelled deals with the €80 Billion EU Horizon 2020 research and development programme mentioned. Pia Ahrenkilde-Hansen, a European Commission spokesperson, said Sundays vote had “not set the right tone for the beginning of an institutional agreement governing the relations between the EU and Switzerland”. However, she added, “it’s still too early in the day for Brussels to decide how to respond…. the ball is now in Switzerland’s court”.

This gives hope to the integrationists and some business people who think that with a three year period for implementation into law the quotas can be set at such a level that the EU does not feel compelled to cancel its accords.

Could the Swexit influence the Brexit?

The events in Switzerland are already referred to as the Swexit while the UK coming out of the EU is referred to as the Brexit. Banks, asset managers and insurers have lobbied the UK government over the importance of the single market to the City of London. The EU is the biggest single market for UK exports of financial services and generates a trade surplus of £15.2bn. Watching how Switzerland discusses and manages its situation with the EU may inform people in the UK of the correlation between EU membership and the prosperity of the UK.

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