Switzerland and the European Union: A Close, Contradictory and Misunderstood Relationship

Switzerland and the European Union

Despite its geographical centrality and its considerable economic involvement in Europe, Switzerland remains unusual in that it is neither a member of the Union or the European Economic Area. At a time when the Union is both expanding and seeking to develop its integration, the country, like Norway, constitutes a real anomaly amongst west European states. This book demonstrates the range, depth and complexity of Switzerland’s still-developing relations with Europe and provides detailed and up-to-date information on Switzerland itself. Considering a variety of dimensions of the country and its intense but ambiguous relations with the EU, the contributors, all of whom are leading specialists on Swiss–EU relations, explore: • • • • •

The classical political obstacles to entry: federalism, direct democracy, neutrality and the growing strength of anti-European populism. Policy barriers to integration: in trade and economics generally, in financial matters, and in social provisions relating to the movement of people. The medium-term background both of relations with the EU, emerging from these impediments, and of Swiss foreign policy in general. The negotiation of the two sets of bilateral accords which presently structure Swiss relations with the Union. The EU response and the prospects for future Swiss–EU relations.

The contributions show that while ideas of identity are important in Swiss responses to Europe, neither these nor domestic doubts about political integration have prevented a high and often overlooked degree of Europeanization in Switzerland. This book will appeal to specialists on Switzerland, academics and students in politics and international relations, and practitioners in European integration and Swiss politics. Clive H. Church is Emeritus Jean Monnet Professor of European Studies of the University of Kent, UK, and a member of the University’s Centre for Swiss Politics.

Europe and the nation state Edited by Michael Burgess (Centre for Federal Studies, University of Kent) and

Lee Miles (Europe and the World Centre, University of Liverpool)

This series explores the complex relationship between nation states and European integration and the political, social, economic and policy implications of this interaction. The series examines issues such as: • • •

the impact of the EU on the politics and policy-making of the nation state and vice versa the effects of expansion of the EU on individual nation states in Europe the relationship between the EU and non-European nation states. 1 Poland and the European Union Edited by Karl Cordell 2 Greece in the European Union Edited by Dionyssis G. Dimitrakopoulos and Argyris G. Passas 3 The European Union and Democratization Edited by Paul J. Kubicek 4 Iceland and European Integration On the edge Edited by Baldur Thorhallsson 5 Norway outside the European Union Norway and European integration from 1994 to 2004 Clive Archer 6 Turkey and European Integration Prospects and issues in the post-Helsinki era Edited by Mehmet Ug˘ur and Nergis Canefe 7 Perspectives on EU–Russia Relations Edited by Debra Johnson and Paul Robinson

8 French Relations with the European Union Edited by Helen Drake 9 The Geopolitics of Euro-Atlantic Integration Edited by Hans Mouritzen and Anders Wivel 10 State Territoriality and European Integration Edited by Michael Burgess and Hans Vollaard 11 Switzerland and the European Union A close, contradictory and misunderstood relationship Edited by Clive H. Church

Switzerland and the European Union A close, contradictory and misunderstood relationship

Edited by Clive H. Church

First published 2007 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business This edition published in the Taylor & Francis e-Library, 2007. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” © 2007 Clive H. Church for selection and editorial matter; individual chapters, the contributors All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested ISBN 0-203-96809-3 Master e-book ISBN ISBN10: 0-415-37199-6 (hbk) ISBN10: 0-203-96809-3 (ebk) ISBN13: 978-0-415-37199-5 (hbk) ISBN13: 978-0-203-96809-3 (ebk)

Contents

List of illustrations List of contributors Series editor’s preface Preface Abbreviations 1 Introduction

ix x xiv xvi xvii 1

CLIVE H. CHURCH

PART I

Political problems 2 Federalism: institutional adaptation and symbolic constraints

15 17

PAOLO DARDANELLI

3 Direct democracy and European integration: a limited obstacle?

36

ALEXANDER TRECHSEL

4 Swiss neutrality: incompatible with EU membership?

52

DANIELE GANSER AND GEORG KREIS

5 Populism in Switzerland and the EU: from vox populi to vox mediae REGULA STÄMPFLI

79

viii Contents PART II

Economic and social difficulties 6 Swiss international economic relations: assessing a small and open economy

97

99

ROLF WEDER

7 Sectors, structures and suspicions: financial and other aspects of Swiss economic relations with the EU

126

CLIVE H. CHURCH, WITH CHRISTINA SEVERIN AND BETTINA HURNI

8 The (contentious) human face of Europeanization: free movement and immigration

148

PHILIPPE KOCH AND SANDRA LAVENEX

PART III

The EU and international contexts 9 The wider setting of Swiss foreign policy

167 169

LAURENT GOETSCHEL

10 Continuities within change: the background of Swiss relations with Europe

186

CLIVE H. CHURCH

11 Back to the future: the first round of bilateral negotiations with the EU

202

CÉDRIC DUPONT AND PASCAL SCIARINI

12 Bilaterals II: reaching the limits of the Swiss third way?

215

ALEXANDRE AFONSO AND MARTINO MAGGETTI

13 The EU response to Switzerland: still a “special case”?

234

SIEGLINDE GSTÖHL

14 Prospects

248

YANNIS PAPADOPOULOS

Index

257

Illustrations

Map Map of Switzerland

xx

Figures 6.1 6.2 8.1 8.2

Population size and world integration GDP and global trade intensity Proportion of foreigners (in per cent) by nationality as at December 2002 Implementation of the Agreement on the Free Movement of Persons

120 121 152 156

Tables 3.1 6.1 6.2 6.3 6.4 8.1 8.2 13.1

Popular votes directly related to Switzerland’s European Integration strategy Indicators of openness State size and trade Integration in the world economy Integration in the European Union Stocks of foreign population in selected countries Attitudes towards the admission of foreign workers from Islamic and Eastern European countries A typology of EU trade relations

39 104–6 110–11 114–15 118–19 150–1 153 236

Contributors

Alexandre Afonso holds a licence and a DEA from the universities of Lausanne and Geneva. He is currently involved in a research project on “the impacts of internationalization on Swiss policy processes”, funded by the Swiss National Fund for Scientific Research, in the framework of which he is writing his doctoral dissertation on Europeanization and policy concertation in three smaller European states. Clive H. Church was educated at Exeter and London universities. After a PhD on French administrative history he went on to teach in Dublin, Lancaster and Kent where he finished as Jean Monnet Professor of European Studies and Director of its Kent Centre for Europe. His interests are in the European Treaties and Swiss politics. He is the author of The Politics and Government of Switzerland (Palgrave Macmillan, 2004). Paolo Dardanelli did his first degree in Turin, his MA in Durham and his PhD at the LSE. After having taught in Surrey and Royal Holloway universities he is now Lecturer in European and Comparative Politics at the University of Kent where he runs the Centre for Swiss Politics. He is the author of Between Two Unions: Europeanisation and Scottish Devolution (Manchester University Press, 2006) and of articles in Political Studies, the Austrian Journal of Political Science and Regional and Federal Studies on federalism, European integration and Swiss politics. Cédric Dupont is a graduate of the University of Geneva. He has taught in Berkeley, Sion and Geneva where he is now Associate Professor at the Graduate Institute of International Studies. He is also Director of the Alpine Environment and Society Centre in Sion. His interests include Swiss and international trade policy and Swiss external relations on which he has published widely. Daniele Ganser is a Senior Researcher at the Centre for Security Studies at the Swiss Federal Institute of Technology in Zurich. He was born in Lugano in Switzerland in 1972 and studied history, English and philosophy in Basel, Amsterdam and London. He received his PhD in History in September 2001 for a thesis on NATO’s secret stay-behind armies and terrorism in Western

Contributors xi Europe. His research, publications and teaching focus on international relations, secret warfare, the United Nations, NATO, the Cold War, multinational companies and Swiss foreign policy. Laurent Goetschel has a PhD from the Graduate Institute for International Studies in Geneva. He has been a researcher for Swiss academic institutions and the press, as well as being a Visiting Fellow at Harvard. He has also taught at the University of Berne, acted as a government advisor and directed a major research programme on Swiss foreign policy, now published by Routledge. He is now Director of Swiss Peace and Professor of Politics at the European Institute of the University of Basle. Sieglinde Gstöhl studied International Relations at the universities of St Gallen, Geneva and Harvard. She also worked for EFTA and as a referendum organizer in Liechtenstein. After teaching for several years at Humboldt University, Berlin she is now Professor of Politics at the College of Europe in Bruges. Her main interests are in the field of the EU’s external relations. She is the author of Reluctant European (Rienner, 2002). Bettina Hurni was, until recently, head of the Geneva-based Euro-Info-Centre of the Employers Federation of French Speaking Western Switzerland. Previous to this she was Director of Press and Information for EFTA. She has both a doctorate in Economics from the Graduate Institute of International Studies in Geneva and a Habilitation. She has also taught at the University of Neuchâtel, been a visiting Professor in Switzerland and the US and written widely on international economic questions. Philippe Koch is presently finishing a licentiate on the Europeanization of labour market relations in the Swiss construction industry as part of an MA in Political Science at the University of Berne. He has worked as both a research assistant in the PEMINT project (The Political Economy of Migration in an Integrating Europe) at the University of Berne and as a scientific assistant in the State Secretariat for Economic Affairs (SECO). Georg Kreis studied history and geography in Cambridge, Paris and Basle, obtaining a PhD and a Habilitation from the latter. Since 1993 he has been Professor and Director of the Interdisciplinary Post-Graduate Institute of European Studies of the University of Basle. He has written widely on Swiss affairs and has been involved in a number of major Swiss research programmes in history and politics, acting as Director of that on National Identity. He was also one of the members of the Bergier Independent Commission of Experts on “Switzerland and the Second World War”. His research interests include nationalism and migration. Sandra Lavenex is a graduate of the University of Constance and the European University Institute in Florence where she did her PhD on the Europeanization of immigration policy. She has served as an Intern in Brussels and elsewhere. She has also worked in Konstanz, Zurich, Florence and now Berne

xii Contributors where she is Assistant Professor. Her interests are in refugee policy in Switzerland and beyond and in justice and home affairs. She has written and supervised research widely in these areas. Martino Maggetti has a number of qualifications including a licence in politics from Lausanne and a DEA from the universities of Lausanne and Geneva. He is currently a teaching assistant in comparative politics at the University of Lausanne and is preparing a dissertation on the functioning of independent regulatory agencies. Yannis Papadopoulos is Professor of Swiss politics and public policy at the University of Lausanne. He recently co-edited the Handbook of Swiss Politics, Zurich (NZZ Publishing, 2004), and has published extensively on the role of referenda and on the Swiss federal policy process. He is currently working on the impact of internationalization upon domestic decisionmaking structures, and on accountability problems in multi-level governance systems. Pascal Sciarini was educated at the University of Geneva where he is now Professor of Politics and Head of Department. Previously he was a professor in IDHEAP in Lausanne. He has been a visiting Fellow in a number of institutions and has written widely on Swiss politics and policy. He was also involved in a number of major Swiss research projects in politics. His main interests are in political values and decision-making. Christina Severin received her Masters in Economics from the University of Basle in 1997. She then worked in the Corporate Communications Department of Helsana, the largest Swiss health insurer. In 1999 she started to work for the Economics section of Neue Zürcher Zeitung, where she mainly wrote on financial matters. Since 2003 she has been London Economics Correspondent for the Neue Zürcher Zeitung. Regula Stämpfli trained as a historian and has a doctorate in Political Science. She is currently working both as a political scientist in Brussels and as a parttime Professor at the Swiss College for Journalism in Lucerne. She has published several books and articles on political decision-making processes in Switzerland and in the EU, most recently From Voiceless to Voter. The ABC of Swiss Politics (Orell Füssli, 2003 (in German)). She is also a well-known political commentator on current affairs in Switzerland. Alexander Trechsel is a graduate of the University of Geneva who has taught there, in Kent State and Florence as well as serving on many research projects. He is presently Professor of Political Science and Swiss Politics in the European University Institute in Florence. He is also Vice Director of the Geneva Centre for Direct Democracy. His interests are in e-democracy, attitudes to European integration, methodology and Swiss politics. With H.P. Kriesi he is the author of a forthcoming work on Swiss politics.

Contributors xiii Rolf Weder is a graduate of the universities of St Gallen and Basle, obtaining his PhD and his Habilitation from the latter. He has taught in Basel and British Columbia as well as being a business consultant. His interests are in comparative advantage, environmental economics and European questions. He is presently Dean of Graduate Studies in Basle and Professor of Economics and European Integration in its European Institute.

Series editor’s preface

Switzerland has always maintained something of a unique status among interested social scientists. In certain respects the country has, as Clive Church in his role as editor of this volume identifies in his Introduction, been regarded as something of an “anomaly” that has been resistant to some political processes widely acknowledged and implemented elsewhere. In other ways, the Swiss have also attracted interest from outsiders simply by the fact that they have been the source of substantial innovation and distinctive political practice. Among other things, several aspects spring to mind and are explored in further detail in this innovative book. As Dardanelli in his chapter argues, Switzerland is notable, not just for concepts of direct democracy and federalism, but also in terms of the importance of developing federalism as a political structure, as well as for cultural association and for notions of national identity. Equally, scholars of international relations are often intrigued by, as Ganser and Kreis ponder in this volume, the continued significance, and retention, of a foreign policy of neutrality in a post-Cold War European security environment. In addition, those focusing on studies of European integration are drawn to Switzerland, not only because Switzerland has not become a full member of the EU in spite of being surrounded on all sides by EU member states, but also because the extensive usage of bilateral agreements between Switzerland and the European Union (EU) which is offered by some as a distinctive model for developing close relations with the Union short of EU accession. A text of this kind that seeks to introduce and explore some of these concepts to a wider English-speaking audience is very welcome. A book on Switzerland and European integration in English also seems very timely at this point. For one thing, the EU continues to evolve and has, for example, expanded since 2004 to become an EU of 25 member states that places even greater demands on Swiss relations with the Union. There is much to suggest that the impact of “Europe” on Switzerland will grow further. Moreover, as Dupont and Sciarini, Afonso and Maggetti, as well as Gstöhl, discuss in their various contributions, the use of bilateral arrangements that may have worked in the past may not be so effective in the future and thus Swiss approaches to the EU may need to change. In simple terms, the influence of Switzerland on the EU or, put another way, Switzerland on “Europe”, however small, may be moving

Series editor preface xv in new directions in the foreseeable future. There is much to be gained from exploring Swiss relations with the European Union both for those with a specific interest in this affluent European state, and for those with a broader interest in European integration. It is therefore highly appropriate that this fresh innovative book on Swiss–EU relations should be published in the Europe and the Nation State series that examines the inter-relationship between European integration and concepts of the nation state. It fits comfortably into the ethos of the series and sits conveniently alongside previous volumes that focus on EU countries, such as France and Poland, as well as the studies of non-member states, like Iceland, Norway, Russia and Turkey, published in this prestigious series. Lee Miles Europe in the World Centre (EWC), The University of Liverpool

Preface

This book has its origins in a suggestion from Martyn Bond of the Federal Trust that there was a need for a book on Switzerland’s relations with the European Union within the context of the Union’s own relationships with non-member European countries. The idea attracted a good deal of support, both in Britain and in Switzerland, the preface of a recent study of Swiss foreign policy by Gabriel and Fischer having observed that “European integration is the most pressing problem facing the Swiss, but it comprises a vast range of questions that need to be handled in a separate volume”.1 However, no promises of funding followed. Nevertheless, planning and discussions went ahead, out of which came the suggestion that the book might find a home in the Europe and the Nation State series. We are very grateful to Michael Burgess, Lee Miles and their advisors for agreeing that this would be possible. Equally we must thank Heidi Bagtazo of Routledge, herself part Swiss, and Harriet Brinton, together with their colleagues, for their support in commissioning and editing. The editor must also thank all those Swiss academics who, over the years, have encouraged him and provided so many insights into Swiss politics. In particular he is very grateful to the contributors who have agreed to make their expertise available despite their many other, often encumbering, commitments. A special word of thanks is due to Alexandre Afonso and Martino Maggetti who stepped in at the very last moment when another would-be contributor proved to have dropped out. It is a pleasure to have the chance of introducing the contributors’ work to a wider audience and thus thank them for their hospitality during a visit to Switzerland in February and March 2005, as well as on previous occasions. The helpful stimulation of Clive Archer’s book on Norway, in this series, must also be acknowledged. Equally, he is grateful to Margaret Church who, with Paolo Dardanelli, took over the task of seeing the book through to completion, as well as tolerating yet more time spent on, and in, Switzerland. CHC Thanington Without

1 J.M. Gabriel and T. Fischer (eds), Swiss Foreign Policy, 1945–2002, Basingstoke, Palgrave, 2002.

Abbreviations

ABB ACP AFSJ AG AI AUNS/ASIN AUT AVE BBl BE BEL BV CBI CEPT CERN CFSP CH CHF CIA CIS CLA COREPER COST CSCE CSDP CVP/PCD DAC DNK EC ECAC ECOFIN

Asea-Brown-Boveri African, Caribbean and Pacific (states) EU Area of Freedom Security and Justice Aargau 1994 Alps Initiative Action for an Independent and Neutral Switzerland Austria Ad Valorem Equivalents Bundesblatt/Feuille Fédérale (Official Government Information Register) Canton of Berne Belgium Swiss Constitution Confederation of British Industry European Conference of Postal and Telecommunications Administrations European Nuclear Research Centre Common Foreign and Security Policy Helvetic Confederation Swiss Franc Central Intelligence Agency Commonwealth of Independent States Collective Labour Agreement EU Committee of Permanent Representatives European Cooperation in Science and Technology Conference on Security and Cooperation in Europe Common Security and Defence Policy Christian Democratic Peoples’ Party Development Assistance Committee Denmark European Community European Conference on Civil Aviation EU Economic and Financial Affairs Council

xviii Abbreviations EDA/DFAE EDMZ EDP EEA EEC EFTA ENP EPA ESRO EU EURATOM EUREKA EVD EVP/DFE FDI FDP/PRD FIN FPS FTA GATS GATT GDP GMOs GNI GNP GSoA GSP ICT IMF IRL ISL IT IUEE JPN KVP LUX MFN NATO NEB/NOMES NGO NLD NZZ OECD OEEC

Federal Department of Foreign Affairs Swiss Government Publications Office Federal Political Department, now EDA/DFAE European Economic Area European Economic Community European Free Trade Association European Neighbourhood Policy Economic Partnership Agreement European Space Research Organization European Union European Atomic Energy Community European Network for Market Oriented Research and Development Federal Economics Department Federal Department of Economic Affairs Foreign Direct Investment Free Democrat (or Radical) Party Finland Swiss Freedom Party (formerly the Automobile Party) Free Trade Agreement/Area General Agreement on Trade in Services General Agreement on Tariffs and Trade Gross Domestic Product Genetically Modified Organisms Gross National Income Gross National Product Grouping for a Switzerland without an Army Generalized System of Preferences Information and Communications Technology International Monetary Fund Ireland Iceland Information Technology University Institute for European Studies, Geneva Japan Catholic People’s Party Luxembourg Most Favoured Nation North Atlantic Treaty Organization New Swiss European Movement Non Governmental Organization Netherlands Neue Zürcher Zeitung Organization for Economic Cooperation and Development Organization for European Economic Cooperation

Abbreviations xix OSCE PCA PETA PfP PISA PRT PTT SAS SBA SD SEA SECO SHAPE SIS SMAPEC SPS SVP/UDC SWE TA TRIPS UBS UK UN UNCTAD UNECE US VAT VBS/DDPS WB WTO

Organization for Security and Cooperation in Europe Partnership and Cooperation Agreement People for the Ethical Treatment of Animals Partnership for Peace Programme for International Student Assessment Portugal Former Swiss Post and Telecommunications Service Special Air Service Swiss Bankers’ Association Swiss Democrats party Single European Act State Secretariat for Economic Affairs Supreme Headquarters, Allied Powers in Europe Schengen Information Service Small Open Economy Swiss Social Democratic Party Swiss People’s Party/Centrist Democratic Union Sweden Transit Agreement Trade Related Aspects of Intellectual Property Rights Union Bank of Switzerland United Kingdom of Great Britain and Northern Ireland United Nations United Nations Conference on Trade and Development United Nations Economic Commission for Europe United States of America Value Added Tax Federal Department of Defence, Civil Protection and Sports World Bank World Trade Organization

Map of Switzerland

1

Introduction Clive H. Church

Not many months ago a serving officer in the Royal Air Force was quoted in The Times as saying that he wanted Britain to emulate Switzerland and have nothing whatsoever to do with the European Union [EU].1 His assessment is widely shared. So, when Pascal Lamy said that, if Britain chose to vote “No” to the Constitutional Treaty, it could finish up in the same situation as Switzerland, many Eurosceptics carolled “Yes please!”.2 Yet such views are based on a misapprehension because Switzerland actually has a great deal to do with the EU even if it is not a member and sometimes seems to share the British desire for “splendid isolation” from Europe. In fact Switzerland is surprisingly deeply integrated in “Europe”.3 In other words, the Swiss–EU relationship, as well as being misunderstood, is close and somewhat contradictory.

The Swiss anomaly Hence if, as HM the Queen once said, the British constitution is a bit of a puzzle, the same might be said of Switzerland.4 For the country is, in many ways, an anomaly. On the one hand, it is a very European country: culturally, geographically, linguistically, politically and in its economic involvement in the Single Market. One Swiss job in three is said to depend on this. Indeed, one senior Swiss diplomat said “Economic relations between Switzerland and the EU are of such a density that they cannot be limited by judicial texts”.5 However, it also has two sets of more general bilateral legal accords, the second approved in June 2005 and the first initially agreed in May 2000 and successfully extended to the ten new member states in September 2005. Equally, it has often had more technical agreements with the European Union than any other non-member state while its legislation has been “Euro-compatible” for many years. In fact more than half of its economic legislation derives from the EU and often, as with the E111 card, has to be accepted willy-nilly. All this means that it is subject to a high degree of Europeanization6 and this in a wide variety of fields. Conversely, in some circumstances, it can exercise a restraining influence on EU policy-making, as was the case with withholding taxes.7 Moreover, it has a government committed in principle, at least till recently, both to programmes like Schengen and to eventual membership of the Union.

2

Clive H. Church

Sizeable elements of party and public opinion support this point of view, often with great commitment. They want to see a more active and outward-looking Switzerland in line with the country’s innate European nature. Indeed recent polls suggest that between 46 per cent and 66 per cent of the population are in favour of entry.8 Similarly the Union would be very open to Swiss membership. Indeed Eurobarometer polls regularly suggest that 78 per cent of EU citizens would like to see Switzerland as a member, compared to only about 40 per cent who would welcome more Balkan states.9 Yet, on the other hand, along with Norway, Switzerland is the only small (as opposed to micro) state in continental western Europe which is not part of the Union.10 Indeed, contrary to myth, the country has never yet voted on the general principle of entry to the EU. This reflects deep-seated reservations about Swiss involvement not just with Europe but with all international organizations. Increasingly these have been focused by well-organized and vociferous opposition movements, spearheaded by the Swiss People’s Party [SVP/UDC]. So, after the 1992 popular rejection of entry into the European Economic Area [EEA] the government had first to freeze its application for membership and then to delay its reactivation. Similarly, even the technical agreements signed with the EU have come under pressure from those who fervently want the country to remain an island in the middle of the EU sea. The European question is, in other words, the most divisive issue in Switzerland and has helped to polarize and ideologize the Swiss party system in a way which has not happened in Norway. To some extent, the political divide on Europe coincides with the country’s linguistic and social divisions. French-speaking and urban areas were thus much more pro-European than German-speaking and rural districts. The decline of religious affiliations, the eclipse of cantonal boundaries and, especially, the segmentation of the media have all helped to make the question more sensitive and salient. This was very much the case in 1992 when the Swiss rejected entry into the EEA, something which was bitterly resented in the Suisse Romande. For, while the Italian community voted against entry, French speakers were in favour by a large majority but were overcome by hostile votes from German-speaking areas.11 Since then other issues, both European and domestic, have reinforced the divide although there have also been countervailing factors so that the divide has never become violent or destabilizing. Nonetheless, it remains an underlying problem and one of much concern to most Swiss because it threatens confederal unity. However, evidence from recent votations (or referenda) suggest that the gap between the two sides is lessening.12 The Suisse Romande has become less enthusiastic about European integration and more willing to welcome political movements opposed to it while German-speaking Switzerland has lost some of its old scepticism. As a result the September 2005 votation on extending rights of free movement to the new EU member states showed a real alignment between the two regions.

Introduction 3

Coming to terms with the Swiss situation Such division and uncertainty about Europe is not a quaint quirk of fortune with no real impact or interest for others. For, despite its relative smallness, Switzerland is a significant country which matters not just to the Swiss themselves but also to the EU and its member states. For the Swiss the European issue raises questions not only about their relationship with the outside world but about their own identity and internal political development. This is because entry would require more sacrifice of identity than in most other countries. Swiss ambiguities also raise questions both about the EU’s relations with the rest of Europe and its own nature and territorial limits. Hence the Swiss relationship with the EU cannot be understood as an abstract. It needs an awareness of Swiss specificities. Yet, despite its importance and political sensitivity, neither the details of Swiss relations with the EU, nor their causes, are well known in Britain or, indeed, in many other member states. Equally, ideas that Switzerland offers a model for European integration are not widely shared. In fact the country suffers more than most small countries from a proliferation of myths and ignorance: mistakes, such as saying that the Swiss have voted against EU (rather than EEA) entry, are commonplace. So there is a clear case for examining the realities and settings of Swiss relations with Europe. Doing this is not to urge any particular strategy on the Swiss, or indeed on others. Deciding on what to do about EU entry should, and will, be a matter for the Swiss electorate. But knowing what the present-day Swiss situation in relation to Europe actually is, in all its complexity, may be helpful to those thinking about the future of European integration after the French and Dutch rejection of the Constitutional Treaty. The year 2006–7 is a very good time to try and make such assessments. On the Swiss side, the Federal Council, the collegial Swiss executive, has refused to withdraw its application but it has now declared that membership is no longer the strategic aim it had been. Following on a suggestion made in the Council of States in 2000, this is now simply one option among a number of strengthening links with the EU, all of which will be considered in an updated report on integration policy. This has encouraged talk about an overall framework agreement, a “lite” form of membership and an agricultural free trade deal with the EU, although the government is clearly divided on such questions. Business has also made it clear that it rejects another idea now being floated, a customs union. All this has already stimulated discussion, not to say controversy, and this is unlikely to diminish in the near future. Indeed, having gained domestic approval for all its bilateral deals with the Union, the country has already started re-assessing its future relations with the Union, especially in the light of the failure to agree a free trade deal with the USA. In other words, the popular endorsement of various bilateral deals in June and September 2005, which went rather against European trends, was far from ending debate. Both opponents and supporters have continued to mobilize. The former are hoping to exploit the fact that entry is no longer the government’s preferred aim and push back Swiss involvement in “European

4

Clive H. Church

construction”. Hence they are calling for a formal withdrawal of the frozen entry application and rejecting any further bilateral arrangements, especially if these take the form of a framework agreement with institutional links. They are also threatening action against the projected cohesion payment to the EU. Some want this cancelled and others want it decided by the Swiss alone, and targeted on the new member states, or subject to a detailed agreement with the EU, and payable to other states as well. Resolving this and getting the EU states to complete ratification of the various agreements was still going on in the spring of 2006. Moreover, AUNS is considering launching a popular initiative which would ban entry or, at least, prevent any discussion of the subject for 20 years. The fact that Europeanization is still going on, as in the adoption of EU rules on food safety and air passenger rights, is also likely to focus attention on the issue.13 And there are also several regular opportunities for new votations such as on the extension of free movement to Bulgaria and Romania whenever they join the Union and when the first bilaterals come up for reconsideration in 2011. Supporters have been less vociferous. However, the Social Democratic Party is still committed to entry. Other supporters are looking to the promised government report, due by the autumn of 2006, to help relaunch an intelligent debate. However, opponents are prone to dismiss the report as a farce because it is not independent but the product of the, to them, deeply compromised Integration Bureau. Even if there were not the political pressures, the working of existing agreements could also produce controversy about Europe. Thus what is seen as Brussels’ “unhealthy” interest in things like ex-export trade and the low tax policies of cantons like Zug have caused annoyance. So too did German rejection of proposals for access to Zurich’s Kloten Airport. The fact that a bilateral relationship means, as does Europeanization, continuous adaption to EU norms also raises the possibility of new friction. This is despite the fact that the Swiss public now sees Europe as far less significant an issue than it did in 1995 notwithstanding the changing political balance. The latter has shifted towards opponents of integration, although both sides of the argument are, and will remain, very active. So the government still finds itself between the rock of economic gain – enlargement for instance being estimated as likely to add 0.75 per cent to Swiss GDP – and the hard place of domestic opposition. On the Union side, if the enlargement process, coupled with some of the underlying causes of the rejection of the constitutional treaty, focuses attention on its relations with its neighbours, there is no great enthusiasm for further bilateral deals, though it might consider them if they are linked as were the first batch. Equally, it might consider a limited coordinating framework agreement. However, there are still reservations in Brussels about some Swiss stances. This is the case with money laundering, Alpine transit and banking secrecy. Indeed President Chirac has floated the idea of a tax on countries that allow this. More importantly, Greece, Portugal and Spain are still resisting their exclusion from the cohesion scheme and this is holding up EU ratification of the second round of bilaterals.

Introduction 5 Yet, if many in the Union still believe that Switzerland will join the Union in the not too distant future, some external critics of the EU see the Swiss situation as being applicable to them. Indeed some opposition parties in Norway are now said to be enviously eyeing the Swiss arrangement. And, as already noted, what is believed to be the Swiss solution appeals to many opponents of British membership of the EU. The questioning of the existing model of integration unleashed by the referenda in France and the Netherlands in May and June 2005 may well encourage such feelings. Yet, if the Swiss often like to think that their federal process is a model for Europe, this actually implies a degree of consolidation that many British Eurosceptics would resist.14 All this is likely to mean that Swiss–EU relations remain a key topic on the agenda in coming years.

The aims of the book In order to assist understanding of all this the book, which is probably the first, and certainly the most up-to-date, detailed survey in English of Switzerland and its relations with Europe, has three main purposes. First, it seeks to provide hitherto unavailable information on the Swiss side of the relationship across a range of fields. Second, it tries to explain the complexities and contradictions of the relationship. It does this, on the one hand, by looking at the factors which both limit and encourage Swiss attitudes toward the EU. In other words, it looks at the classical obstacles to integration. These are essentially political although economic and social questions are closely related to political doubts. But it also tries to bring out the countervailing factors which encourage increased involvement. Thus, it brings in relevant theoretical and conceptual approaches which help to deepen understandings of such relationships as those involving Switzerland, Norway and the EU, notably the idea of “Europeanization”. Third, it seeks to set these problems in their context: of general Swiss foreign policy, of the legacy of earlier Swiss dealings with Europe and of the EU response to Switzerland. Taken together with a detailed examination of the two sets of bilateral agreements, by which the Swiss have sought to fill the gaps left by their rejection of entry to the EEA in 1992, this provides a basis for following Swiss–EU relations over the coming years. The book therefore considers present and future relations in a balanced way, bringing together, as it does, Swiss experts from a variety of disciplines, along with outside observers of Switzerland. However, it does not aim to give lessons to the Swiss, merely to make better known and understood both their involvement in European integration and their reservations about EU membership. Equally, the aim is not to demonstrate that Switzerland is the ideal model for further European integration, thanks to its experiences in 1848 and after. Rather the book seeks to highlight the range, depth and complexity of a small state’s relations with Europe and not to urge a particular form of relationship on either the EU or the Swiss. So the focus is less on the EU and more on Switzerland, especially as it is today. As a result the book falls into three main sections. The first analyses the key

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political factors involved in encouraging reservations about wider international involvement such as European integration. Here the key obstacles to entry are direct democracy, federalism and neutrality – all basic components of Swiss identity and things which have formed the basis of the strong and popular antiEU movement. The second looks at the economic, financial and social concerns which lead many Swiss to be ultra-cautious about EU entanglements. Here too questions of identity play a large role. The third section considers the detailed context and nature of actual Swiss–EU relationships. This involves first looking at Swiss foreign policy in general and at the way in which Swiss attitudes to European integration have emerged over the years. In the last years of the previous century and the beginning of this, those relationships have led to two sets of so-called “bilateral” deals which are beginning to provide a basic structure for the relationship. However, it takes two to tango and the EU’s attitude to Switzerland is a major part of the context. Finally, possible scenarios for the future are examined.

The findings of the chapters Looking at the factors inhibiting closer relationships with the Union, three interlinked political structures play a massive part. They are seen as crucial to Swiss identity. Yet they are not politically disinterested. In fact they are reinforced by new populist political forces which proclaim their allegiance to such traditional institutions and values. Thus, on federalism, Paolo Dardanelli shows how Swiss federal structures have evolved into their present tripartite and cooperative nature. But he also emphasizes that federalism is more than merely structure, being an idea and a way of behaving which permeates Swiss political culture. Because of its evolutionary nature, it is not without problems today, some of which spring from the process of Europeanization which it has been undergoing. Nonetheless, because of its “mythical properties” as a constituent of national identity, it raises the bar for entry. Direct democracy is perhaps an even more important component of the triad as Alex Trechsel shows because of its remarkable prevalence and the way it shapes the Swiss political system. Switzerland has a variety of direct democratic instruments and, over time, these have played a variety of roles, especially in recent years. Although they have neither been predominant nor as influential as often assumed they remain very popular in Switzerland and therefore have been, and will remain, a factor in Swiss relations with the EU, even if Europe itself makes more use of direct democracy. Furthermore, neutrality, as Daniele Ganser and Georg Kreis show, has long roots in Swiss history but this has not stopped it becoming a contested concept in a way which direct democracy has not. By the late 1950s it began to take on what they see as an increasingly doctrinaire colouring. This first affected attitudes to the EC and then limited Swiss willingness to adapt both to the 1987 Single European Act and the collapse of the Soviet Empire two years later. And,

Introduction 7 when the authorities did begin to rethink neutrality, their efforts were resisted by a sizeable element of public opinion. This was despite the fact that the Swiss record of collaboration with NATO shows that realist politics were very important in the Cold War era and that neutrality could well be compatible with outside engagement. All this, of course, is very different from the assumptions underlying British Euroscepticism which are very much those of a return to an earlier great power status. Domestic resistance to any redefinition of neutrality shows how important the use of such pillars of national identity has been to new political forces in Switzerland. Regula Stämpfli shows that Switzerland is leading a European trend towards populism. In Switzerland, the latter has developed an aggressive stance, attacking elites, established institutions and state-based norms. Led by the SVP it uses established practices like direct democracy and federalism to block closer relations with Europe whenever it can. Populism is also very media savvy, existing in a close symbiosis with the rise of a “media democracy” which is transforming Swiss politics. All this has implications, not just for Swiss policy on Europe – whose drift and assumptions are constantly challenged – but for Europe at large. However, Swiss reservations about European integration are not restricted to the political dimension. Economics are also very important. This is true both where the functioning of the economy is concerned, especially outside the Single Market, and for specific sectors. The banking and finance sector also figures in the EU relationship in a number of significant ways. Equally, social concerns over migration have had a major restraining effect on negotiations with the Union. In economic terms, the Swiss situation, as Rolf Weder shows, is that membership of the World Trade Organization [WTO] and the advantages of European Free Trade Association [EFTA] membership and bilateral deals reduces discrimination and makes entry to the EU of limited appeal. The country does not, as some think, suffer greatly either from continuing non-tariff barriers or from the effects of cartels and government policy. Examination of Swiss rankings shows this and makes it clear that, if we look at key economic performance indicators, Switzerland is not really a “small” country. Equally, it is an open economy, integrated into world economic networks as well as into those of the EU. Indeed it is better integrated into the latter than some member states. And it is more open than some larger states. All this helps to explain, as Church and his co-authors show, why the strength of the economy has been an essential element of what has been called the “Sonderfall” or special case.15 This was essentially the belief that the country had been exceptionally blessed by the way that, through its own efforts, it had survived the Second World War and then enjoyed unparalleled prosperity and harmony. And even though there has been a downturn in recent years, the multifaceted economy is still strong and plays a major part in shaping Swiss reservations about Europe, even though it is much dependent on the EU economy and its policy mix can be unfavourably compared with that of some EU member states.

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Specific sectors also play a part in shaping Swiss attitudes, nowhere more so in matters related to banking and finance. Taxation rates and policy, currency values and competition between the Swiss financial centre and other European centres have all featured in relations with the EU. As with what is often inaccurately called “banking secrecy” the Swiss have been prompt to defend these things since they are often seen as essential to national identity. An even more explosive issue for most Swiss, as Philippe Koch and Sandra Lavenex show, has been that of the free movement of labour. For although there is no evidence to suggest that the Swiss are more xenophobic than any other European people, unease about immigration have reinforced reservations about the EU. This is partly because the latter prevents migration being used as a conjunctural buffer against unemployment. In any case this has encouraged the government to insist on a range of guarantees for the Swiss labour market. All these factors have played out in very specific contexts. To begin with the country’s contemporary European policy is part of a broader foreign policy which itself restrains closer involvement in international affairs. Moreover, today’s stances are often conditioned by the long and complicated history of Swiss approaches to Europe, the successes of which seem to have constrained flexibility. All these factors have been focused on the negotiation and ratification of the two sets of bilateral relations which, since 1992, have dominated Swiss dealings with the Union. And, in turn, these have been affected by the way the EU has reacted to Switzerland. Overall Swiss foreign policy, as Laurent Goetschel shows, is structured by, on the one hand, the problems inherent in being a “small state” in political terms and, on the other, by basic values and institutions. The latter, in their turn, force a specific form of integration policy on Switzerland, even though this policy can undermine those very values. A key element in this is the important influence of democratic influences on policy-making, at the expense of representative bodies. Entry to the EU would limit this. In all this Switzerland shares with other small states the problem of balancing influence with autonomy. History has also, in the view of Church, acted as a constitutive influence on Swiss policy. After a period of uncertainty, the Swiss seemed to have achieved an ideal solution in the 1970s and 1980s, something which reinforced ideas of the “Sonderfall”. However, the benefits of its post-1972 solution, often overestimated, then prevented adaption when the world changed in the late 1980s, just as was the case with neutrality. And the government’s failure to educate people about the new circumstances then encouraged the catastrophic defeat of 6 December 1992. This, in turn, forced the adoption of the bilateral road. Amongst the first bilateral arrangements, road transport and free movement were, as Cédric Dupont and Pascal Sciarini show, probably the most important. They owed their existence to the aftershock of the EEA votation and were, in a way, forced on the country. At the same time the bilaterals were not easy to negotiate because, on the one hand, of the EU’s insistence on parallelism and, on the other, of the opposition from smaller right-wing parties, opposition which continued into the new century, thanks to the need to update the agreements to

Introduction 9 take account of EU enlargement. Firm negotiating tactics and skilful corporatist campaigning were needed to get them adopted. So, although the bilaterals were pushed by unions and employers, amongst others, they represent a less than optimum situation for the Swiss, even if this is not always appreciated abroad. The second bilaterals were, as Alexandre Afonso and Martino Maggetti argue, another good deal for Switzerland which gained most of its objectives. But these gains came at a price because, although they were pushed by the Swiss, who saw access to the Schengen Information Service as a valuable strengthening of their facilities, they involved difficult negotiations in which the Swiss often had to make concessions. At the same time the Swiss have become somewhat tied to EU fiscal norms. This leads them to ask whether the bilateral door may not now be closing and forcing the Swiss to consider some of the other options already discussed here. Faced with a Switzerland which, as Sieglinde Gstöhl shows, tended to weaken its position vis-à-vis the Union through its behaviour, the EU has not always given the country the benefit of its full attention. Equally the Swiss all too often failed to understand or appreciate the Union, Nonetheless, Brussels would like to include Switzerland within its bounds so as to complete its policy coverage in key areas. At present this is being done by bilateral deals but this may well have reached its limits.

Assessments and questions arising All this shows that Switzerland may be unusual but it is not wholly unique. Its relations with Europe are constantly evolving and their future is uncertain. They are, of course, much more complicated than many people imagine thanks to the fact that, even though the country is not a member of the EU, it has an intense and wide-ranging involvement with the Union, through formally negotiated bilateral agreements, informal contacts and autonomous adaption of EU rules. Indeed, one high-ranking EU official was heard recently at a conference in Geneva to remark that Switzerland was the most punctilious observer of Union directives, bar none. Europeanization, in other words, has been a major facet of Swiss life over the last 15 years or so. Public opinion is not always aware of the extent of this involvement. However, some formal aspects of Swiss closeness to the EU are highly controversial, since they are seen as threatening national political structures and sovereignty, things which are rooted in Swiss political culture. This is fiercely defended by populist forces which overlap with more restrained technical concerns about relations with Europe.16 Moreover, domestic political reservations also have a wider international dimension. Equally, while there is large-scale opposition to this, there are still those who want Switzerland to go further in its relations with the EU. And the government is still very keen on developing relations so that non-membership does not lead to discrimination. In other words there is a delicate balance between involvement and autonomy. So, to sum up, the book shows that our air force Europhobe gravely

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misunderstands the Swiss situation. Switzerland may not be a member but is far from having “nothing to do with the EU”. Not merely is it not a pariah, as it was once thoughtlessly called, but some think that it is more integrated now than it would have been had the country joined the EEA in 1992 so that, even if it is not a satellite as some claim, it must certainly be regarded as part of the wider pattern of multi-level governance in Europe.17 Thus the country does not really serve as a model. This is partly because the example it offers of life outside the EU is not what many outside admirers like to think, or would wish to emulate. It is not as successful as Katzenstein suggested in the 1980s and it offers a level of influence which certainly Blair, and probably many British Eurosceptic nationalists, would not be willing to accept.18 Equally ideas that the Swiss federal system offers a way forward for the Union overlooks the visceral resistance in some quarters to anything called federalism, the fact that the Union has its own dynamics and the fact that the EU is far more like the old Swiss Confederacy before 1798 than it is to the Switzerland of the 1840s. Moreover, its example is seen by some as precisely the thing that Europe should seek to avoid.19 Why is the Swiss situation like this? As to why this is, the contributors offer a range of empirical explanations: the legacy of history, the fallibility of Swiss thinking (notably about the Sonderfall), reservations about migration, the impact of the media and changing internal political divisions. In particular the linked impact of Swiss institutions such as direct democracy and the way the Swiss think about them are crucial. Outside factors such as changes in Europe, globalization and EU reservations all play a part as well. However, underlying their interpretations are a number of less empirical concepts and theories. Concepts are frequently used, whether these are types of federalism, economic classifications and ideas of smallness, power and governance. These help to reveal and classify the situation in Switzerland. They also help us to appreciate the complications of Swiss attitudes towards European integration. At the same time three broader theoretical constructs emerge.20 Thus, first, there is a clear appeal to neo-institutionalism. Many of the contributors stress the way in which structures inside and outside Switzerland impact on politics and policy. This is true both of international bodies of which Switzerland is a member such as the WTO and of the country’s own structures, notably direct democracy and federalism. Much of the debate about the impact of membership is framed in terms of the way this would affect such structures. And, in their turn, past decisions have structured the present debate. Some might see this as an example of historical institutionalism. However, this is not just a material affair. Ideas play a large part so that, second, constitutive theories are implicit in many of the contributions. The dominating effects of beliefs about Swiss identity appear in discussions of populism in general and in responses to the various votations on Europe. What motivates people and makes things so hard for the government is the way the opposition can appeal to popular fears about their country and its future. Gstöhl argues that

Introduction 11 supporters of more integration will have to introduce new ideas to offset the traditional appeal of identity politics. Third, perhaps even more important than these are theories of Europeanization. Understood as the way in which EU activities reshape and become internalized within member and other states – which is only one view of the process of course – the approach is fundamental to much of the book. Indeed Koch and Lavenex use it to structure and introduce their whole contribution. But the impact of the process also affects culture, federalism, finance, governance and legislation. Yet, strangely this is often ignored both by opponents of EU entry and by outside sympathizers. Nonetheless, it is still ongoing as the Federal Council adoption of the “Cassis de Dijon” principle in autumn 2005 shows. And it shows that contrasts between the status quo and “alleingang” – or going it alone – miss the point.21 Swiss involvement with Europe on a bilateral basis does not spare the country from the impact of EU activities. Another question to emerge is whether the bilateral status quo is sustainable. Many in Switzerland, including several contributors, think not. For them it means, on the one hand, that the country lacks influence and can only react to EU developments, something which is likely to become increasingly difficult as the Union expands. On the other, the agreements themselves are too complicated, too restricted and too rigid to meet future needs. Moreover, the EU seems to be out of sympathy with such arrangements. However, the obstacles to change remain. Indeed, some in the SVP believe that the deals recently done on Schengen and free circulation mean that the country will ineluctably be drawn into membership and should, implicitly, be withdrawn. Nonetheless, majority opinion seems to believe that the bilateral approach, with perhaps a few adjustments, is capable of lasting for the medium term and this without leading to membership. For some it seems, in fact, that Switzerland has again found a successful third way. Many of the contributors here are not convinced of this. If there are to be adjustments, or even replacements of the present bilateral arrangements, what might they be? A range of possibilities have been mentioned: a framework agreement to pull all the bilateral deals together; a full association agreement (since the 1963 application has never formally been withdrawn); a customs union; joining the EEA or even a “lite” form of membership with many opt outs. And, of course, the existing agreements can be undone or reduced in 2009 and up to 2014. Many factors, external and internal, will decide which, if any, of these will come about. The likelihood is that no simple solution will be forthcoming. Indeed, the best guess, according to Yannis Papadopoulos, is that because of the requirement for a cantonal majority, entry will be impossible for many years to come. This, in his view, is reinforced by the way that Europeanization has already, among other things, both promoted the rise of the SVP and encouraged its resistance to any further close ties. Nonetheless, while this may not pose any great economic problems, it does leave Switzerland politically exposed and unable to bring its experience to bear in shaping evolving processual trends in

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the Union, which seem likely to echo those already used in Switzerland. But whether this is good or bad depends on one’s own views. In other words there are still many uncertainties and unanswered questions about the future of Swiss–EU relations. Equally there is much research to be done on the subject of Swiss–EU relations to supplement what has been said here notably on agricultural, energy and trade policy. Nonetheless, we hope that the book, on the one hand, lays a sound foundation for understanding the complexities of the present situation and why they have come about. And, on the other, we hope its insights will help to explain whatever developments the Swiss decide on in their response to European integration.

Notes 1 The Times, 11 June 2004, 10. 2 G. Turner, “The EU? It’s political suicide to mention it in Switzerland”, Telegraph on line, 8 May 2004. Cf also the Charlemagne column in The Economist of 9 October 2004, 45. 3 See M. Vahl and N. Grolimund, Integration without Membership, Brussels, CEPS, 2006, esp. pp. 22–4. Moreover, there are also parallels between the Swiss situation and what is being proposed through the EU’s European Neighbourhood Policy. See J. Kelley, “New Wine in Old Wine Skins”, Journal of Common Market Studies 44/1, 2006, 29–55. 4 J. Steiner, “Switzerland and the EU: A Puzzle” – available at www.ies.ubc.ca/ events/swiss/steiner.html. 5 Luzius Wasecha, quoted in SwissInfo, May 2004. 6 This term is commonly used in academia to describe the varied processes of change inside European states by their involvement with integration. 7 Indeed the Swiss are the first non-member state to sue the Commission before the Court of Justice, over its handling of flight paths into Kloten Airport in Zurich. Cf Vahl and Grolimund, op. cit., pp. 55–7. 8 Available from the Schweizerische Gesellschaft für praktische Sozialforschung – or gfs – on its www.polittrends.ch site. 9 Eurobarometer 56, Autumn 2001. 10 C. Archer, Norway Outside the EU, London, Routledge, 2005. 11 Cf C. Buchi, Rostigraben, Zurich, NZZ, 2001 esp. pp. 265–7 and 287. Cf also C.H. Church, “Switzerland: A Paradigm in Evolution”, Parliamentary Affairs 53/1, 2000, 96–113. 12 Such votes are normally translated as “referenda” in English but this is misleading both because the Swiss use this term to define a specific form of popular vote and because it can suggest infrequent and one-off plebiscites about national boundaries etc. and not the regular practice of popular decision-making on domestic policy found in Switzerland. For this reason, this book takes the advice of the late Christopher Hughes and borrows from the Swiss more general term votation (or votazione and abstimmungen) for all popular votes other than elections. Hughes also categorizes optional referenda, in which government legislation can be sent for a votation if 50,000 citizens request this, as a “challenge”. 13 Thus in recent months the Swiss have accepted the EU’s compensation scheme for delayed air travellers, air security procedures and the Single European Sky rules. Changes in trade and customs arrangements are also under way. 14 D. Sidjanski and M. de Bellet L’Union Européenne à la lumière du fédéralisme Suisse, Geneva, Georg, 1996.

Introduction 13 15 Church, The Politics and Government of Switzerland, Basingstoke, Palgrave, 2003 esp. pp. 19–26. 16 M. Lubbers and P. Scheepers, “Political vs Institutional Euro-scepticism”, European Union Politics 6/2, 2005, 223–42. 17 R. Schwok, “Switzerland: the European Union’s Self-appointed Pariah”, in John Redmond (ed.), Prospective Europeans: New Members for the European Union, London, Harvester Wheatsheaf, 1994, pp. 19–39; and R. Nordmann MP quoted in T. Mayer, “Ces pro-européens”, Le Temps on line, 27 September 2005, 1, available at www.letemps.ch/template/recherche.asp?page⫽rechercher&contenuPage⫽afficheArticle&edition⫽&rubrique⫽1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17,18,19,20,2 1,22,23,24. 18 P. Katzenstein, Corporatism and Change: Austria, Switzerland and the Politics of Industry, Ithaca, N.Y., Cornell U.P., 1984; and Small States in World Markets: Industrial Policy in Europe, Ithaca, N.Y., Cornell U.P., 1985. Tony Blair has, however, long since pointed out the drawbacks of the Swiss position as seen from London in a speech given in the City Hall, Ghent, on 23 February 2000: “Committed to Europe, Reforming Europe”. Available on www.number-10.gov.uk/output/Page1510.asp. Nor is there any real sign that Norwegians are seriously considering giving up EEA for a Swiss-type arrangement. 19 D. Moisi, “Europe Must Not Go the Way of Decadent Venice”, Financial Times, 13 July 2005, 28. 20 For a helpful summary of theories of integration see S. Bulmer and C. Lequesne, The Member States of the European Union, Oxford, OUP, 2005. 21 Alleingang is the German for “going it alone” and is conventionally used to describe the state desired by Swiss opponents of EU membership. Hence it is usually taken to be a foreign policy strategy based on staying outside all European (and other) international institutions, including the EU and the EEA.

Bibliography C. Archer, Norway outside the EU, London, Routledge, 2005. C. Buchi, Röstigraben, Zurich, NZZ Verlag, 2001. S Bulmer and C. Lequesne, The Member States of the European Union, Oxford, OUP, 2005. C.H. Church, “Switzerland: A Paradigm in Evolution”, Parliamentary Affairs 53/1, 2000, 96–113. C.H. Church, The Politics and Government of Switzerland, Basingstoke, Palgrave, 2003. P. Katzenstein, Corporatism and Change: Austria, Switzerland and the Politics of Industry, Ithaca, N.Y., Cornell U.P., 1984. P. Katzenstein, Small States in World Markets: Industrial Policy in Europe, Ithaca, N.Y., Cornell U.P., 1985. J. Kelley, “New Wine in Old Wine Skins, Promoting Political Reform through the New Neighbourhood Policy”, Journal of Common Market Studies 44/1, 2006, 29–55. S. Kux and U. Sverdrup, “Fuzzy Borders and Adaptive Outsiders”, European Integration 22, 2000, 237–70. M. Lubbers and P. Scheepers, “Political vs Institutional Euro-scepticism”, European Union Politics 6/2, 2005, 223–42. T. Mayer, “Ces pro-européens”, Le Temps on line, 27 September 2005, 1, available at www.letemps.ch/temsfort.asp?page⫽3&article⫽164213. D. Moisi, “Europe Must Not Go the Way of Decadent Venice”, Financial Times, 13 July 2005, 28.

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R. Schwok, “Switzerland: the European Union’s Self-appointed Pariah”, in John Redmond (ed.), Prospective Europeans: New Members for the European Union, London, Harvester Wheatsheaf, 1994, pp. 19–39. P. Sciarini and O. Listhaug, “Single Cases or a Unique Pair? The Swiss and Norwegian ‘No’ To Europe”, Journal of Common Market Studies, 35/3, 1997, 407–35. D. Sidjanski and M. de Bellet, L’Union Européenne à la lumière du fédéralisme Suisse, Geneva, Georg, 1996. J. Steiner, “Switzerland and the EU: A Puzzle” – available at www.ies.ubc.ca/events/ swiss/steiner.html. G. Turner, “The EU? It’s political suicide to mention it in Switzerland”, Telegraph on line, 8 May 2004. M. Vahl and N. Grolimund, Integration without Membership: Switzerland’s Bilateral Agreement with the EU, Brussels, CEPS, 2006.

Part I

Political problems

2

Federalism Institutional adaptation and symbolic constraints Paolo Dardanelli

Studies of Swiss politics often begin with an analysis of three fundamental features that supposedly define the Swiss political system: neutrality, direct democracy and federalism.1 If none of them is exclusively Swiss, since they can be found to a greater or lesser extent elsewhere, they have nonetheless an importance in Switzerland which is unmatched anywhere else. Furthermore, it is their combined effect and the interaction between them – not just their presence in isolation – that confers on the Swiss political system its character of originality and uniqueness. Because of their being crucial in defining the fundamental character of the Swiss system, they have also over time acquired “mythical” properties which led them to become part of Swiss identity with an importance well beyond their practical effects. It is thus inevitable that, in the context of Switzerland’s relationship with the European Union, neutrality, direct democracy and federalism are at the heart of the debate. Of these three elements, federalism is the one with the deepest roots and possibly the one most at the core of what makes Switzerland, Switzerland. Perceived threats to federalism deriving from Europeanization outside or, indeed, inside the European Union thus loom large in Swiss thinking on “Europe”. Involvement with European integration is not, of course, just a matter of identity and symbolism. In fact, it impacts on the domestic evolution of the federal system in complex ways. Hence, the chapter starts, on the one hand, with a concise overview of the origins and essentials of Swiss federalism and, on the other hand, an examination of the multiple issues it is currently facing. Such issues show how federalism, although still a defining feature of the country, is facing severe challenges which threaten its very existence, at least in the form we have traditionally known it. Some of these challenges are clearly exacerbated by the process of Europeanization the country has been exposed to, despite still being outside the EU. In particular, the cantons’ traditional lack of effective access to foreign policy-making introduced an additional centralizing dynamic in the system. However, the chapter shows that the Swiss polity – and the cantons in particular – have reacted by developing various institutions and mechanisms that enable them to effectively cope with these challenges. Thus a degree of institutional adaption lies concealed beneath the symbolic constraints which federalism is perceived as imposing on Swiss European policy. Hence the chapter argues that, were Switzerland to enter the EU, membership

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would not present a fundamental problem for its federal system and would constitute more of an evolution of the present situation than a revolution. Yet, while federalism will likely have a limited direct impact on Switzerland’s future European policy, its indirect influence will continue to be significant, through its connection with direct democracy and national identity. In other words, the ongoing evolution of Swiss federalism is both affected by, and shapes, Switzerland’s relationship with the European Union.

Historical evolution The origins of the Swiss political system are usually traced back to 1291 when an oath of mutual support and defence between representatives of three mountain communities subject to the Habsburg empire was sworn at Rütli, on Lake Lucerne. This first alliance later attracted other members, including powerful cities such as Berne and Zurich, and slowly acquired a more permanent character. By the end of the sixteenth century, “Switzerland” was a network of alliances between so-called Orte – or localities – bound together for mutual defence purposes on the basis of a series of treaties and oaths. The following centuries saw “Switzerland” ravaged by internal conflicts – mostly as a consequence of the Protestant/Catholic divide that emerged in the aftermath of the Reformation – but also increasingly seen by outsiders as a distinctive political system. With the treaty of Westphalia, the Orte’s independence from the Habsburgs as well as their policy of neutrality received formal recognition. This slow, progressive tightening of the old Swiss confederation was dramatically transformed between 1798 and 1815 when the country was invaded and ruled by revolutionary France, which first imposed a unitary state under the name of the Helvetic Republic but later accepted a partial return to a confederal order, while retaining ultimate authority. After the fall of Napoleon, the Swiss communities – now commonly referred to as cantons2 – regained their sovereignty and re-established a confederation among themselves under the terms of a Federal Treaty signed in 1815. Though this latter confederation constituted an explicit attempt to re-create the pre-1798 institutional order, it also retained a number of principles and features introduced under French hegemony, notably with regard to equality among the cantons. It is from this date too that Switzerland acquired its multi-language and multi-cultural character, as a result of previously subject and allied territories formally joining the confederation as full cantons, among others Geneva, Vaud and Ticino. The confederation lasted until 1847–8 when, following a brief civil war, it was replaced by the modern federal state based on the 1848 constitution. Despite full constitutional revisions in 1874 and 1999, the institutional structure set up in 1848 has remained largely unaltered though the distribution of competences, as discussed below, has changed very significantly. The 1848 constitution represented a compromise between the vision of the victorious radical forces in the civil war and the need to keep the defeated conservative cantons on board. It set up a federal state in which the cantons retained ample autonomy in many

Federalism: adaptation and constraints 19 areas of policy-making under the so-called “residual powers” principle, that is that all areas not explicitly delegated to the federation would remain the responsibility of the cantons. The granting of new policy-making competences to the federal level would only be possible on the basis of a constitutional amendment, and the latter was made dependent on an endorsement in a referendum by a majority of the people and of the cantons. As will be seen later, direct democracy thus became intimately linked to federalism. The historical evolution of the Swiss political system has thus been marked by a slow but progressive deepening and tightening of the bonds between the Orte/cantons. This meant a move first from a looser to a tighter confederation, then from a confederation of states to a federal state and thereafter from a more decentralized to a less decentralized federal state. In other words, a slow but robust trend towards centralization runs throughout Swiss political history, though, in the modern period, centralization has essentially been confined to legislation while implementation has been left to the cantons and the communes. This has also been mirrored in the size of the public sector payroll and in taxraising capacities, both of which still remain more important at the cantonal than the federal level. The side effect of this disjunction between legislation and implementation has been a growing blurring of the division of competences between the three levels of government which has led to the Swiss system moving progressively away from the original model of “dual federalism” towards the “co-operative federalism” model.3

The structures of contemporary Swiss federalism At heart, Swiss federalism is concerned with giving as much autonomy as possible to local communities and letting differences between them coexist peacefully and harmoniously. This principle is operationalized through three levels of government and a set of mechanisms and patterns of behaviour linking each of them and regulating their interactions. While these mechanisms are largely governed by law, the whole institutional set up of Swiss federalism is buttressed by a sympathetic political culture centred on the quintessentially Swiss belief that “local” is, in principle, always preferable to “distant”. Because of its historical roots, its centrality to both the fabric of the polity and its political culture, federalism has become a key component of Swiss national identity, which is based on “constitutional patriotism” rather than on shared ethnicity or culture, as traditionally understood.4 This “mythical” role probably also accounts for a certain anachronism in the official terminology applied to Swiss federalism, with the state still officially called a confederation and many cantons still describing themselves as independent, sovereign states.5 Levels of government The three levels of government are the federation, or central level, the cantons, or regional level, and the communes, the local level. Although their status has

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been significantly eroded over time, the cantons can still be regarded as the main level of government. Not only are they historically the building blocks of the state, they are also the only actors free to determine their own policy-making role and their revenue raising, subject only to limits set by the federal constitution.6 Although this freedom has, de facto, progressively been reduced by the already mentioned process of centralization, it remains of far more than symbolic importance. Moreover, because policy implementation is still largely in their hands, the cantons employ over half of all civil servants and are thus the principal “face” of the political system vis-à-vis the citizens. The 26 cantons and half-cantons vary greatly in size, both geographically and demographically, in their political influence and in the length of time they have been in the Swiss confederation but all have the same rights under the federal constitution.7 Although Swiss cantons are now far from being the independent and sovereign states some of them still claim to be, they do retain vestigial elements of statehood including a concept of cantonal demos and citizenship, full tax powers and a “residual powers” clause. In short, they are more organic and more “selfconscious” than regional units in other federal systems, save for those perceiving themselves as “stateless nations” such as Quebec or Catalonia, and this is a crucial element in giving Swiss federalism its “mythical” and “identitarian” character. The federation, or central level, is of course a key level of government. Although it is constrained to a larger extent than central governments in other federal states by the provisions of the federal constitution – direct democracy in particular – and relies on cantons and communes for implementation, its power and influence are very significant. As mentioned above, federal legislative competences have greatly expanded over time and now extend to the bulk of public policy, with the notable exception of education. Its financial capacities as well, though still formally dependent on popular consent, have become crucial to the overall functioning of the Swiss political system and all cantons rely to a greater or lesser extent on federal transfers to make their financial ends meet. Last, but not least, the fading of cantonal specificities and population movements have brought about a degree of homogenization of the country and have reinforced citizen identification with Switzerland as a whole, above specific cantonal identities, and have thus strengthened the identificational underpinnings of the federation.8 The local, or communal, level of government is often neglected in studies of federal systems. That would be a serious mistake when it comes to Switzerland, for communes are very important actors in the system and command fierce loyalty among their citizens. There are now around 2,800 “political” communes, slightly fewer than in the recent past as a result of a movement to increase their size through mergers.9 Communes carry out a great deal of policy implementation, directly raise a significant amount of taxation to finance it and, significantly, are the agencies granting citizenship. Uniquely among federal states, Swiss citizenship depends on cantonal citizenship which, in turn, depends on obtaining that of a commune.

Federalism: adaptation and constraints 21 The division of responsibilities and resources As already mentioned, the division of competences and the relationship between the three levels is primarily regulated through constitutional law, both federal and cantonal, meaning that each of the three levels operates within legal constraints and has to respect the autonomy and prerogatives of the other levels and to co-operate with them. In particular, constitutional rules govern the division of legislative competences between the federation and the cantons. Although as a result of the blurring occurring over time, it is difficult to give a clear-cut picture of the resulting division, it could be said that, in most policy areas, legislative powers are held concurrently by the federation and the cantons with the bulk in the hands of the former while education, culture and policing are the main areas still under full cantonal control.10 Under the residual powers clause of Article 3 of the constitution, all competences not explicitly conferred to the federation rest with the cantons and the latter, together with the communes, carry out policy implementation. By and large, this pattern is mirrored in the fiscal sphere. All three levels have revenue-raising powers and, broadly speaking, aim to be self-financing, although there is a considerable degree of revenue sharing. Reflecting the distribution of policy implementation, cantons and communes spend more than the federation but also rely on significant transfers from the federal level to make their financial ends meet. Significant discrepancies in the so-called “fiscal capacity” of cantons remain despite the presence of an equalization fund. The whole system is about to be comprehensively overhauled following the recent approval of a new system of competence allocation and revenue sharing.11 It also, as Church and others show later in this volume, has European implications. Vertical relations Three key mechanisms regulate the vertical relationship between cantons and the federation. First and foremost, any amendment to the constitution must be approved in a mandatory referendum by a majority of the people and of the cantons. Cantons thus retain a very important – albeit collective – veto power on any shift of power to the centre. Moreover, since all full cantons have equal weight in calculating this cantonal majority, the rules give a remarkable power to the small cantons. A “softer” veto power is provided by Article 141 of the federal constitution [BV], whereby eight cantons can mount a referendum challenge to any piece of federal law thus triggering a popular vote in which, however, the cantonal majority rule would not apply. This power was first used in 2004. Second, cantons enjoy full representation at the federal level through an equal number of seats in the upper house, or Council of States, and the latter’s parity with the lower house, or National Council, in the legislative field.12 Furthermore, cantonal representation at the federal level extends to the pre-parliamentary consultations – a crucial phase of federal policy-making in Switzerland – where

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cantons take full part alongside interest groups, professional associations and committees of experts. The role of representation of the cantons is to a certain extent performed by the inter-governmental conferences of cantonal ministers and cantonal presidents, which are the collective voice of the cantons and often meet together with federal representatives. Cantons are thus formally involved in the three key phases of federal law-making: pre-parliamentary, parliamentary and post-parliamentary, though the extent to which they exercise real influence – as discussed below – can be highly variable.13 Lastly, three constitutional provisions subject cantons to a degree of control by the federal level: Article 49 BV states that federal law “breaks” cantonal level in case of conflict between the two; cantonal constitutions have to be “guaranteed” – i.e. vetted – by the Federal Parliament and cantonal law – unlike federal law – is subject to judicial review by the Federal Tribunal. The vertical relationship between cantons and communes is almost as intimate as that between the federation and the cantons. However, the latter are not themselves “federal” so do not accord communes the status the federation accords to them, notably in terms of formal representation and involvement in policy-making, and generally speaking maintain a more hierarchical control over communes, though significant differences between cantons exist.14 Horizontal relations Though less important than the vertical relationship between cantons and the federation, the horizontal dimension of inter-cantonal co-operation is also very significant and increasingly so. Horizontal co-operation takes two main forms. First, cantons co-operate with each other through inter-cantonal treaties – known as concordats – in a wide range of policy areas within their competences. Most of these treaties are regional in scope, i.e. are signed by neighbouring cantons in a given geographical area with only about 3 per cent of them having a nationwide coverage. Concordats are negotiated and signed by cantonal executives but are subject to “assent” by cantonal parliaments and, in most cantons, to a mandatory or optional referendum.15 Because of the marginalization of parliaments, and in spite of these democratic safeguards, concordats may be seen as an effective way of managing inter-cantonal co-operation but they are also regarded as “technocratic” in character and with little democratic legitimacy.16 Nonetheless, horizontal co-operation is increasingly seen as the only way for cantons to resist the pressures of centralization and the recent reform of fiscal federalism – see below – puts greater emphasis on it, even providing for mechanisms to make inter-cantonal co-operation compulsory. Second, cantons take part in so-called “conferences” bringing together members of their executives and providing a collective voice for the cantons. There are sectoral conferences grouping all cantonal ministers of a given sector – say education or finance – and a general Conference of Cantonal Governments which, as discussed at greater length below, has become an important actor in Swiss federalism.

Federalism: adaptation and constraints 23 Horizontal co-operation at the communal level is also highly developed, even more so than at the cantonal level.17 Especially in metropolitan areas, there is intense co-operation between communes in such areas as public transport, waste management and culture. This is usually carried out through a network of functional bodies overlapping each other territorially. Communes are also linked to each other by cantonal systems of financial equalization on similar lines to the system existing at the federal level.18 Two further points are worth emphasizing about the importance of federalism in Swiss political life. The first is that the federal organization of the country is also reflected in many areas of civil society as, by and large, all Swiss institutions such as parties, trade unions, business associations and voluntary associations are organized in a federal way, bringing together cantonal and other decentralized branches. Second, but more importantly, is the fact that federalism is intimately linked to direct democracy, the other defining feature of the Swiss political system. Referendums and initiatives were historically introduced in the cantons before being adopted by the federation and they are still more widely used and more powerful at cantonal and communal level than at the federal level. Thus, the greater part of citizen participation in decision-making in Switzerland – through direct democracy – takes place at the cantonal and communal levels rather than at federal level.

Current issues Most of the current issues affecting Swiss federalism relate to the cantons’ capacity to continue performing their traditional role of pillars of the system. Many indicators suggest their capacities have been increasingly eroded. Size and capacities Most of the cantons, and especially the half-cantons, are very small by the standards of European regions, and in many cases have irregular borders including numerous exclaves and enclaves. Moreover, cantonal boundaries have lost almost all relevance for the pattern of economic activity so that they are increasingly challenged as “functional” units of regional administration. Cantonal mergers, however, remain an extremely sensitive matter and several attempts have failed after lengthy negotiations and amid public hostility. A recent report by Avenir Suisse – a think-tank close to business circles – advocating the creation of six large functional regions, each centred on a major urban centre, rekindled debate and aroused fierce passions.19 This is the fundamental problem Swiss federalism now faces for it goes to the heart of Switzerland’s political system.20 There is a real risk that the centripetal forces pushing for the federation to take over more and more responsibilities threaten to turn the cantons into mere federal implementation agencies. Emblematic of these difficulties are the increasingly frequent suggestions, coming from different quarters, that education should be become a federal

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responsibility. Though the idea is not new it found new life in the aftermath of Switzerland’s mediocre performance in the PISA study 2001, with education experts openly calling for it. In line with its traditional stance, the Radical party – still the establishment party – came out openly in favour in October 2004 and was suspected by some to be planning an initiative.21 These suggestions seem to have popular backing: a spring 2005 opinion poll found 52 per cent of respondents in favour of transferring responsibility for primary and secondary education to the federal level.22 Given that education is arguably the most important policy area still fully in the hands of the cantons, shifting it to the federal level would have revolutionary consequences for the vertical distribution of powers in Swiss federalism. Cantonal vs linguistic identities Federalism is also under threat from a degree of weakening of traditional cantonal identities and a concomitant deepening of identification with the linguistic communities. It has been brought about by population movements, especially from rural areas to urban agglomerations, and by the growing concentration of the media. State-owned television, which is organized in three linguistic channels, of course figures prominently in this process. The problem here is that the linguistic communities do not coincide with cantonal borders and do not possess a political structure of their own.23 Moreover the “thickening” of the linguistic communities’ profile also increases the politicization of the language cleavage, which some see as a potential centrifugal threat, not least because it is also perceived to be exacerbated by the different attitude to Europeanization on the two sides of the so-called röstigraben. While there is some justification for such concerns,24 exaggerated fears about the effects of this trend on the federal system, and indeed on the country’s unity, do not seem to be borne out by much hard evidence. As we have already seen, elite and mass resistance to mergers between cantons remain formidable, largely to be attributed to the enduring strength of popular identification with cantonal distinctiveness. Even the degree to which the linguistic communities take radically different views of European integration should be called into question, as discussed below. The relationship between federation and the cantons The traditional institutions of Swiss federalism have also increasingly come under pressure in recent decades. None more so than the Council of States itself, perhaps the most important institution devised in 1848 to link the federal level and the cantons. Since the transition to direct election of the councillors of state, partisanship has replaced the representation of cantonal interests as the dominant force in the upper house.25 This is further exacerbated by the powerful bias inherent in the characteristics of the electoral system, which produces a significant over-representation of the centrist parties at the expense of the more radical

Federalism: adaptation and constraints 25 ones.26 As a result, the Council of States is increasingly unable to perform its traditional role of being the “voice of the cantons” at the federal level.27 Moreover, cantonal involvement in the pre-parliamentary consultations has fallen short of expectations since each canton’s effective influence as opposed to formal rights is highly asymmetrical and heavily dependent on size and resources. By and large, powerful cantons such as Zurich or Berne have the resources and the ability to be influential while small and rural cantons have not.28 This has fuelled the cantons’ desire to strengthen collective co-operation, notably through a growing role for the Conference of Cantonal Governments, and has led to a greater assertiveness of the cantons in dealing with the federation, with some spectacular results. In 2004, for the first time in the history of the modern Swiss state, eight cantons made use of a dormant constitutional provision to challenge the federal government on a package of financial reforms that was perceived to be detrimental to their interests and scored a resounding victory in the subsequent referendum. Paradoxically, the most controversial aspects of the reform, and the ones that triggered the cantons’ fury, had been inserted in the bill at the behest of the Council of States! In essence, this episode threw light on the fundamental conflict existing in the institutional set-up of Swiss federalism between members of the upper house of the federal parliament and members of the cantonal executives as “true representatives” of cantonal interests.29 At least on this occasion, the people seemed to have come down in favour of the latter. If, at first sight, this renewed cantonal assertiveness could be seen as a sign of strength, it is probably best interpreted as its opposite for it betrays the growing pressure weighing on the cantons and their feeling unable to make their voice effectively heard at the federal level.30 Fiscal federalism A bright spot in this otherwise fairly sombre picture is the successful adoption of a new system of financial equalization and division of competences between the federation and the cantons to replace the old scheme in place since 1959. Over the last four decades and a half, legislative powers have further shifted up to the federal level; inter-locking and blurring of responsibilities between the two levels has correspondingly grown at the same time as economic and fiscal disparities have deepened. Under negotiation since 1994, the package (which involves no less than 27 constitutional amendments) was finally endorsed by the people and the cantons in a referendum in November 2004. Implementing legislation went to the parliament in autumn 2005 and it is expected that the new system will be in operation by 2008. Its stated objectives are to stem centralization, clarify the division of competences and reduce disparities while the undeclared intention was also to avoid the spectre of fiscal harmonization supported by the left.31 Three key elements characterize the new regime. First, there is more territorial redistribution albeit mainly financed through horizontal transfers between

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cantons, with a reduced role for the federation, and a shift away from earmarked grants towards untied transfers. Second, a tidier division of responsibilities is brought in whereby 11 policy areas will become exclusively cantonal, seven will go entirely up to the federal level and others will be managed by the cantons but on a collective basis in the context of more institutionalized horizontal co-operation, which could also include elements of compulsion.32 Horizontal co-operation between cantons, third, will acquire a much higher profile and may even grow into a “fourth level” of Swiss federalism. While many welcome the growth of inter-cantonal co-operation as the only practical way in which the relentless tide of centralization can be contained,33 it is worth pointing out the downsides to this trend, notably in terms of transparency and accountability of the policymaking process, as they imply a rejection of democratically decided federal laws in favour of “treaties” between cantonal governments subject to little democratic oversight by cantonal parliaments. Lastly, it is important to underline the tension between the many challenges that Swiss federalism faces and its identificational and mythical dimension which make any debate on reforms very sensitive and any change very difficult. The tension is neatly delineated in the contrast between the apparent willingness of the people to see even more policy areas transferred to the federal level and reluctance to contemplate wide-ranging reforms. Despite some recent decline federalism is still a highly valued feature of the Swiss political system, one of the markers of its national identity, and it remains significant in the context of the country’s involvement in European integration.34 Europeanization without membership Even though it remains outside the European Union, the country has not escaped a wide-ranging process of Europeanization, as the other chapters in the present volume testify. As in other countries, in Switzerland too this process has affected public policy to a much greater extent than the institutional structure but nonetheless there have been significant changes in the latter. Among them, those affecting federalism were probably the most prominent. In essence, they saw the cantons mobilize to get a more effective voice at the federal level and a greater say in foreign policy-making, notably in those areas falling within their responsibility under the constitution. The chief vehicle for this has been the creation and the strengthening of the Conference of Cantonal Governments. Set up in 1993, in the wake of the EEA vote, and bringing together representatives of the 26 cantonal executives, this body has gradually acquired a crucial role in Swiss federalism. Notably, it has evolved from what was mainly a framework for horizontal co-operation between the cantons to a mechanism for representing the cantons’ interests to the federal institutions. The transfer of the conference’s secretariat from Solothurn to a location a few hundred metres away from the federal parliament in Berne in 2003 was symbolically eloquent in this respect. Equally powerful at the symbolic level, but even more important in practical terms, was the insertion in the revised 1999 constitu-

Federalism: adaptation and constraints 27 tion of Article 55 guaranteeing the cantons the right to be consulted and involved in external policy-making when the matter under discussion touches upon their competences. A clear example of this has been the negotiation of Switzerland’s joining the Schengen and Dublin agreements. While the negotiations were conducted by the federal government, which has exclusive competences over foreign policy, many of the issues at stake related to justice and police matters, mostly under cantonal control, hence the cantons’ desire for close involvement in the negotiations. In this context, early information-gathering about EU policies is of paramount importance for the cantons, to avoid the risk of finding themselves dependent on federal sources. To that end, the Conference set up its own delegation in Brussels in 2002 and has had an observer in the federal administration’s Integration Office for some years before this.35 Mirroring what happened in other federal systems, the main source of pressures on Swiss federalism brought about by Europeanization have been the tension between the growing exposure of the country to policy-making at the international level and the weakness of cantonal access to that level. On the one hand, foreign policy – including treaty negotiation – is an exclusive competence of the central government which, importantly, also extends to policy areas reserved to the cantons in the domestic division of competences. On the other hand, until 2000, cantons were not formally involved as such in foreign policymaking and had a limited ability to influence the negotiating position of the federal government. Although there is now a constitutional basis for their involvement, in practice the Federal Council often fails to consult cantons adequately.36 As a result, Europeanization has introduced a further element of centralization at a time when the cantons already see their prerogatives under threat domestically.37 The Conference’s reaction was to set up a “Europe-Reforms-Cantons” working group in 1998 to define a common cantonal position. The working group prepared a first report in 2001 on the consequences of membership and a second one in October 2003 outlining the cantons’ position and identifying the challenges that membership would entail. The 2003 report reviews the state of play of the Switzerland–EU relationship and of the cantons’ involvement in it, pointing out the limitations both of the bilateral route and of the cantonal role in European policy-making. Hence it calls for membership to be the long-term objective and for federal–cantonal co-operation to be significantly upgraded as a pre-condition for membership.38 Without cantonal support, the report warns, no federal policy is ever likely to be endorsed by the people and, while it is up to the Federal Council to define Switzerland’s European Policy, the cantons want to be fully involved in its definition. Some observers, notably Jürg Steiner, have gone further and have hypothesized that Europeanization could have its deepest effect – and a potentially dangerous one at that – on the country’s internal cohesion and on relations between the language communities. Assuming that the European issue would continue to be polarized along the linguistic cleavage, with French speakers increasingly

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keen on integration with the European Union and German speakers increasingly hostile, then Europeanization could lead to the language communities getting closer to their respective “big linguistic brothers” across the border and, in a worst-case scenario, to a break-up of the country.39 Recent trends in public opinion and voting behaviour, however, lend very little support to this thesis. The language cleavage on European policy has become less sharp than it was in 1992 and is overshadowed by a persistent urban–rural divide, which is particularly deep in German-speaking Switzerland, as shown by the popular votes on the “Yes to Europe” initiative in 2001 and on joining the Schengen/Dublin agreement in 2005.40 The successful penetration of the Suisse Romande at the last federal election by the virulently anti-European Swiss People’s Party (SVP/UDC) points in the same direction.41 Moreover, though French-speaking Swiss remain deeply influenced by French culture, their enthusiasm does not extend to France’s political system or to many aspects of its economic system. In any case, German and, especially, Italian speakers are even less enthusiastic towards Germany and Italy, respectively, and fears of Germanization, in one case, and of being embroiled in Italy’s political and economic problems, in the other, show no sign of weakening. The cantons are thus aware that even if the country sticks to the bilateral route, it will not be able to insulate itself from Europeanization and from the pressures on federalism deriving from it. They are ready to fight their corner visà-vis the Federal Council and the evidence so far seems to indicate that they have enough bargaining power to resist a major erosion of their status.

The membership scenario Distant as it is at the time of writing, it is nonetheless worthwhile to assess, first, the role federalism is likely to play in bringing the prospect of membership closer or in pushing it further away and to speculate on what might be the consequences for its federal system were Switzerland ever to join the European Union. The symbolic and “mythical” status of federalism and its absorption into Swiss national identity is likely to continue playing an influential role in the framing of “Europe” as a threat to the essence of Switzerland’s political system in the Eurosceptical discourse, notably the SVP’s and its flanking organizations. Not least is this because federalism is intimately linked in Switzerland to direct democracy and the latter faces even more severe challenges from Europeanization than federalism itself does, as Trechsel’s chapter shows. Of course, we have noted already, direct democracy has been the main instrument employed by the cantons to retain as much autonomy as possible. Constraining direct democracy thus also means further weakening the cantons’ ability to resist centralization. More concretely, the combination of federalism and direct democracy in one of the key institutions of the Swiss polity, the cantonal majority in constitutional referendums, is highly likely to continue to constitute a high hurdle to clear for any Swiss rapprochement to the EU. As pointed out by several scholars, the

Federalism: adaptation and constraints 29 mechanisms of the cantonal majority – exacerbated over time by a growing imbalance in population between cantons – give a veto power to an extraordinarily small minority of the Swiss people, ranging from an average of 20–25 per cent to a theoretical extreme of 9 per cent.42 This makes it very difficult for a hypothetical vote on joining the European Union to be able to garner a cantonal majority in favour. The vote on Schengen/Dublin in May 2005 gave a graphic illustration of the problem. Although the result of the popular vote was 55 to 45 per cent in favour, the treaties were rejected by 12 cantons to 11. Had the question not been a referendum challenge but deemed to amount to a constitutional amendment – hence subjected to the cantonal majority rule – the agreements would have been turned down in the referendum. Assuming voting patterns remain broadly stable, rule-of-thumb calculations suggest that a popular majority of at least 60 per cent would be needed in order to clear the cantonal majority requirement in popular votes on “Europe”. Nonetheless, as seen above, a majority of the cantons support membership as a long-term goal. According to the 2003 report of the Conference of Cantonal Governments, membership should be pursued together with a number of reforms which are necessary to safeguard federalism, something of course of paramount importance for the cantons. These reforms should be carried out before or, at the latest, at the time of joining the EU and be put to the people together with the accession treaty. They should be seen as an opportunity to build a “modern and Euro-compatible” federalism in Switzerland rather than as bowing to external pressures.43 While Switzerland’s federal structure would not be directly threatened by membership,44 neither would it be bolstered by entry. Contrary to what superficial assessments might suggest, federal states are not better accommodated than unitary states within the confederal order of the European Union. Indeed, the opposite is true.45 This is essentially because the Council of Ministers and the European Council, where only members of state governments sit, are the key decision-making bodies and the overall representation of regions at the Union level is still very weak. With the expansion of the EU policy remit into areas reserved for the regional level in federal states, the regions in those states faced an erosion of their constitutional prerogatives through the European “back door”. Membership would thus exacerbate the centralist pressures already described. Particularly worrying would be the possibility of the federation encroaching on cantonal competences if some cantons find themselves unable to implement EU law. This could happen either on the ground that a cantonal failure demonstrates that that particular policy would best be run at the federal level and/or that, under EU law, it is the federation which is ultimately responsible for the implementation of EU law, not the cantons.46 As pre-conditions to membership, the 2003 report specifically stressed the following as being crucial: •

widening the scope of Article 55, which is currently mainly concerned with the signing of international treaties, to cover the ordinary legislative procedure as well

30 •

• • •

Paolo Dardanelli the right to formulate a position on any matter touching on cantonal competences; a negative position should have a character of veto which could only be overridden on grounds of vital national interest participation in international negotiations through the inclusion of a representative of the cantons in Swiss delegation representation in the EU institutions, notably in the working groups of the Commission and the Council and in the Committee of the Regions rights of cantonal initiative, expanding the existing one in Article 160. 47

The report also considers the question of which institution would best allow the cantons to participate in European policy. It even contemplates a reform of the Council of States towards the German Federal Council model but it ultimately rejects it on grounds of complexity and time-frame and supports a strengthening of the Conference as the best option, implicitly confirming the inadequacy of the Council of States as an effective voice of the cantons at the federal level.48 In this context, the experience of current EU states with a federal or quasifederal structure, such as Germany, Belgium and Spain, is instructive for Switzerland. Their experience confirm that the centralist pressures feared by the cantons are indeed real but that regions have learned to fight back and found satisfactory modus vivendi in European policy with their respective federal levels. This dynamic has been most in evidence in Germany, the oldest EU federal state, where the regions – or Länder – reacted to the erosion of their autonomy, notably in the context of the single market programme, with a two-pronged strategy. On the one hand, they campaigned for effective representation of the regions at the Union level, in the form of a chamber of regional representatives – what would eventually become the Committee of the Regions – and for a clearer delimitation of EU powers. On the other hand, they put pressure on the federal government to give them the right to represent Germany in the Council of Ministers whenever the matter discussed falls within their remit. If the first element was prominent in the negotiations of the Maastricht Treaty and up to the establishment of the Committee of the Regions in 1994, thereafter the realization that the latter was falling well short of the regionalists’ expectations left the second element of the strategy as the only viable one. The involvement of the regions through the Bundesrat or Federal Council – the upper house of the German federal parliament – is enshrined in the amended Article 50 of the German federal constitution. However, the regions keep exercising pressure on the federal government in order to maintain their say in European policy, notably through using the threat not to ratify EU treaties. This tactic was last on display when the regions threatened to block ratification of the Constitutional Treaty in April 2005 and obtained the concession that the Federal Council will in future be involved in the selection of judges for the EU courts.49 Similar provisions for the regions’ involvement in European policy, and their occasional representation in the Council, have been adopted in Belgium and Spain and even in non-federal systems such as the UK, in relation to the Scottish

Federalism: adaptation and constraints 31 executive.50 Indeed, in Belgium, the regions are fully involved, almost on an equal footing with the federal government, in the making of European policy. The German experience and that of the other federal states in the EU confirms that the institutional set-up and the decision-making processes of the EU can be a challenge for the regions but also shows that institutional mechanisms to minimize the erosion of their autonomy have been devised and have proven to be effective. The cantons seem to be aware of both the challenges and the counter-measures and there are grounds for expecting Swiss federalism would be able to successfully adapt to EU membership even though not all of the reforms they demand are carried out. After all, the key institutional mechanisms, such as the Conference of Cantonal Governments and the constitutional guarantees for the cantons’ right to be involved in foreign policy-making, are already well established. In sum, EU membership would represent an evolution of the European dimension for the Swiss cantons rather than a potentially destructive revolution.

Conclusions Federalism is still very much at the heart of the Swiss political system. If the cantons have seen their legislative autonomy progressively eroded over time, they remain crucial actors in the system and continue to command fierce loyalty. If anything, the “mythical” significance of federalism as a key component of Swiss identity is even greater that the cantons’ actual policy-making role. It is also far from being a relic of the past. Despite the fact that Switzerland is often criticized for its supposed inability to reform itself, the country has managed to reform its federal system, albeit less ambitiously than some had wanted, while both Germany and Austria failed to do so. Even outside the EU, Swiss federalism has had to cope with Europeanization and to counter the centralist pressures deriving from it. It has been rather successful at that, with the result that most of the institutions and mechanisms that allow it to master the process and, in the long-term scenario, adapt to membership are in place. The creation of the Conference of Cantonal Governments as a “fall out” of the EEA vote as well as the insertion of Article 55 in the new constitution can be seen to a large extent as products of the country’s Europeanization. The experience of the current EU members with a federal structure proves that similar institutions and mechanisms are effective. In particular, the cantons’ strategy is to demand access to European policy-making at the federal level in exchange for bolstering support for the policy at the popular level and offering a better implementation of EU law at the cantonal level. Membership would thus not be a dramatic change of scenario for Swiss federalism and the likelihood is that the cantons would successfully adapt to it. Likewise, federalism itself is unlikely to be a significant stumbling block on the road to further rapprochement with the EU or indeed membership. However, its connections with direct democracy will continue to place a high hurdle to popular endorsement of such a policy and its “mythical” dimension will continue to resonate strongly with those perceiving the EU as a threat to Swissness.

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Notes 1 See, for instance, W. Linder, Swiss Democracy, Basingstoke, Macmillan, 1998 and H.P. Kriesi and A. Trechsel, The Politics of Switzerland, Cambridge, Cambridge University Press, 2007. 2 See R. Germann and U. Klöti, “The Swiss Cantons: Equality and Difference”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics, Zurich: Neue Zürcher Zeitung Publishing, 2004, p. 318. 3 The literature on federalism traditionally distinguishes between dual federalism, where the division of competences is by policy area, and co-operative federalism, where competences are divided by policy function. 4 Although, as argued by Church, The Politics and Government of Switzerland, Basingstoke, Palgrave, 2003, it could be argued that such belief in the political values of Switzerland and pride in its institutions constitute a cultural element shared by all Swiss. 5 It should be pointed out, however, that Swiss or Helvetic Confederation is the official name of the country in Latin, French, Italian and Romansch but not in German, in which it is called the Schweizerische Eidgenossenchaft or Swiss oath fellowship. 6 As regards taxation powers, between 50 and 60 per cent of cantonal revenues are controlled by the cantons themselves, a rather unique situation among European regions. See for a comparative study of regional finance C. Jeffery and D. Heald (eds), “Money Matters: Territorial Finance in Decentralized States”, Special number of Regional and Federal Studies 13/4, 2003; and T. Fleiner, “Recent Developments of Swiss Federalism”, Publius 32/2, 2002, especially p. 115, on the cantons’ status more generally. 7 So-called half-cantons, the result of splits of whole cantons at critical historical junctures, are almost de facto full cantons and have the same rights save for having just one seat in the Council of States and half the weight in calculating the cantonal majority in constitutional referendums. 8 See H.P. Kriesi, Le système politique suisse, Paris, Economica, 1998, p. 14. 9 There are other territorial units also called communes which perform different functions; see H. Geser, “The Communes in Switzerland”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics, Zurich, Neue Zürcher Zeitung Publishing, 2004, pp. 350–3. 10 See C. Church and P. Dardanelli, “The Dynamics of Confederalism and Federalism: Comparing Switzerland and the EU”, Regional and Federal Studies 15/2, 2005, 185 and, for more details, see W. Schenkel and U. Serdült, “Intergovernmental Relations”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics, Zurich, Neue Zürcher Zeitung Publishing, 2004, pp. 395–7. 11 See S. Wälti, “L’effet des rapports financiers sur la dynamique fédérale: la qualité médiative du fédéralisme suisse”, Revue suisse de science politique 9/1, 2003, 91–108 on the fiscal system before the reform and some issues related to the latter. 12 The only real imbalance between the two chambers is created in occasion of the elections for the executive, the Federal Council. Federal councillors are elected by a special joint session of parliament in which the 200 national councillors have, of course, much greater weight than the 46 councillors of state; see R. Lüthi, “The Parliament”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics, Zurich, Neue Zürcher Zeitung Publishing, 2004, pp. 124–5. 13 See A. Vatter, “Federalism”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics, Zurich, Neue Zürcher Zeitung Publishing, 2004, pp. 85–6 for a deeper analysis. 14 See Germann and Klöti, op. cit., p. 338 and Geser, op. cit. pp. 354–8.

Federalism: adaptation and constraints 33 15 I use the term “assent” in deliberate reference to the EU procedure of the same name, i.e. cantonal parliaments can only accept or reject concordats, not amend them; see Vatter, op. cit., p. 89 for more details. 16 See Germann and Klöti, op. cit., pp. 343–4. 17 Geser, 2004, pp. 384–7. 18 See Schenkel and Serdült, op. cit., pp. 403–4. 19 See H. Blöchliger, Baustelle Föderalismus, Zurich, Neue Zürcher Zeitung Verlag, 2005. 20 See also Germann and Klöti, op. cit., pp. 323 and 327 on this point. 21 The Radicals’ support for harmonization of education goes back to the 1870s but proposals to that effect were massively rejected by the people in a referendum in November 1882; see Le Temps, 30 November 2004. 22 See Le Temps, 10 June 2005, p. 11. 23 Ticino is a partial exception as, save for small Italian-speaking communities in the Grisons, it de facto coincides with Italian-speaking Switzerland. 24 Recent calls for the Valais to be split into two linguistically homogeneous halfcantons and the renewed prominence of the Jura question are just two examples; see Le Temps, 21–22 January 2005 on the former, and Le Temps, 31 August 2005 for the latter. 25 See Vatter, op. cit., pp. 78–9. 26 See P. Dardanelli, “The Parliamentary and Executive Elections in Switzerland, 2003”, Electoral Studies 24/1, 2005, 126–7 for details. 27 See Vatter, loc. cit. and Schenkel and Serdült, op. cit., p. 415 for details. 28 See Vatter, op. cit. who speaks of a historical shift of emphasis from “veto points” to “access points” in Swiss federalism. 29 Ironically, both could be called “councillors of state” as cantonal executives, at least in the Latin part, are called Councils of State. 30 A growing number of cantons employ professional lobbyists in Berne to defend their interests at the federal level; see Le Temps, 16 November 2004. 31 The Socialist Party was rumoured to be planning an initiative on fiscal harmonization; see Le Temps, 13 October 2004. 32 The new Article 48a of the federal constitution states that, under certain circumstances, cantons can be forced to join horizontal co-operation programmes. 33 See, for instance, Sciarini in Le Temps, 16 February 2005. 34 See Church, op. cit., pp. 154–62 and Kriesi and Trechsel, op. cit., Table 3.2 for the connections between federalism and national identity. 35 See Germann and Klöti, op. cit., p. 343. 36 See Groupe de travail EuRéfCa, Europe, un défi pour le federalisme, pp. 16 and 21. 37 See ibid., pp. 16–24. 38 See ibid., esp. p. 31. The report was endorsed by a majority of the cantons. 39 See J. Steiner, “Continental Integration and Swiss Federalism: a New Openness to Europe?”, in H. Lazar, H. Telford and R.L. Watts (eds), The Impact of Global and Regional Integration on Federal Systems, Montreal, McGill-Queen’s University Press, 2003. 40 The “Yes to Europe” initiative was rejected by all cantons, with little difference between French-speaking and German-speaking ones. The Schengen vote showed that urban/rural location was a much stronger predictor of the vote than the language spoken, see “Les choix du 5 juin dessinent notre archipel urbain”, Le Temps, 8 June 2005. 41 See Dardanelli, op. cit., esp. pp. 127–8. 42 See Vatter, op. cit., p. 80. 43 See Europe, un défi pour le federalisme, pp. 30–1. 44 Eurosceptics often argue that EU membership would mean the end of federalism because the EU requires all member states to have the same institutional structure.

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45 See Schenkel and Serdült op. cit., p. 409 on the relation between Swiss and European federalism. 46 For instance, cantons could not be taken before the European Court of Justice for failure to implement EU law, the Federal Council would, see Fleiner, op. cit., p. 115. In this area as well, there are precedents concerning Germany, including a highprofile case of state aid involving Saxony; see E. Thielemann, Driving a Wedge between Europe and the Regions? EC State Aid Control Meets German Federalism, Regional and Industrial Research Papers Series No. 30, Glasgow, European Policy Research Centre, University of Strathclyde, 1998. 47 See Europe, un défi pour le federalisme, esp. p. 41. 48 See Europe, un défi pour le federalisme, esp. p. 39. It is not infrequently that the Council of States and the Conference take different positions on European matters. Thus, for instance, the Conference supported the Federal Council’s counter-project to the “Yes to Europe” initiative in 2001 while the upper house rejected it (ibid., p. 19). 49 See H. Mahony, “Schröeder clears path for EU Constitution”, EUobserver, 29 April 2005. 50 See C. Jeffery, The Länder Strike Back: Structures and Procedures of European Integration Policy-Making in the German Federal System, Discussion Papers in Federal Studies No. FS94/4, Leicester, University of Leicester, 1994; and H.R. Hrbek, “The Effects of Global and Continental Integration on Cooperation and Competition in German Federalism”, in H. Lazar, H. Telford and R. Watts (eds), The Impact of Global and Regional Integration on Federal Systems, Montreal, McGillQueen’s University Press, 2003, pp. 329–71 on Germany; B. Kerremans, “Determining a European Policy in a Multi-Level Setting: the Case of Specialized Co-ordination in Belgium”, Regional and Federal Studies 10/1, 2000, 36–61 and B. Kerremans and J. Beyers, “The Belgian Sub-National Entities in the European Union: Second or Third Level Players?”, Regional and Federal Studies 6/2, 1996, 41–55 on Belgium; C. Closa and P. Heywood, Spain in the European Union, Basingstoke, Palgrave, 2004, pp. 88–98 and “Les régions espagnoles seront représentées au conseil des ministres de l’UE”, Le Monde, 13 December 2004 on Spain. And on Scotland see A. Wright, “The Internationalization of Scottish Politics: Who Governs Scotland?”, in José Magone (ed.), Regional Institutions and Governance in the European Union, Westport, Ct, Praeger, 2003.

Bibliography H. Blöchliger, Baustelle Föderalismus, Zurich, Neue Zürcher Zeitung Verlag, 2005. T. Börzel, States and Regions in the European Union, Cambridge, Cambridge University Press, 2002. C. Church, The Politics and Government of Switzerland, Basingstoke, Palgrave, 2003. C. Church and P. Dardanelli, “The Dynamics of Confederalism and Federalism: Comparing Switzerland and the EU”, Regional and Federal Studies 15/2, 2005, 163–85. C. Closa and P. Heywood, Spain in the European Union, Basingstoke, Palgrave, 2004. P. Dardanelli, “The Parliamentary and Executive Elections in Switzerland, 2003”, Electoral Studies 24/1, 2005, 123–9. T. Fleiner, “Recent Developments of Swiss Federalism”, Publius 32/2, 2002, 97–123. R. Germann and U. Klöti, “The Swiss Cantons: Equality and Difference”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics., Zurich: Neue Zürcher Zeitung Publishing, 2004, pp. 317–48. H. Geser, “The Communes in Switzerland”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics, Zurich: Neue Zürcher Zeitung Publishing, 2004, pp. 349–92.

Federalism: adaptation and constraints 35 K. Goetz, “National Governance and European Integration: Intergovernmental Relations in Germany”, Journal of Common Market Studies 33/1, 1995, 91–115. Group de travail EuRéfCa, Europe, un défi pour le federalisme, Berne, Conference des gouvernements cantonaux, 2004 www.kdk.ch/int/kdk/fr/wissen/eurorep.Paragraph containerList.ParagraphContainerO. ParagraphList.0022.File.pdf/ER20044final.pdf. R. Hrbek, “The Effects of Global and Continental Integration on Cooperation and Competition in German Federalism”, in H. Lazar, H. Telford and R. Watts (eds), The Impact of Global and Regional Integration on Federal Systems, Montreal, McGillQueen’s University Press, 2003, pp. 329–71. C. Jeffery, The Länder Strike Back: Structures and Procedures of European Integration Policy-Making in the German Federal System, Discussion Papers in Federal Studies No. FS94/4, Leicester, University of Leicester, 1994. C. Jeffery and D. Heald (eds), “Money Matters: Territorial Finance in Decentralized States”, Special number of Regional and Federal Studies 13/4, 2003. B. Kerremans, “Determining a European Policy in a Multi-Level Setting: the Case of Specialized Co-ordination in Belgium”, Regional and Federal Studies 10/1, 2000, 36–61. B. Kerremans and J. Beyers, “The Belgian Sub-National Entities in the European Union: Second or Third Level Players?”, Regional and Federal Studies 6/2, 1996, 41–55. H.P. Kriesi, Le système politique suisse, Paris, Economica, 1998. H.P. Kriesi and A. Trechsel, The Politics of Switzerland, Cambridge: Cambridge University Press, 2007. W. Linder, Swiss Democracy, Basingstoke, Macmillan, 1998. R. Lüthi, “The Parliament”, in U. Klöti P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics, Zurich: Neue Zürcher Zeitung Publishing, 2004, pp. 121–46. H. Mahony, “Schröder clears path for EU Constitution”, EUobserver, 29 April 2005 [http://euobserver.com]. W. Schenkel and U. Serdült, “Intergovernmental Relations”, in U. Klöti P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics, Zurich: Neue Zürcher Zeitung Publishing, 2004, pp. 393–430. J. Steiner, “Continental Integration and Swiss Federalism: a New Openness to Europe?”, in H. Lazar, H. Telford and R.L. Watts (eds), The Impact of Global and Regional Integration on Federal Systems, Montreal, McGill-Queen’s University Press, 2003, pp. 173–90. E. Thielemann, Driving a Wedge between Europe and the Regions? EC State Aid Control Meets German Federalism, Regional and Industrial Research Papers Series No. 30, Glasgow, European Policy Research Centre, University of Strathclyde, 1998. A. Vatter, “Federalism”, in U. Klöti P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics, Zurich: Neue Zürcher Zeitung Publishing, 2004, pp. 71–100. A. Vatter, “The Transformation of Access and Veto Points in Swiss Federalism”, Regional and Federal Studies 15/1, 2005, 1–17. S. Wälti, “L’effet des rapports financiers sur la dynamique fédérale: la qualité médiative du fédéralisme suisse”, Revue suisse de science politique 9/1, 2003, 91–108. A. Wright, “The Internationalization of Scottish Politics: Who Governs Scotland?”, in José Magone (ed.), Regional Institutions and Governance in the European Union, Westport, Ct, Praeger, 2003, pp. 97–118.

3

Direct democracy and European integration A limited obstacle? Alexander Trechsel

The European integration process has been increasingly exposed to national referendums, among which the Spanish, French, Dutch and Luxembourg votes of 2005 are the most recent manifestations. This overall diffusion and intensification of the referendum phenomenon in Europe is not only linked to the process of EU integration but is directly caused by the latter. EU integration even causes referendums to take place in non-member states. Yet, if among these Switzerland had the most frequent EU-related use of direct democratic instruments, in contrast to a number of the EU member states, such as the Netherlands or Luxembourg, the Swiss electorate did not have to wait for outside events to put European matters on their agenda and force popular votes. This is because nowhere else in the world are the instruments of direct democracy more developed and more utilized than in Switzerland. Within Europe, Switzerland comes first among all the 46 Council of Europe states in terms of the frequency of popular votes at the national level.1 Between 1960 and 2003, a total of 321 referendums were held at the national level in Switzerland. This is six times more than the total of those states which come second and third on this list, Liechtenstein and Italy. Even more importantly, the Swiss institutions of direct democracy embody a truly system-formative device, greatly influencing party competition, government, Parliament, the legislative process and, indeed, policy making at all levels of the federal state.2 The frequency of popular votes has significantly increased from the early 1970s. Yet with regard to European integration, popular initiatives and referendums only became (numerically) important from the early 1990s. These votes have mainly gone the way that the Federal Council and parliamentary majority wished. Moreover, the Swiss have never actually voted purely and simply on EU entry. To an extent this is a reflection of the fact that, as Church has argued in the Introduction, Swiss opinion is almost equally divided on the issue, causing the elite to have a hesitant (and so far negative) attitude towards taking up negotiations with a view to membership. However, putting the question of full membership aside, direct democracy is not quite the obstacle that conventional wisdom assumes that it is. Switzerland could integrate – and quite deeply – under the rules of direct democracy. Unfortunately this view is not shared by much public opinion, and herein lies the problem. Hence full membership remains a taboo.

Direct democracy and European integration 37 In this chapter, we will explore the evolution of the system of direct democracy and then the way its various instruments have been used in the European context. This usage speeded up as the EEA crisis drew near and has continued both through the early years of bilateralism and over further challenges to any rapprochement with the EU. All this also poses questions about what impact entry would actually have on direct democracy and how far public opinion is aware of this. From this some conclusions about the role of direct democracy in the European context can be drawn. To show this leads us to explore the evolution of the system and the way the various instruments of direct democracy have been used in the European context. This usage speeded up as the EEA crisis drew near and has continued both through the early years of bilateralism and over further challenges to any rapprochement with the EU. All this poses questions about what impact entry would actually have on direct democracy and how far public opinion is aware of this. From this some conclusions about the role of direct democracy in the European context can be drawn.

The instruments of direct democracy Ever since the adoption of the Treaty of Rome, creating the EC and EURATOM in 1957, Switzerland had to stay attentive so as not to become isolated, whether economically or politically, from the rest of Europe. In this endeavour, the country’s elite could not ignore the instruments of direct democracy since these played both direct and indirect roles in Switzerland’s European integration policy. Above all the mandatory referendum, but also the optional referendum – or challenge – and, to a lesser extent, the popular initiative were (and still are) relevant. The mandatory form of the referendum in Switzerland goes back to the very beginning of the modern Federal State.3 Already contained in Article 140 of the Constitution of 1848, this requires that all constitutional amendments4 must gain the approval of a double-majority of both the people and the cantons. In other words, when a parliamentary majority decides to amend the Constitution, neither the Federal Council nor Parliament have any discretion about the procedure to follow: a popular votation simply has to take place. The double-majority stems from the country’s federal structure and was designed as a safeguard against the “tyranny of the majority” by the most populous cantons. With the total revision of the Constitution in 1874, the optional legislative referendum was introduced, reflecting the success, throughout the 1860s, of the democratization movement at the cantonal level.4 Some 50,000 voters5 or eight cantons can request the holding of a referendum on any proposed change to federal legislation within a period of 100 days6 after the publication of the law. Such a referendum only requires a popular majority for the law to go into effect. If it fails to get this then the bill lapses. In 1891 the popular initiative for the partial revision of the Constitution was introduced.7 Such initiatives can, according to Article 139 BV, take either the

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form of a fully formulated proposal or, alternatively, of a proposal that simply states a general goal for changing the Constitution. Both forms of proposed amendment require 100,000 signatures to be gathered within a period of 18 months.8 Parliament then examines the validity of the initiative, decides on its political desirability, and must submit it to the vote of the entire electorate. In the case of fully formulated initiatives, a double-majority is required for their adoption because their text alters the text of the Constitution. The instruments of direct democracy were extended on several occasions during the twentieth century. Of central interest to foreign policy are a series of extensions of the referendum device. In 1921 the optional referendum’s scope was widened by Article 141 BV to include international treaties of unlimited duration. Since 1977 the optional referendum also applies to international treaties which cannot be revoked or cause a multilateral legal harmonization. At the same time, a majority in Parliament obtained the right to submit any other international treaty to the optional referendum process. In 2003, this latter provision was abolished and replaced by a provision stating that “any international treaty containing important legal provisions or causing the elaboration of federal laws” must be submitted to an optional referendum. Moreover, since 1977, joining an international organization of collective security, such as NATO, or a supranational community, such as the EU, must – because of Article 140 – be approved by a double-majority in a mandatory referendum.

European integration and direct democracy Kriesi and Trechsel have divided Switzerland’s dealings with European integration into four phases: initial multilateral failures (1955–72), stagnation (1972–86), further multilateral failure (1986–92) and enhanced uni- and bilateral integration (1993–2005). Direct democracy played an important role in all four stages, but its concrete manifestation in popular votes is a very recent phenomenon. Table 3.1 contains information on all popular votes directly related to Switzerland’s European integration process. Between 1955 and 1991, only one popular vote, that on Switzerland’s membership in the European Free Trade Association [EFTA], was directly linked to the European integration process. The remaining eight votes took place over the past 13 years only. The early years This does not mean, however, that the more distant past of Swiss–EU relations was referendum-immune. Quite the contrary. During the first stage, between 1955 and 1972, the very first policy option the Federal government took following the 1957 establishment of the EEC and EURATOM was largely influenced by the existence of direct democratic procedures (and, as Ganser and Kreis will show in the next chapter, by neutrality). The choice of not seeking closer association with or accession to the EC but rather to move towards the establishment of a multilateral free-trade agreement within the Organization for European

Mandatory referendum

Mandatory referendum

Popular initiative

Optional referendum

Popular initiative

Optional referendum

Optional referendum

3 December 1972

6 December 1992

8 June 1997

21 May 2000

4 March 2001

5 June 2005

25 September 2005

Extension of the Bilateral Treaties I

Adhesion to Schengen/Dublin (Bilaterals II)

Take up immediate EU-membership negotiations

Bilateral Treaties I

Put demands for taking up EU-membership negotiations on the ballot

Adhesion to EEA

EU–EFTA agreement

Object

54.5

56.6

55.8

48.3

35.4

78.8

52.9

Turnout (%)

56.0

54.6

23.2

67.2

25.9

49.7

72.5

Yes (%)

7

14

0

2

0

8

25

Cantons accepting

accepted

accepted

refused

accepted

refused

refused

accepted

Result

Source: www.admin.ch – Note that, for the three optional referendums that took place in 2000 (1) and 2005 (2), the cantonal majority was not needed. Note also that cantons accepting are counted independently of their formal weight.

Institution

Date

Table 3.1 Popular votes directly related to Switzerland’s European integration strategy

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Economic Cooperation [OEEC] was, amongst other factors, based on the political costs, one of which was clearly a possible negative referendum vote. Eventually, however, with the French withdrawal from the negotiations in 1958, this strategy failed.9 As a result, EFTA came into being in 1960 and no referendum vote was needed to ratify the convention establishing the new body. However, a mandatory referendum could not have been avoided had the ensuing attempt at association with the EU, initiated by Switzerland, Austria and Sweden in December 1961, come to a positive outcome. However, with De Gaulle’s veto of UK membership in 1963, this association attempt could not be concluded.10 It is not until De Gaulle’s resignation in 1969, and Pompidou’s policy of supporting EC enlargement, that the Swiss could become pro-active again. They did so by supporting the creation of a western European free-trade zone, ultimately consecrated by a free-trade agreement on industrial goods between the EC and the individual EFTA member countries in 1972.11 This led to the first European integration related referendum vote. This, as Table 3.1 shows, was held on 3 December 1972, when 72.5 per cent of the voters and all cantons voted in favour of the Free Trade Agreement in a mandatory referendum. The agreement was to enter into force in 1973. During the second phase, that of the years of EC stagnation between 1972 and 1986, direct democracy played a very limited, and, indeed, only passive role in EU–Swiss relationships. No major referendum vote took place during this period, generally marked by a political stagnation of the integration process.12 Towards the EEA Direct democratic institutions came to the forefront, however, during the third stage of Switzerland’s EU integration efforts that lasted from 1986 to 1992. With the Schengen Agreement of 1985 and, above all, with the adoption of the Single European Act of 1986, the European project was – as Church shows in more detail below – re-launched, ultimately leading to the Maastricht Treaty and the creation of the European Union in 1992. EFTA member states had to react to this impetus from Brussels and did so separately until 1988, and jointly from that moment on.13 In 1989, Jacques Delors revived the, by then dormant, “Luxembourg Process”, initiated in 1984. This had aimed at a multilateral dialogue, working towards the creation of a wider European economic area.14 Because this had never materialized, the EFTA member states supported this reawakening as the EEA Treaty, which emerged from it, would, if successful, have allowed guaranteed access to the single market’s four fundamental freedoms: free movement of goods, services, people and capital. At the same time, while profiting from this access, they would not have been forced to adopt all EC policies, such as the Common Agricultural Policy [CAP]. However, the acquis communautaire proved to be non-negotiable. Realization of this hit the EFTA member states hard, so hard in fact that five of them15 asked to start accession negotiations with the EC. In the Swiss case, this led to the signing of the EEA Treaty on 2 May 1992 and, 18 days later, to the submission of a

Direct democracy and European integration 41 formal demand for opening negotiations in view of EC membership by the Federal Council. The EEA Treaty was not the only direct democracy-relevant negotiation that shaped Swiss–EU relationships at the very beginning of the 1990s. Of major importance was the 1991 Transit Agreement [TA] in which Switzerland agreed, amongst other things, to build more than 80 kilometres of railway tunnels across the Alps. This specific infrastructure project was submitted – not without discussion in Parliament – to an optional referendum and the successful signature gathering that ensued led to the popular vote of 27 September 1992. Though formally distinct from the negotiations leading to the signature of the EEA Treaty, the TA negotiations were nevertheless politically and materially linked to the latter.16 According to Germann a “no” in the September referendum would have brought down both the TA and the EEA Treaty. The story, however, turned out somewhat differently because the construction of the railway tunnels was accepted at the polls whereas the EEA Treaty was refused by both the people and the cantons on 6 December 1992.17 While it was not disputed that the EEA Treaty would have to be submitted to the rigours of direct democracy, from the outset it was not clear whether this should be to an optional or a mandatory referendum. Nobody doubted that, had the EEA Treaty been submitted to the optional referendum, a popular vote would have had taken place. However, the question of whether this vote had to be taken with a simple or a double-majority was of utmost importance. The Federal Council’s position was, right from the beginning, that the EEA Treaty had to be submitted to the mandatory referendum.18 Yet in its message to Parliament of 18 May 1992, the Federal Council (surprisingly) argued that, while a mandatory referendum should take place, this could not be based on the provision of Article 89 al. 5 BV which normally regulates mandatory Treaty referendums. According to some observers, the decision to submit the EEA Treaty to the majority of the people and of the cantons was nothing else than an out-andout breach of the law.19 While the decision to submit the EEA Treaty to a mandatory referendum did not, in the end, affect the outcome, the sudden decision of the Federal Council to submit an application had a devastating effect on government credibility during the referendum campaign. Moreover, the Federal Council stressed the advantages of the EEA Treaty while, at the same time, acknowledging its institutional shortcomings and, in particular, Switzerland’s lack of co-decisional power within the EEA framework.20 The government also maintained that the EEA Treaty should be considered within the larger context of EC membership and that this would be the ultimate goal of Switzerland’s integration policy.21 The EEA therefore became a simple stage on the road towards membership.22 Such reasoning opened up new and successful angles for the opponents of the Treaty when the government subsequently tried to detach the EEA Treaty from the topic of membership.23 The campaign leading to the 6 December 1992 votation was exceptional in its intensity: it was “by far the most intensive campaign of the entire period covered

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by this study and probably the most intensive campaign in the history of Swiss direct-democratic voting”.24 It started in July 1992 when, led by future Federal Councillor Christoph Blocher, the Zurich section of the Swiss People’s Party took all the other parties (including its own federal umbrella organization), interest organizations, Parliament and the government by surprise by announcing its opposition to the EEA Treaty.25 Support for the opponents of the Treaty came above all from the influential Action for an Independent and Neutral Switzerland [AUNS], created in 1986 to (successfully) combat Switzerland’s attempt at UN entry. Several extreme right- and left-wing parties, green parties and movements also joined the EEA opponents’ camp. The larger part of the political elite favoured the Treaty, however, so that it received a comfortable endorsement in Parliament, gaining the support of 67.6 per cent of MPs. Although Trechsel and Sciarini show that large levels of consensus in Parliament normally positively impact on the outcome of mandatory referendums, the EEA referendum did not follow this logic.26 This was because, come the day, the no camp was very well organized and co-ordinated. Thus it appears that the opponents of the EEA Treaty managed to achieve roughly the same amount of newspaper advertising as the EEA supporters.27 In fact Schneider and Hess show that the opponents’ arsenal of arguments was much larger than that of their adversaries, with their campaign starting earlier and continuing until the very last moment preceding the vote, contrary to the strategy of the yes camp.28 On 6 December 1992 the EEA Treaty was rejected at the polls by a narrow majority (50.3 per cent) of the voters and a comfortable cantonal majority (18 cantons). Furthermore, turnout reached its highest level since 1947, with 78.8 per cent of the electorate casting votes. The outcome of the referendum dealt a major blow to the Federal Council’s European integration policy. In addition, the linguistic cleavage became extremely visible in the many maps of the cantons which accepted or refused the EEA which were published by the newspapers. While voters in all the Frenchspeaking cantons accepted the EEA Treaty, with majorities of up to 79 per cent (in Neuchâtel), all Swiss-German-speaking cantons (with the exceptions of Basel-Stadt and Basel-Landschaft) as well as the only Italian-speaking canton (Ticino) rejected it, with majorities of up to 74 per cent (Uri). The application of direct democratic decision making to the EEA Treaty therefore greatly impacted on the visibility of the linguistic cleavage in Swiss society.29 In fact the 1990s were marked by the emergence of a new “openness-tradition” cleavage, closely linked to the question of European integration. Although the survey, conducted in the aftermath of the EEA referendum, does not measure this cleavage, the data reveals strong cultural and identitarian effects on the voters’ decision at the polls.30 Bilateralism and direct democracy The EEA vote put an end to the Federal government’s favoured integration policy. With deep-rooted identitarian antagonisms in Swiss society becoming all

Direct democracy and European integration 43 too visible in December, combined with the institutionalized veto mechanisms of the mandatory referendum (and in particular of the double-majority), full accession to the EU became, for the time being, an unrealistic aim. Hence two months after the EEA votation, the Federal Council announced its willingness to “freeze” its pending demand for opening negotiations in view of EU accession. And a re-vote on the EEA, though discussed, was not an option. The government was therefore – once more – left with the bilateral approach to European integration. The Federal Council had warned the voters that a “no” to the EEA Treaty would mean that bilateral negotiations would become more difficult and this was indeed the case. Hand in hand with the freezing of the adhesion demand, the Federal Council formulated, in February 1993, a list of 15 sectors in which it wished bilaterally to negotiate with Brussels. The fourth phase of Switzerland’s integration efforts, the bilateral – and unilateral! – stage, had commenced. The opening of the negotiations was then, as Kriesi and Trechsel put it, “struck by a [further] direct democratic thunderbolt: on 20 February 1994 a majority of the Swiss voters and cantons accepted a popular initiative – the socalled ‘Alps Initiative’ – the content of which was potentially incompatible with the bilateral transit agreement concluded between Switzerland and the EC in May 1992”.31 This surprising victory by the ecological movements over the strong lobbies in the field of transportation put the EU’s preparations for negotiations on hold and only after nine months of “calming-efforts” by the Federal Council could the bilateral, sector-specific negotiations finally commence, as Dupont and Sciarini’s chapter shows. And, as Stämpfli shows, this was a prelude to both the Denner initiative attempt to speed up the direct democratic system, making it easier for oppositional forces to use, and to a series of SVP antiasylum and immigration initiatives which were not wholly unrelated to European questions. From the perspective of direct democracy, the negotiations were difficult particularly because the EU insisted on the concept of parallelism, i.e. that all seven sectors of the final bilateral agreements had to be treated as a single indissoluble package. As Kriesi and Trechsel underline, “this complicated the Swiss position, as a multitude of referendum threats against individual aspects of the agreements were omnipresent throughout the negotiations, endangering the global success of the bilateral treaties”.32 Contrary to the EEA negotiations, the government from the outset consulted widely with all relevant political actors.33 It rapidly became clear that compensatory concessions to organizations capable of launching a referendum had to be made. It was above all the Swiss unions that profited from these concessions, as other contributors show elsewhere in this book. As Oberer remarks, the result was that, in the end, everybody somehow felt like a “winner”.34 Only two parties (the Swiss Democrats and the Lega dei Ticinesi), together with a number of rather insignificant political groups, opposed the agreements. Though they succeeded in collecting the necessary signatures for the referendum they could not bring down the treaties at the polls. On 21 May 2000, 67.2 per cent of the voters

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(on a turnout of 48.3 per cent) accepted the bilateral agreements which then entered into force on 1 June 2002. And, due to the 2004 enlargement of the EU, Switzerland has agreed to extend the agreement covering the freedom of movement of persons to the ten new member states. Several eurosceptic organizations collected 92,901 valid signatures against this extension. However, as can be seen in Table 3.1, they did not succeed in bringing down this extension. On 25 September 2005, on a turnout of 54.5 per cent, 56 per cent of the voters accepted the proposal.35 As Afonso and Maggetti show in their chapter, the outline for the next round of bilateral agreements was already contained in the final act of the bilateral agreements of 21 June 1999. After only two years of negotiations, a political agreement was finalized in May 2004, and in October the “Bilaterals II” were signed in Luxembourg. With regard to the role played by direct democracy, the domestic ratification process differed from the “Bilaterals I” in that the nine negotiation outcomes were not bundled together and could be submitted to Parliament individually. And in seven cases they were subjected to the optional referendum process.36 Therefore, a single, negative referendum would not have endangered the entry into force of the successful dossiers. The sole “guillotine clause” concerned the agreements on Schengen and Dublin which had to be agreed upon (or rejected) as part of the original single package. The opponents of Schengen and Dublin were able to collect 86,732 valid signatures, forcing the agreement to be voted upon by the Swiss electorate on 5 June 2005. After an intensive campaign, a majority of 54.6 per cent of the voters accepted Switzerland’s entry into the Schengen and Dublin system (turnout was 56 per cent). Although this optional referendum did not require a double majority to be reached, it is notable that a majority of the cantons rejected the treaty at the polls. Overall, the success of the government and the parliamentary majority in this referendum is significant and confirmed Switzerland’s successful bilateral approach. The entire set of agreements of the “Bilaterals II” were thus freed to enter into force in 2005. Europeanization and popular reticence As Kriesi and Trechsel stress, the enhanced and successful integration efforts of Switzerland since the EEA debacle were not only bilateral in form.37 Phase four, in their terms, also contains a strong unilateral component, both legislative and financial in form. In 1988, the Federal Council decided to include in its messages to Parliament a chapter on the compatibility of legislative acts with EC law and policies. Ever since, by means of an institutionalized and standardized procedure, changes to federal law are systematically checked for their “eurocompatibility”, a process that leads to a unilateral adaptation of federal law to EU norms. This institutionalized procedure of including European norms into federal law, also known as “autonomous implementation” (autonomer Nachvollzug), can be compared to the transposition of secondary EU legislation into national law among EU member states.38 It is hard to estimate the extent to

Direct democracy and European integration 45 which Swiss and EU legislation overlap. Kux estimated in 1998 that about 85 per cent of all economic legislation in Switzerland was eurocompatible.39 From the perspective of direct democracy and EU integration, this is a notable fact in the sense that there seems to exist an unexpectedly large “permissive consensus”, to paraphrase EU integration jargon, among the Swiss voters, as each law can be attacked by the challenge weapon. Yet the latter only occurs in less than 7 per cent of all legislative amendments and, if it does, then adaptation to EU law is rarely if ever central.40 One can thus argue that a large part of Switzerland’s legislative congruence with EU law has been tacitly accepted by the Swiss voters. In other words, when assessing the impact of direct democracy on EU integration, the Swiss voters’ “no show” regarding harmonization of Swiss and EU norms and regulations should not be forgotten. Let us also mention that the 1992 demand by the Federal Council to open up negotiations in view of Switzerland’s adhesion (in combination with the EEA vote) triggered the successful launch of two hostile popular initiatives. The first one came in 1994 from actors of the radical right, the Swiss Democrats and the Lega dei Ticinesi, who asked for the introduction of a new form of referendum on the opening of accession negotiations with the European Union. If successful, the initiative would have forced the Federal Council to immediately retract its frozen accession request. Furthermore, any future demand for accession would have had to be submitted to the agreement of the people and the cantons. In Parliament, the initiative did not stand a chance and was vigorously rejected by both chambers41 and the government. Except for some small organizations on the far right of the political spectrum, the initiative was opposed by all major parties and, at votation on 8 June 1997, it was rejected by a majority of the voters (74.1 per cent) and all cantons. The rejection of the initiative was, however, not the result of a sudden “europhile” sentiment among the Swiss, but rather was caused by institutional motives.42 The second popular initiative directly related to the 1992 accession demand was launched by a number of pro-EU movements and organizations in 1996. The initiative asked for an immediate revitalization of the accession request. Although the Federal government opposed the initiative, it proposed an indirect counterproposal in which the executive agreed to prepare for the opening negotiations in view of EU accession. Both proposals were, however, rejected by the two chambers of the Federal Parliament.43 The ensuing campaign doubly split the political elite, among and within parties and organizations. At the federal level, Social Democrats, Christian Democrats, the Green Party and most unions recommended the acceptance of the initiative, while the Radicals, the Swiss People’s Party, radical right parties and most peak associations recommended its rejection at the polls. Furthermore, a large number of cantonal sections of federal parties, especially among Christian Democrats and Radicals, adopted recommendations deviating from their respective federal parties. Finally, on 4 March 2001, a clear majority of the voters (76.8 per cent) and all cantons refused the initiative at the polls. This historical account of the impact of direct democratic institutions on Switzerland’s relationship to the European Union has brought out several

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remarkable points. First, the direct impact of direct democracy was negligible before 1992. One single, largely undisputed referendum vote took place – in 1972 – on the EC–EFTA agreement. Since 1992, no less than eight popular votes directly linked to EU integration were held. Voting on EU integration was, and this is the second point, overwhelmingly “pro-hegemonic”, to use the terminology of Gordon Smith. In only one single case – the EEA treaty – did the outcome not match the preferences of the Federal Council and the Parliament. Contrary to most observers’ stance, we would like to de-emphasize the alleged mismatch between the majority of the elite and voters under direct democracy when it comes to EU integration of Switzerland. Third, the impact of direct democracy on EU integration is above all indirect in form. And “integration through the backdoor” had taken place over the past 20 years without causing popular mobilization against the latter. However, in order to prevent the successful launching of optional referendums, the elite had to strike deals – including on EU-related issues – with civil society organizations, interest groups and political parties. In this respect, the scope for the government and parliamentary majority regarding the day-to-day EU integration process of Switzerland is clearly more limited than in EU member states. Fourth, the question of whether to join the EU or not was never submitted to the Swiss voters. Though two popular initiatives directly addressed the opening of negotiations for membership, the latter never entered the realm of direct democracy – if one can say so – directly. The remaining question to answer therefore is: why, despite the overwhelmingly favourable record of government and Parliament in popular votes on EU integration, did the question of full EU accession never make it to the polls? One reason among many, but presumably the most important one, is the perceived insufficient level of support among the electorate. Longitudinal polls indeed show an electorate almost perfectly split on the question of EU entry. Explaining either eurohostile or europhile attitudes among Swiss voters therefore becomes central to any analysis of EU integration and direct democracy.

Accession and attachment In the preceding section we have seen to what extent direct democratic institutions – and in particular popular votes – impacted on Switzerland’s relationship with the European Union. In this section, we will turn the question upside down and ask, on the one hand, both what accession would imply for direct democracy and on the other hand, to what extent the voters’ attachment to direct democracy impacts on attitudes towards Switzerland’s accession to the EU. As Kriesi and Trechsel remark, internationalization – and in particular Europeanization – of Swiss politics is seen by a number of observers to constitute the most serious threat to the survival of Swiss-style direct democracy.44 Should accession occur direct democratic procedures would be affected by this state of affairs. Though it is undisputed that the principle of direct democracy would not be threatened by Switzerland’s accession to the EU,45 a certain – if rather limited – loss in the field of direct legislation would be unavoidable.46

Direct democracy and European integration 47 A number of studies have tried to retroactively and counterfactually measure this loss by analysing the EU-compatibility of referendums and initiatives of the past. Only in a small minority of cases (11 to 14 per cent) would a federal referendum have inevitably collided with EU law. For cantonal referendums, a clear conflict would have arisen in only 5 per cent of cases, confirming the limited losses to be expected in the direct democratic realm.47 As Kriesi and Trechsel note, such counterfactual evaluations should be taken for what they are: stimulating proxies at best. Nonetheless, they argue that direct democracy would not be fundamentally constrained by EU law should Switzerland adhere to the EU. This claim, however, is not reflected in public opinion. Christin and Trechsel show that the degree of attachment to direct democracy has a significant impact on the citizens’ attitudes towards the EU.48 While objective losses of direct democracy may remain limited, the perceived constraining effect of EU membership among the electorate remains significant. For this reason, a number of observers do not stress the potential constraining effect of EU membership on direct democracy, but rather the inverse; in their view direct democracy threatens the Swiss political system’s ability to open up, to join international organizations and to fully integrate into the EU.49 Most recent developments nevertheless de-dramatize such claims. Thus significant steps towards a political opening up of Switzerland have survived the hurdle of popular decision making. These include UN membership and the two sets of Bilateral Agreements with the EU. In conclusion, one may say that direct democracy slowed down European integration but it did not block it completely. True, the 1992 EEA-Treaty referendum had an enormous impact on the government’s integration policy. Not only did it prevent Switzerland from becoming part of the European Economic Area but it also froze Switzerland’s demand for opening membership negotiations. Ever since, uni- and bilateral integration – instead of multilateral integration or even accession – have dominated Switzerland’s integration policy and still do. And, with the exception of the Alps Initiative, the Swiss electorate constantly followed the recommendations of both the government and of Parliament in all post 6 December 1992 popular votes. In Switzerland, major integration steps have to be legitimized by the people (and, in some cases, the cantons). And apart from the EEA-referendum, all of them have been. This even though the aftermath of the EEA-referendum saw Swiss party politics being profoundly changed, giving the victorious Swiss People’s Party an astonishing boost in the electoral arena, both on the federal and sub-national levels. With the rise of the Swiss People’s Party, the traditional “magic formula” for government formation changed in 2003 and Christoph Blocher became the second representative of this party in the Federal Council. But none of these developments put Switzerland’s integration efforts on ice. The majority of the political elite learnt to live with direct democracy in general, and in the field of EU integration in particular.

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Notes 1 P. Schmitter and A. Trechsel (eds), The Future of Democracy in Europe. Trends, Analyses and Reforms, Strasbourg, Council of Europe Publishing, 2004, p. 80. 2 H.P. Kriesi and A. Trechsel, The Politics of Switzerland. Continuity and Change in a Consensus Democracy, Cambridge, Cambridge University Press, 2007. 3 The following remarks draw heavily on the chapter on direct democracy in the 2007 textbook by Kriesi and Trechsel, op. cit., which deals with direct democratic institutions in the order in which they were introduced. Here only those instruments relevant to Swiss–EU relations are taken into account. 4 W. Linder, “Direct Democracy”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics, Zürich, Neue Zürcher Zeitung Publishing, 2004, p. 112. For a more detailed account see A. Kölz, Neuere schweizerische Verfassungsgeschichte. Ihre Grundlinien in Bund und Kantonen seit 1848, Berne, Verlag Stämpfli, 2004, pp. 614 et seq. 5 Until 1977 the required number of signatures was only 30,000. 6 Until 1996 the period for collecting the necessary signatures was 90 days. 7 Prior to this the only possibility was to replace the constitution totally. From 1891 individual articles could be added, changed or excised. 8 Until 1977 the required number of signatures was 50,000 and there was no prescribed period within which signatures had to be gathered. 9 C. Dupont and P. Sciarini, “Switzerland and the European Integration Process: Engagement without Marriage”, in J.E. Lane (ed.), The Swiss Labyrinth: Institutions, Outcomes and Redesign, London, Frank Cass, 2001, p. 216. 10 Gstöhl notes below that this was never formally withdrawn. 11 Dupont and Sciarini, op. cit., pp. 219 et seq. 12 A. Moravcsik, The Choice for Europe. Social Purpose and State Power from Messina to Maastricht, Ithaca, NY, Cornell University Press, 1998. 13 Dupont and Sciarini, loc. cit. 14 D. Sidjanski, “La Suisse face à la Communauté européenne”, Pouvoirs 43, 1987, p. 141. 15 Austria as early as 1989, Sweden in 1991 and then Finland, Norway and Switzerland in 1992 all applied with Austria, Finland and Sweden joining the EU in 1995. However, on 28 November 1994, 52.2 per cent of the Norwegian voters rejected EU membership in a referendum. 16 U. Klöti, C. Hirschi and U. Serdült, Verkannte Aussenpolitik. Entscheidungsprozesse in der Schweiz, Zürich & Chur, Rüegger, 2005, p. 219. 17 R. Germann, Staatsreform. Der Übergang zur Konkurrenzdemokratie, Berne, Haupt, 1994, p. 166. See also Table 3.1. 18 See the Federal Council’s Europabericht of 26 November 1990. 19 Germann, op. cit., pp. 179 et seq. 20 Federal Council 1992a, Botschaft zur Genehmigung des Abkommens über den Europäischen Wirtschaftsraum vom 18 Mai 1992. Bern, Federal Administration, 1992 (also available at www.ssn.ethz.ch/forschung/amt/documents/EUWirtschaftsraum. pdf): 47 et seq.; Kriesi and Trechsel, op. cit., 2007. 21 Federal Council 1992a: 52 et seq. 22 See also Federal Council 1992b, Bericht über einen Beitritt der Schweiz zur Europäischen Gemeinschaft vom 18 Mai 1992. Bern, Federal Administration, 1992 (also available at www.ssn.ethz.ch/forschung/amt/documents/EUBeitrittsericht.pdf). 23 H.P. Kriesi, C. Longchamp, F. Passy and P. Sciarini, Analyse de la votation fédérale du 6 décembre 1992 (Vox no. 47), Berne, Schweizerische Gesellschaft für praktische Sozialforschung/gfs, 1993. L. Goetschel, Zwischen Effizienz und Akzeptanz. Die Information der Schweizer Behörden im Hinblick auf die Volksabstimmung über den EWR-Vertrag vom 6. Dezember 1992, Berne, Haupt, 1994, pp. 47 et seq.; and L.

Direct democracy and European integration 49

24 25 26 27 28 29 30

31 32 33

34 35 36

37

38 39 40

41 42 43

Goetschel, “Die EWR-Information der Bundesbehörden”, Swiss Political Science Review 1/2–3, 1995, p. 85. H.P. Kriesi, Direct Democratic Choice. The Swiss Experience, Lanham, Lexington Books, 2005, p. 116. G. Schneider and C. Hess, “Die innenpolitische Manipulation der Aussenpolitik: Die Logik von Ratifikationsdebatten in der direkten Demokratie”, Swiss Political Science Review 1/2–3, 1995, 102. A. Trechsel and P. Sciarini, “Direct democracy in Switzerland: Do Elites Matter?”, European Journal of Political Research 33/1, 1998, 111. Schneider and Hess, op. cit., 104; L. Marquis and P. Sciarini, “Opinion formation in foreign policy: the Swiss experience”, Electoral Studies 18/4, 1999, 463. G. Schneider and C. Hess, 1995. “Die innenpolitische Manipulation der Aussenpolitik: Die Logik von Ratifikationsdebatten in der direkten Demokratie”, Swiss Political Science Review 1/2–3, 1995, 103. H.P. Kriesi, C. Longchamp, F. Passy and P. Sciarini, op. cit., 1993, and H.P. Kriesi, B. Wernli, P. Sciarini and M. Gianni, op. cit., 1996. H.P. Kriesi, C. Longchamp, F. Passy and P. Sciarini, op. cit., 1993; T. Christin, S. Hug and P. Sciarini, “La mobilisation des clivages lors des votations populaires”, in S. Hug and P. Sciarini (eds), Changements de valeurs et nouveaux clivage politiques en Suisse, Paris, L’Harmattan, 2002, p. 250. Kriesi and Trechsel (2006). And see Table 3.1. Kriesi and Trechsel, op. cit. T. Oberer, Die innenpolitische Genehmigung der bilateralen Verträge Schweiz-EU: Wende oder Ausnahme bei Aussenpolitischen Vorlagen. Analyse der Argumente und Strategien im Genehmigungsverfahren und in der Referendumskampagne, Basel, Europainstitut der Universität Basel/Baslerschriften zur europäischen Integration Nr. 52/53, 2001, p. 56. Oberer, loc. cit. Further details of these votations can be found in the chapters by Dupont and Sciarini, and Afonso and Maggetti. To be precise, there were nine negotiation outcomes, eight of which are agreements (processed agricultural products, statistics, pensions, environment, media, Schengen/Dublin, fight against fraud, taxation of savings) that needed parliamentary approval. In one case (education/vocational training/youth) the EU and Switzerland agreed on a declaration of intent, not submitted to Parliament. Kriesi and Trechsel, op. cit.; T. Christin, S. Hug and P. Sciarini, 2002, “La mobilisation des clivages lors des votations populaires”, in S. Hug and P. Sciarini (eds), Changements de valeurs et nouveaux clivages politiques en Suisse, Paris, L’Harmattan, 2002, pp. 237–67. S. Kux, “Zwischen Isolation und autonomer Anpassung: Die Schweiz im integrationspolitischen Abseits?”, ZEI Discussion Paper of the Center for European Integration Studies C3/1998, Bonn, Rheinische Friedrich Wilhelms-Universität, 1998, p. 9. Kux, op. cit., 10. One may note that several studies show that only a small minority of federal laws (submitted to the optional referendum) contain EU-incompatible norms. Also, these inconsistencies are rather limited in most cases; Federal Council, Suisse – Union européenne: Rapport sur l’intégration 1999 du 3 février 1999. Berne, Federal Administration, 1999, pp. 333 et seq. The National Council refused the initiative with 174 against 10 votes, the Council of States unanimously, with 37 votes. No extension of direct democracy; see also M. Delgrande and W. Linder, Analyse der eidgenössischen Abstimmung vom 8. Juni 1997 (Vox no. 61), Berne, Schweizerische Gesellschaft für praktische Sozialforschung/gfs. In the National Council, the initiative was refused by 94 against 69 votes, in the

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44 45 46 47 48 49

Alexander Trechsel Council of States by 33 against nine votes. The indirect counterproposal was initially accepted by the National Council (with 97 against 83 votes), but twice refused by the Council of States (with 29 against 15, and, the second time, with 26 against 16 votes), upon which the counterproposal was dropped. Kriesi and Trechsel, op. cit. Tanquerel 1991; Linder 1999; Federal Council op. cit., pp. 327 et seq.; B. Tornay, I. Renfer and A. Auer. 2006. Jacot-Guillarmod 1990; Epinay, K. Siegwart, M. Cottier and N. Refaeil. 1998: 342 ff.; Epinay and Siegwart 1998: 137 f. See Federal Council 1999, op. cit. Christin and Trechsel, “Joining the EU? Explaining public opinion in Switzerland”, European Union Politics 3/4, 2002, 415–43. Germann, op. cit.

Bibliography T. Christin, S. Hug and P. Sciarini, “La mobilisation des clivages lors des votations populaires”, in S. Hug and P. Sciarini (eds), Changements de valeurs et nouveaux clivages politiques en Suisse, Paris, L’Harmattan, 2002, pp. 237–67. T. Christin and A. Treschel, “Joining the EU? Explaining public opinion in Switzerland”, European Union Politics, 3/4, 2002, 415–43. M. Delgrande and W. Linder, Analyse der eidgenössischen Abstimmung vom 8. Juni 1997 (Vox no. 61), Berne, Schweizerische Gesellschaft für praktische Sozialforschung/gfs, 1997. C. Dupont and P. Sciarini, “Switzerland and the European Integration Process: Engagement without Marriage”, in J.E. Lane (ed.), The Swiss Labyrinth: Institutions, Outcomes and Redesign, London, Frank Cass, 2001, pp. 211–32. A. Epinay, K. Siegwart, M. Cottier and N. Refaeil, Schweizerische Demokratie und Europäische Union, Berne, Stämpfli, 1998. A. Epinay and K. Siegwart, Direkte Demokratie und Europäische Union – Démocratie directe et Union européenne, Freiburg/Fribourg, Universitätsverlag Freiburg, 1998. Federal Council, Informationsbericht vom 26 November 1990 über die Stellung der Schweiz im Europäischen Integrationsprozess (unpublished). Bern, Federal Administration, 1990. Federal Council, Botschaft zur Genehmigung des Abkommens über den Europäischen Wirtschaftsraum vom 18 Mai 1992. Bern, Federal Administration, 1992a (also available at www.ssn.ethz.ch/forschung/amt/documents/EUWirtschaftsraum.pdf). Federal Council, Bericht über einen Beitritt der Schweiz zur Europäischen Gemeinschaft vom 18 Mai 1992. Bern, Federal Administration, 1992b (also available at www.ssn. ethz.ch/forschung/amt/documents/EUBeitrittsbericht.pdf). Federal Council, Suisse – Union européenne: Rapport sur l’intégration 1999 du 3 février 1999. Bern, Federal Administration, 1999 (also available at www.europa.admin.ch/ europapol/off/ri_1999/f/ri.pdf). R. Germann, Staatsreform. Der Übergang zur Konkurrenzdemokratie, Berne, Haupt, 1994. L. Goetschel, Zwischen Effizienz und Akzeptanz. Die Information der Schweizer Behörden im Hinblick auf die Volksabstimmung über den EWR-Vertrag vom 6. Dezember 1992, Berne, Haupt, 1994. L. Goetschel, “Die EWR-Information der Bundesbehörden”, Swiss Political Science Review 1/2–3, 1995, 61–91. O. Jacot-Guillarmod, “Conséquences sur la démocratie directe, d’une adhésion de la

Direct democracy and European integration 51 Suisse à la Communauté européenne”, Beiheft zur Zeitschrift für Schweizerisches Recht, Heft 10, Basle, 1990, pp. 39–80. U. Klöti, C. Hirschi and U. Serdült, Verkannte Aussenpolitik. Entscheidungsprozesse in der Schweiz, Zürich and Chur, Rüegger, 2005. A. Kölz, Neuere schweizerische Verfassungsgeschichte. Ihre Grundlinien in Bund und Kantonen seit 1848, Berne, Verlag Stämpfli, 2004. H.P. Kriesi, Direct Democratic Choice. The Swiss Experience, Lanham, Lexington Books, 2005. H.P. Kriesi and A. Trechsel, The Politics of Switzerland. Continuity and Change in a Consensus Democracy, Cambridge, Cambridge University Press, 2007. H.P. Kriesi, C. Longchamp, F. Passy and P. Sciarini, Analyse de la votation fédérale du 6 décembre 1992 (Vox no. 47), Berne, Schweizerische Gesellschaft für praktische Sozialforschung gfs, 1993. H.P. Kriesi, B. Wernli, P. Sciarini and M. Gianni, Le clivage linguistique: problèmes de compréhension entre les communautés linguistiques en Suisse, Berne, Office fédéral de la statistique, 1996. S. Kux, “Zwischen Isolation und autonomer Anpassung: Die Schweiz im integrationspolitischen Abseits?”, ZEI Discussion Paper of the Center for European Integration Studies C3/1998, Bonn, Rheinische Friedrich Wilhelms-Universität, 1998. Also available at www.zei.de/download/zei_dp/dp_c03_kux.pdf. W. Linder, Schweizerische Demokratie. Institutionen, Prozesse, Perspektiven, Berne, Haupt, 1999. W. Linder, “Direct Democracy”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos. (eds), Handbook of Swiss Politics, Zürich, Neue Zürcher Zeitung Publishing, 2004, pp. 101–20. L. Marquis and P. Sciarini, “Opinion formation in foreign policy: the Swiss experience”, Electoral Studies 18/4, 1999, 453–71. A. Moravcsik, The Choice for Europe. Social Purpose and State Power from Messina to Maastricht, Ithaca, NY, Cornell University Press, 1998. T. Oberer, Die innenpolitische Genehmigung der bilateralen Verträge Schweiz-EU: Wende oder Ausnahme bei Aussenpolitischen Vorlagen. Analyse der Argumente und Strategien im Genehmigungsverfahren und in der Referendumskampagne, Basel, Europainstitut der Universität Basel/Baslerschriften zur europäischen Integration Nr. 52/53, 2001. P. Schmitter and A. Trechsel (eds), The Future of Democracy in Europe. Trends, Analyses and Reforms, Strasbourg, Council of Europe Publishing, 2004. G. Schneider and C. Hess, “Die innenpolitische Manipulation der Aussenpolitik: Die Logik von Ratifikationsdebatten in der direkten Demokratie”, Swiss Political Science Review 1/2–3, 1995, 93–111. D. Sidjanski, “La Suisse face à la Communauté européenne”, Pouvoirs 43, 1987, 139–49. T. Tanquerel, “La Suisse doit-elle choisir entre l’Europe et la démocratie directe?”, Revue de droit suisse 10/2, 1991, 188–220. B. Tornay, I. Renfer and A. Auer, Les cantons entre l’adhésion à l’Union européenne et la poursuite de la voie bilatérale: Démocratie directe, participation à la politique européenne et mise en œuvre. Geneva: Research and Documentation Centre on Direct Democracy (c2d) of the University of Geneva, 2006. A. Trechsel and P. Sciarini, “Direct democracy in Switzerland: Do elites matter?”, European Journal of Political Research 33/1, 1998, 99–123.

4

Swiss neutrality Incompatible with EU membership? Daniele Ganser and Georg Kreis

Together with direct democracy and federalism, Swiss neutrality is, as Dardanelli has already noted, one of the three central principles through which the political life of Switzerland has been organized for decades and even centuries. And, while direct democracy and federalism shape the structure and organization of Swiss domestic politics, neutrality has long been said to guide Switzerland’s foreign politics and its relationship with the rest of the globe. A foreign reader might find it astonishing or, at least, peculiar that a single principle such as neutrality could ever govern the complex and multifaceted foreign policy of a country, above all given today’s rapid changes and the growing challenges in the international system. And yet the principle of neutrality remains unchallenged in Switzerland to this very day and indeed strongly influences Swiss foreign policy, including the country’s position towards the United Nations (UN), the North Atlantic Treaty Organization (NATO), and of course the European Union (EU). A historical overview of the relationship between Switzerland and “Europe” shows that the concept of neutrality, as crystallized after 1945, played an important role in rejections of the European integration project. This might lead foreign observers to the conclusion that Swiss neutrality is incompatible with EU membership. Yet this is not the case. Switzerland could well be both a neutral country and an EU member. A detailed historical analysis of Swiss neutrality shows that the interpretation of the principle of neutrality has undergone several changes and there is still conflict on how it should be “correctly” applied. Also in the future the discourse on neutrality is likely to continue playing a significant part both in Swiss relations with the EU as well as a dominant element of Swiss identity.1

Before 1945 Traditionally Switzerland has applied the principle of neutrality to all questions of foreign policy, be they economic, diplomatic or military. Swiss neutrality in military affairs traditionally equaled military non-involvement. According to this classic core definition Switzerland’s neutrality guarantees that, while the Swiss prepare for autonomous self-defense, they will not engage in warfare

Neutrality: incompatible with EU membership? 53 against other nations unless Switzerland has been attacked. And, if other nations engage in war Switzerland will not take sides in such armed struggles. To many foreign observers Switzerland has been a neutral country for as long as they can remember. But they, like many Swiss, overlook the fact that during the Middle Ages, the Swiss not only actively engaged in international warfare, but even developed a Europe-wide reputation as efficient mercenaries. At the time “mercenary work became something of a national industry for the Swiss”, who until 1859 fought under different flags across the continent and followed only one rule: that Swiss regiments do not fight each other.2 It was not moral insight but the devastating defeat of the Swiss at Marignano in northern Italy in 1515 which highlighted the limits of Swiss power politics and guided the small landlocked country towards enduring reticence in foreign policy. Only when, in 1798, the French invaded Switzerland were the Swiss forced to take up arms once again, as the country was drawn into the maelstrom of war with the French and the Austrians battling on the Swiss territory for control of the Alpine crossings. With the victory of the French, Switzerland was occupied and lost its neutrality for 16 years until 1815 when Swiss regiments officially fought at Waterloo. Thereafter Switzerland’s permanent neutrality was to be internationally recognized and kept the country out of wars ever since. Indeed, the Swiss today are quite proud of the fact that their country has not invaded or attacked any other country for 190 years, making neutrality a highly cherished Swiss principle. The most difficult challenges to Switzerland’s armed neutrality arose, as one would expect, during the two World Wars of the last century which turned most of Europe into a battlefield. During World War I Switzerland was, as of 1915, completely surrounded by belligerents but did not take part in the war on either side. Throughout the war Swiss soldiers guarded the frontiers in order to prevent the opponents from using Switzerland’s territory for outflanking manoeuvres. After the war Switzerland joined the League of Nations who set up headquarters in Geneva and reaffirmed that Switzerland could take part in economic sanctions against other nations while remaining permanently neutral in the military field. Prior to World War II Switzerland found itself once again in a very dangerous position, with Hitler’s Germany on its northern border and Mussolini’s Italy on its southern flank. The situation turned from bad to worse when, after the annexation of Austria in 1938 and the fall of France in 1940, Switzerland was completely surrounded by the Axis Powers. The neutral Swiss defended their frontier, shooting down both Nazi and Allied airplanes which occasionally, by mistake, entered Swiss airspace. Nonetheless, until the end of the war the country feared an invasion which luckily never came. Fifty years after World War II the World Jewish Congress (WJC) under Edgar Bronfman and representatives of the United States including Republican Senator Alfonse D’Amato and Under-Secretary of State Stuart Eizenstat sharply criticized Switzerland for its role during World War II, claiming its neutrality had helped the country to profit from the war. D’Amato and Eizenstat specifically accused the Swiss private banks of having taken over Jewish property in

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the form of dormant accounts, and criticized the Swiss National Bank for having bought gold from the Nazis who in turn got it from their concentration camps. Due to the importance of the principle of neutrality this accusation, of having been both too neutral and not neutral enough, caused a great stir both within and outside Switzerland. In order to find out the facts the Swiss parliament in December 1996 created an internationally composed independent commission of experts, under the direction of Professor of History Jean Francois Bergier, with the task of investigating the role of Switzerland during World War II. The focus of the investigation was not Swiss neutrality, however, but financial matters. The Commission presented its final report in 2002 and confirmed that Switzerland had indeed collaborated economically with Nazi Germany during the war. Specifically, the Swiss government had provided credits to the German Nazi government which, by the end of 1945, amounted to one billion Swiss francs, while also allowing unsupervised German transit traffic through Switzerland, using the Swiss rail system. Both acts, as the Commission concluded, represented a clear violation of Swiss neutrality.3 The interpretation of these findings led to deep divisions within the country with some observers concluding that neutrality was but a myth, while others stressed that, given the real and present danger at that time of an invasion by Hitler, a number of compromises had to be made as a form of self-defense in order to survive. While Switzerland hardly ever features in the news in the British press, this debate on the country’s role during World War II was picked up in the United Kingdom. “Switzerland’s wartime reputation has suffered grievous harm in recent years”, historian Tim Luckhurst wrote in the Guardian, while stressing that only an integrated perspective will ever be able to tell the whole story. “A balanced view recognizes that Switzerland opposed Nazism in word and deed. It did not persecute or deport Jews as Vichy France did.” Luckhurst concluded that “Switzerland could and should have done infinitely more for the Jewish victims of Nazism”, but “she did rather more for them than any other country in Europe – and nobody did enough.”4

Swiss neutrality and the European Union “Neutrality is a principle of peace”, Swiss Foreign Minister Micheline CalmyRey explained in an interview with the Swiss press in 2005. “Apart from defending ourselves in case of attack we categorically renounce the use of armed force. At the time when the Swiss government decided upon this principle this was quite a revolutionary position, as warfare was the usual way to solve conflicts. If all countries had taken that same decision at the time the world would be a different place today.” The journalist, aware that the neutrality of Switzerland in military affairs was well established and no longer controversial, then asked the Swiss Foreign Minister the more sensitive question of what exactly neutrality meant for Switzerland’s position vis-à-vis the EU: “Don’t you think that, with your praise of neutrality, you reduce the willingness of the country to join the EU?” To which Calmy-Rey replied:

Neutrality: incompatible with EU membership? 55 The EU constitution as presently written is compatible with our neutrality. This could change, however, when the EU introduces a common foreign and security policy. At the same time we observe that exceptions are being made within the EU. Great Britain and Sweden for instance have decided not to introduce the common currency. Such a development is interesting for Switzerland, above all if one takes into account reservations with regard to neutrality and direct democracy. When the journalist insisted, saying: “Arguably, EU membership and neutrality today remain incompatible in the minds of a majority of Swiss citizens. How long do you think it will be before you can change that?”, the Swiss Foreign Minister replied: “I am not a prophet!”.5 This interview shows in a nutshell that the principle of neutrality matters a great deal when it comes to the question of how Switzerland should structure its position vis-à-vis “Europe”, meaning the European Community and the EU. Unfortunately Switzerland has, since World War II, approached the “European question” very defensively, and continues to do so to this day. This strategy has deprived the country of its ability to participate actively in the construction of this “new Europe” by which it is completely surrounded and on which it so strongly depends. Within this defensive stance, the principle of neutrality has long served as a stock argument to justify non-participation and isolation in international affairs. It was not until the 1990s that perceived dangers to direct democracy and to the federal cantonal structure were presented as primary arguments against accession, partly replacing the older and traditional neutrality argument, which had temporarily lost some of its power of persuasion.6 Nonetheless, in the collective consciousness and in public debate on Swiss foreign policy the importance of neutrality is anything but marginal. The concept of neutrality remains a central element of Switzerland’s self-conception and identity.7 This is also why the country’s neutral stance often enters into debates even when it is of no real relevance to the issue under discussion. Although participation in the EEA did not affect the question of neutrality, the latter was a factor in the 1992 referendum.8 And the neutrality argument was again advanced, in 2005, by the opponents of Switzerland’s participation in the Schengen/Dublin Agreement.9 The great significance attached to neutrality results from efforts by the political elites since 1945 to achieve an “ideological elevation” of an instrument, which was always portrayed as a means and not an end unto itself. Yet, despite this, it was still accorded such high status that all foreign policy had to be subordinated to it. This concept was so powerful that Swiss foreign policy was completely equated with the policy of neutrality, and it was difficult for many Swiss to conceive of a foreign policy that did not impinge on their neutrality at all. During the 1973–5 Helsinki Process, for example, one of the main goals of the Swiss delegation was to preserve the country’s neutral status between the two power blocs of the Cold War, and furthermore to achieve official recognition of its neutrality.10

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1957–60: a doctrinaire handling of neutrality How was it possible for Switzerland to remain “eternally neutral” while, at the same time, joining a number of multinational institutions, most of which were created after World War II? In order to justify Switzerland’s participation or non-participation in multilateral institutions, a differentiation was introduced in 1945 between admissible “technical” and inadmissible “political” cooperation. The distinction was, however, purely arbitrary. The Organization for European Economic Cooperation [OEEC], for example, was listed in 1948 as a technical institution, while the Council of Europe was long regarded as a political body (1949–63). It proved equally difficult to subsume the European Economic Community [EEC] of 1957 and the OEEC under one category or the other. The decisive question was to what extent members were giving up their treatymaking powers in favor of a supra-national entity, and hence the focus was first on the principle of sovereignty, and only indirectly on neutrality. In 1954 the Swiss Foreign Ministry, then called EDP but today the EDA, felt a need to codify the prevailing view, as well as the practice derived from it, in a dogmatic text entitled “Official Swiss Neutrality Doctrine”. Its main points included a distinction between participation in “political” and “technical” institutions, a rejection of ethical neutrality, a refusal to agree to any tariff union, and a ban on explicit war loans (while permitting warring nations to take out trade credits).11 This doctrine, sometimes referred to as “Bindschedler doctrine” after the Foreign Ministry’s chief legal expert Prof. Rudolf L. Bindschedler, was a response to evident signs of disintegration in the debate during the Korean War over whether Switzerland should give up its neutrality as the increasing threat of war was being felt even in the West.12 Switzerland’s reaction to the 1957 Rome Treaties – which gave birth to the EEC and the European Atomic Energy Community (EURATOM) and affirmed in the preamble that signatory States were “determined to lay the foundations of an ever closer union among the peoples of Europe” – was twofold. On the one hand, Swiss officials politely, but skeptically, wished the six participating countries the best of luck. On the other hand, it was patently obvious, because of the doctrinaire view of neutrality, that Swiss participation was out of the question. The Vorort (the Swiss National Association of Trade and Commerce, the equivalent of the CBI) announced that Switzerland would not be able to join the EEC, “as an accession would not only be diametrically opposed to its traditional policy of neutrality, but would also jeopardize the country’s independence”.13 The Association’s chairman said much the same but also admitted that what really bothered him about the Common Market was “the tendency towards statist egalitarianism”. In this view, a policy of integration and harmonization was equated with statism, bureaucracy, Jacobinism, and a socialist or even Marxist planned economy. Indeed, in the emotive words of the Vorort’s Director Hans Schaffner (the future Federal Councilor and head of the Federal Department of Economic Affairs, the EVD), it was a matter of Gleichschaltung (or enforced conformity) of economic, financial, and social policy, thus equating it with a fascist regime.14

Neutrality: incompatible with EU membership? 57 On the other hand, the alternative project then being promoted by Britain, a large “European free trade zone”, met with approval in Switzerland. In this case, it was argued that remaining outside this union was not required by neutrality but would actually create major disadvantages for the Swiss economy.15 Switzerland joined the EFTA group in 1960 as a founding member together with Great Britain, Denmark, Austria, Norway, Portugal and Sweden. This organization – being purely inter-governmental – created no difficulties for the neutral stance of the country, partly because it included also other neutral states such as Austria and Sweden, although from the elitist Swiss perspective, the latter only practiced an inferior form of neutrality.16

1961–72: first steps towards “Europe” When Britain applied for EC membership in 1961–2, Switzerland and other EFTA members felt constrained to push for associate status with the EEC. Concerns about neutrality were immediately voiced together with the expectation that Switzerland would only sign up for associate status subject to an explicit proviso on neutrality. An interesting debate started to unfold in the country when these Swiss deliberations were suddenly made obsolete by the veto of the French president Charles de Gaulle. One representative of the Swiss nationalist right wing was very relieved: “Thank goodness, De Gaulle has saved us from the worst.”17 The corporate sector’s hostile engagement in this phase was also noticeable. There was a fear that Switzerland could become an economic, rather than a political, satellite state. From this point of view, the 1965 “Empty Chair” crisis and the 1966 “Luxembourg Compromise” were noted with a certain sense of gratification. This was closely linked to the illusionary hope that the EC might lose its supra-national quality, allowing Switzerland to participate on an ad-hoc basis. After Britain’s EC accession, Switzerland and other EFTA nations were forced to reactivate their plans for closer relations with the EC, albeit focused strictly on free trade. The resulting agreement was debated in Parliament in September 1972 and accepted by a popular vote of 72.5 percent in favor in December 1972. This phase was also accompanied by public statements to the effect that Switzerland must remain “true” to its neutrality, and that there must be no “wavering” in its traditionally neutral stance. These were merely rallying cries to assuage the nationalist right, which decried the EC as a “Fourth Reich” and pictured Switzerland as a medieval castle: “Our Fortress of Independence, Liberty, Autonomy, and Neutrality is being stormed by the predominant economic and financial powers, trench by trench, but relentlessly.”18 For some, the referendum was an opportunity to settle scores with the EC in general: The EC they said, operated a “misanthropic system” in which “brute economic force” ruled supreme. Most opponents were probably motivated by the fear of a continuing influx of foreign labour. Further opposition arose from general criticism of the effects of the economic boom. Many argued that only urban centres would benefit from

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the agreement, while peripheral regions would be even further disadvantaged. Ecological arguments were also beginning to have an impact. Hence more than a quarter of voters rejected the proposal.

1988–92: “Europe” and a redefinition of neutrality After 1972, discussions on European policy were very mundane since it did not seem, as Church suggests below, as if any larger issues remained to be resolved. This changed when in the mid 1980s once again “Europe” moved and the Swiss were forced to react. The negotiating of the Single European Act in 1985–6 caught some Swiss by surprise. However, Jacques Freymond, the President of the Centre Européen de la Culture, at least thought he perceived a late and therefore rude awakening in Switzerland when he wrote: “The Swiss are thus, very late in the day, feeling the ‘shock of European integration’ . . . and are suddenly in a hurry.”19 It is unclear whether Freymond correctly captured the mood, as it still took three more years before Switzerland realized that events were developing rapidly in the area of integration policy. Political scientist Daniel Frei also warned as early as 1989 that the effects of EC membership on the legal and political ramifications of Swiss neutrality should not be overlooked, as there was a risk “that it was precisely the desire for neutrality that might impede the pursuit of a realistic policy of neutrality.”20 Subsequently, as Church shows below, the government issued innumerable socalled “Integration Reports” on relations between Switzerland and Europe. These were mainly intended for parliament, but were naturally discussed in great detail in the media. Although the First Integration Report, published in 1988, was issued in response to parliamentary motions that were completely unrelated to neutrality policy, it acknowledged the important role of neutrality.21 The report began its remarks on this topic with a strong statement of reverence for the traditional conception of neutrality: The Federal Council, it remarked reassuringly, was quite aware of “the deep roots of neutrality in the history and collective consciousness of the Swiss people, and of its importance as an instrument in preserving our independence and our national interests”.22 While references to the “purely instrumental” character of neutrality are usually advanced as qualifiers, the phrase was chosen in this context to tacitly reaffirm the high significance attached to neutrality. Arguably the government was so strongly stressing the value of neutrality because, at the time, it was for the first time in history that the country faced a popular movement which wanted nothing less than the complete abolition of the Swiss army, the military force which so long had been considered one of the most important tools with which to defend Swiss neutrality if worst came to worst and the country should be attacked. The “Group for Switzerland without an Army” [GSoA] initiative to do away with the army was, however, rejected in a popular vote in 1989 with 64 percent saying they still wanted Switzerland to keep its army in order to be neutral and armed.

Neutrality: incompatible with EU membership? 59 Hence the Federal Council saw no reason whatsoever to reconsider the traditional conception of neutrality, especially since no “radical change of course” was to be expected in any area of foreign policy. It was anticipated that a policy of “autonomy through neutrality”, which had been secured under the Free Trade Agreement and was seen as indispensable, would not be feasible if Switzerland joined the EC.23 The government therefore stressed that Swiss neutrality would make it difficult for the country to become an EC member: “Accession could also be difficult in terms of Swiss neutrality and might undermine its credibility.”24 Furthermore, in a paraphrase of the formula used at the Congress of Vienna in 1815, it was remarked that the EC, like the European states that had preceded it, perceived Swiss neutrality as being in the common European interest.25 In the end, at least, a commitment was made to keep an eye on how “Europe” was going to develop in the future, very much in line with the strategy followed by Switzerland in 1945 when the country decided not to join the newly founded United Nations but continue to observe the development: “Rapid developments in the process of European integration mean that Switzerland’s position within Europe must be constantly and impartially reassessed.”26 In autumn 1989, the Swiss Foreign Ministry published a report by Dietrich Schindler on the compatibility of EC membership and neutrality. The report, completed in autumn 1988, had been commissioned by the Swiss Foreign Ministry’s directorate for international law and was kept under wraps for some time before it was finally published and came under media scrutiny.27 The Berner Zeitung’s assessment was that “Neutrality is challenged either way”, and the Tribune de Genève announced: “Neutrality is no longer a taboo”.28 Schindler himself had reached the following conclusions: Neutrality as a protective shield only makes sense as long as Switzerland’s autonomy is not gravely undermined from the outside. Should Europe reach such a high degree of political and economic unity that Switzerland would be perceived as being dependent on it to a large degree, one might expect strong criticism of the policy of neutrality to result. To paraphrase Schindler, if Europe was weak and fragmented, then Swiss neutrality could be an intelligent protective shield. However, if the European nations surrounding Switzerland suddenly stopped fighting and became firmly united, then Switzerland’s neutrality would be worth much less and could even inhibit Switzerland from actively participating together with others in the creation of its environment on which the country depends. Schindler’s younger Zurich-based colleague, Daniel Thürer, also investigated whether neutrality was compatible with EC membership. After detailed deliberation he concluded that, in principle, it was. Thürer’s plain but radical and open approach to this delicate question remains remarkable to this day: The central challenge to Switzerland’s neutrality in the next years will therefore be an impartial assessment both of whether, apart from a variety

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D. Ganser and G. Kreis of convergence alternatives that do not impinge on the legal and political aspects of neutrality, the alternative of full membership is a realistic one and of what the consequences of such a step would be for neutrality.29

In June 1990, Federal President Arnold Koller – speaking not in Berne, but at the EFTA summit in remote Gothenburg – developed this thought further and announced that Switzerland would have to “adapt” its policy of neutrality.30 Also other reports written by the Swiss government in those years raised the question of what neutrality really meant for Switzerland at the end of the Cold War. In his comments on the Security Report 1990, which had just been approved by the Federal Council, NZZ Editor-in-Chief Hugo Bütler remarked that the report had created a demand for a “comprehensive statement” by the federal government on the topic of neutrality. Bütler explored the question of whether the Swiss had indeed to sacrifice their cherished neutrality in order to be able to become a full member of the EC. He mused whether one could not also imagine that an integrated Europe, struggling with diverging foreign and security policy agendas, might not itself collectively opt for armed neutrality. And if that scenario was less than likely, that at least a unified Europe would welcome a neutral member: “Either way, one can imagine that a unified Europe might welcome the military neutrality of a small country as a contribution to stability.”31 In its Second Report on Integration of November 1990, the Federal Council admitted that Switzerland’s integration policy had noticeably accelerated. At this point, the councilors rejected the traditional interpretation of neutrality and cited only the most dynamic sentence of their 1988 declaration: “The limit of tolerance for the credibility of Switzerland’s neutral stance cannot be fixed once and for all”.32 After the dramatic changes of 1989, when the longstanding East–West antagonism disappeared, the Federal Council was forced to admit that neutrality had experienced a “shift in significance” and that neutral states were also under an obligation to contribute to securing the newfound stability. Hence the assessment of neutrality became much more equivocal: “Whether Switzerland regards EC membership as being compatible with neutrality is ultimately a political question.” It went on: “Current developments in Europe indicate that, at some point, Switzerland may be in a better de facto position to pursue its interests by becoming an EC member than by remaining aloof.”33 Likewise, according to several statements he made in 1991, Hugo Bütler too did not regard neutrality as an insurmountable obstacle to EC membership. The importance of a neutrality policy resulting from intra-European rivalry would be diminished as the EC developed, argued Bütler, regardless of Switzerland’s membership prospects. Furthermore, he said, the neutrality issue was “of minor importance” compared to institutional and economic problems. He pointed out that Switzerland would be able to join as a neutral state as long as there was no integrated European defense policy. However, the Swiss could even give up their neutrality if an integrated European defense policy proved to be a better and more reliable approach to solving international problems.34

Neutrality: incompatible with EU membership? 61 In March 1992 yet another report on neutrality, which had been commissioned in October 1990 from a team under the direction of Mathias Krafft, the head of the Foreign Ministry’s International Law service, was presented to the public.35 The report concluded that neutrality had lost its earlier importance as a survival strategy for small states in a hostile environment. Moreover, there was no reason in international law why the status of permanent neutrality should not be abolished, the authors found, although they recommended that it be maintained for the time being, due to the constellation of international relations. Neutrality had to be reduced to its core essence, they said, so that Switzerland would win “the greatest possible freedom of action in foreign policy in order to manage future challenges”.36 The Krafft report followed a pattern that is typical of attitudes towards neutrality in Switzerland. On the one hand, it admitted that neutrality had “diminished in importance” relative to other foreign policy tools, as a result of a paradigm shift in the foreign policy environment. On the other hand, in view of the transitory nature of the period in question and its prevailing sense of insecurity, the “strategy of neutrality” was to be preserved, with “neutrality” reduced to its core meaning under international law. These two aspects were aptly described in the report itself as constituting a “two-pronged strategy of cooperation and neutrality”37 and a “two-pronged strategy of conservation and openness”.38 It was recognized that neutrality was of great, and sometimes even irrational, significance for the national identity; yet this was said to be balanced by an “information mandate” which required a reassessment of neutrality.39 The main thrust of these efforts was obviously intended to enlarge the scope of foreign policy options. The report concluded with a list of policies to which neutrality must “cease to be an obstacle”, including military cooperation to strengthen security structures (in the UN’s domain) and EC membership40 as well as participation in economic sanctions and assistance in implementing military sanctions. Media coverage in early 1992 of the Krafft Report’s new assessment of neutrality policy was positive: “Neutrality without Reservation” was the NZZ headline, and the Basler Zeitung caption read: “Neutrality in Transition – Farewell to a Myth”.41 With this report, the official line had reached its maximum departure from the traditional extensive and isolationist concept of neutrality. Yet the position thus described was, however, most likely shared only by a handful of lawmakers, while the population at large remained either ignorant of it or disagreed.42 Historically, therefore, the Krafft report remains as evidence of attempts by part of the Swiss political elite, as of yet unsuccessful, to replace the elevated concept of neutrality that had been preached for decades with a more somber conception. In early 1990 Switzerland thus had two possible strategies for developing closer ties with the European Community. The first, and politically most farreaching one, was to become a full EC member. The second one was to join only the European Economic Area and hence to become more integrated into the European free market with its free flow of goods, services, persons and capital.

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The Federal Council announced on 10 May 1991 that EC accession was the “option given priority consideration” in Switzerland’s European integration strategy. A few days later the Swiss Foreign Minister René Felber and the Swiss Minister for Economic Affairs Pascal Delamuraz – both lacking sufficient English skills – traveled to Brussels and there came to understand that the EEA was not the “golden middle course” that would allow Switzerland to avoid EC membership, but a direct route that would take them sooner or later into the EC. On 19 October 1991, therefore, the Federal Council decided to “define EC membership as the goal of our integration policy and to regard the EEA as an important stage, especially in domestic policy terms, in pursuing that goal”. While the Swiss population had a hard job to understand the difference between EEA and EC, and what both meant in practice for their daily lives, the government attempted to communicate its reasoning to the population in two publications: a Third Integration Report concerned specifically with EC accession, published on 18 May 1992, and the Federal Council’s Message on the approval of the EEA treaty, published on the same day.43 The latter had become necessary because the Federal Council had signed the EEA treaty on 2 May 1992 in Porto and had to submit it to parliament for ratification. This strategic move of the Swiss government towards international integration seemed realistic at the time because the 1992 popular vote on joining the Bretton-Woods institutions – the International Monetary Fund [IMF] and the World Bank – had been remarkably positive. Therefore, the Federal Council believed that it could also go public with its plan regarding the European integration of the country. In what seemed a sudden rush of the Swiss government towards Europe the neutrality issue was mentioned only at the margins. In the message referring to the EEA, it was indicated that, unlike EC accession, joining the EEA would have no effect on the right to remain neutral, and that “no problems” were expected concerning neutrality. In its summary the administration was even more unequivocal: Both the right to remain neutral and the policy of neutrality remained “completely unaffected”.44 In the report on EC accession, the chapter “National Identity and EC Membership” made reference to the elements of “federalism” and “direct democracy”, but remained conspicuously silent on “neutrality”, despite its central and undisputed importance to Swiss national identity.45 In other passages referring to the EC’s “foreign policy posture” the neutrality issue had to be mentioned, but there it was done with a qualifying caveat: “Today, Switzerland has no requirement for a dogmatic discussion on neutrality as such . . .”.46 This statement was based on assessments that the EC was still evolving (and that the end result of current developments in European politics was as yet unpredictable); that the EC’s position was flexible, as could be seen in its stance towards Austria; that certain EC member states would regard a neutral EC member as a special case in the positive sense; and that, in legal terms, the existing problems were not insurmountable. To complicate matters, the text included some references that seemed to indicate otherwise – for example, an obligation to participate in economic sanctions,

Neutrality: incompatible with EU membership? 63 or references to expectations of solidarity with the EU that would increase as the community expanded. In general the report claimed, however, that neutrality was “not a basic obstacle” as far as the EC was concerned, provided the neutral party continued to display solidarity and loyalty and was prepared to accept the “possible irrelevance of its neutral status” once the EC developed a common defence policy.47 The report of the Federal Council arranged these statements in a way which emphasized the EC’s trouble-free stance and glossed over difficulties on the Swiss side. These efforts by the Federal Council were indirectly supported by the Krafft Report. The National Council was convened for a special parliamentary session in August 1992 to debate the EEA treaty.48 As might be expected, a discussion on neutrality inevitably arose, as some parliamentarians claimed that neutrality was not affected at all, while others insisted that precisely the opposite was the case. The spokesman of the group of parliamentarians who had prepared the treaty for the debate declared: “The question of neutrality is in no way affected by the EEA.” Some EEA opponents referred primarily to “centralism”, “statism”, “loss of sovereignty”, a “sellout of democratic rights”, “subservience to EC directives”, and the “establishment of centralist-state power blocs”. Christoph Blocher, the real head of the nationalist right wing and president of AUNS/ASIN, preferred to castigate the notion of EEA accession because this would raise interest rates, instead of discussing the problems it would bring for neutrality. At the same time other parliamentarians opposed to the EEA treaty did focus on the question of neutrality. One parliamentarian extolled the virtues of 700 years of resistance against foreign judges, and pointed out that Switzerland had been “able to successfully offer our good offices to the whole world, thanks to our neutrality”, and wondered whether this aspect had suddenly become completely worthless. Another reminded his listeners that Switzerland, being a small state, had not taken part in the “battles of the great powers”, and that the doctrine of neutrality had passed a test of fire, especially during the twentieth century. Thereafter, the cantonal chamber of parliament, the Council of States debated the EEA treaty in September 1992, and once again neutrality was of particular interest to it. The president of the council declared in her opening statement that “our neutrality” would remain completely unaffected by the EEA. However, this did not hinder others from claiming exactly the opposite during the subsequent heated debate. As far as the EC accession treaty was concerned the National Council began its parliamentary debate in 1992 at the beginning of the regular autumn session of parliament. Appropriately enough, this time, the problem of neutrality was debated in slightly more detail, although the issue was still not as present as one might have expected, given the intensity of earlier discussions. Additional concerns arose because the EC, at exactly the same time as Switzerland was debating whether it should join, had just concluded the Maastricht Treaty, which specified the goals of political union as well as the establishment of a Common Foreign and Security Polity [CFSP]. Critics said that the application of neutrality

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had been “insufficiently” defined, and that the government had fudged its way around a redefinition of neutrality in its Third Integration Report. For these and other reasons, the report was finally rejected by an overwhelming majority and sent back for revision. The Council of States followed this verdict without further discussion.49 In the end, when the question was put to the Swiss electorate on 6 December 1992, the EEA was rejected by 50.3 to 49.7 percent of votes, on an exceptionally high turnout of 78.3 percent. The neutrality issue had had only a marginal effect on the outcome – at any rate, it was not listed among the seven most frequent arguments advanced against the proposal.50 With EEA membership, the smaller version so to speak, rejected by the public, the EC membership was no longer an issue. Hence, for the time being at least the government’s move towards EU membership had been halted by the Swiss population.

1994: returning to the old concept of neutrality? When the Report on Neutrality of October 1992 was revised and republished as an annex to the November 1993 “Report on Foreign Policy in the 1990s”, it received harsh criticism both during parliamentary consultations and in the media. While the softening up of neutrality had been generally shrugged off in 1991–2, a growing opposition now emerged which wanted to return to the pre1991 status quo ante. The increasingly defensive stance and the accompanying mental backlash were illustrated by a February 1994 headline announcing the results of an opinion poll: “Neutrality – a tower of strength”51 or by an editorial on parliamentary debates on the foreign policy report in early 1994 entitled “No way around neutrality”.52 While the Federal Council’s statements on European policy during the second half of the 1990s did not explicitly retract the Krafft Report’s restricted view of neutrality, the government did repeatedly emphasize the absolute validity of the country’s neutral stance. The “Report on Foreign Policy in the 1990s”, published in November 1993, was then discussed in a nine-hour National Council debate in March 1994 that involved 76 speakers (out of a total of 200 MPs).53 All said, it was more a debate over what European policy posture to adopt than about the general, comprehensive, and integrated conception of foreign policy. In it great significance was attached to the question of neutrality. Out of the 30 contributions dealing with neutrality, 17 subscribed to a traditional rigid interpretation of neutrality, and only 13 advocated a more flexible and practical understanding. One committee representative emphasized the “uniqueness” of Swiss neutrality while the committee’s spokesman for the French-speaking part of the country, which is considerably more open-minded towards European integration, argued that the mutual compatibility of neutrality and EU membership should at least be open for discussion. An analysis of voting records and party affiliation reveals a remarkable polarization between the political right and left. The right wing served as a rallying point for the advocates of an orthodox interpretation of neutrality, while sup-

Neutrality: incompatible with EU membership? 65 porters of a more flexible version gathered on the left. Conservatives saw neutrality as a fixed and clearly described value and accused the left of “tinkering with” or “undermining” neutrality, of which, they asserted, no “halfway, median, or modified” versions were possible. Blocher also thought that a neutral stance could serve as a barrier against the government’s “escapades” and would prevent it from pursuing “power politics”. Left-wing lawmakers rejected a rigid interpretation of neutrality and demanded that policymakers be more flexible. “The policy of neutrality has helped to stabilize Switzerland. However, the same policy of neutrality may make Switzerland more immobile today.” Indeed they argued that neutrality could lead to isolationism. The report was finally accepted by 130 votes, while 40 national councilors wanted it to be returned to the Federal Council for the purpose of “preserving unequivocally the policy of eternal, armed neutrality”.54 A similar procedure took place in the Council of States, albeit in more benevolent and positive terms. One member of the upper chamber seized on the image of neutrality being anchored in the mind of the people, which had been advanced by the opposite party. That collective consciousness was criticized as being schizophrenic and in danger of ignoring the constancy of change. When observers stated flatly that people supported “traditional neutrality”, the lawmaker said, it was unclear what form of neutrality they were referring to. Did they mean the concept of 1890, or 1920, or maybe the 1938 version? “Neutrality should not become a sacred cow, but it should be used, as we have always done, to strengthen our position.” He received backing from a colleague who did not want neutrality to be regarded as “the black Kaaba of Switzerland”, a reference point for religious worship therefore, even if this meant offending the “mullahs obsessed with preserving the status quo”. In 1999, the Federal Council presented yet another Integration Report. This was intended to stimulate a debate that would reveal to the Council whether the domestic situation was such that accession negotiations could start. The report had hardly anything new to say on neutrality and essentially confirmed the findings of the report of 1993. As one of its few novelties it was able to point to the provision of the Maastricht Treaty’s article J4 (4) (now 17 TEU), where the socalled “Ireland Clause” expressly states: “The policy of the Union in accordance with this Article shall not prejudice the specific character of the security and defence policy of certain Member States.” The report also clarified the distinction between a common security policy, which had been developing incrementally since 1992, and defense policy, which would remain in the responsibility of member states for some time to come, and which Switzerland would be able to deal with in the time-honored manner. Switzerland would be obliged to participate in the establishment of a comprehensive security arrangement for the continent, but could also choose the option of constructive abstention to avoid taking part in actions that created difficulties for the policy of neutrality. The two European initiatives which were the subject of referenda in 1997 and 2001 dealt primarily with questions of procedure and authority, and did not stimulate a more intensive debate on the neutrality question. The issue also had

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no effect on the so-called “Bilateral I” proposal that was accepted on 21 May 2000 by a majority of 67.2 percent of popular votes and whose seven dossiers allowed Switzerland to join the free market of the EU despite the defeat of the not dissimilar EEA treaty eight years earlier. AUNS chief Christoph Blocher realized this, but was overruled by the group’s general assembly on 13 May 2000, which refused to back the “Bilateral” deal and voted by 325–190 to campaign against it, humiliating their president in the process. However, since this assembly was held only a week before the referendum, the vote had little effect. At the end of 2002 many people looked back on the decision of 6 December 1992 attempting mainly to determine which of the many prognoses had been accurate in economic terms. Neutrality was hardly mentioned in this. In his pamphlet “Ten years after the rejection of the EEA treaty”, which was distributed to all Swiss households, Blocher perpetuated all the well-known bogeyman images of a dangerous outside world in the shape of a powerhungry EU (the EEA treaty is described as a “colonial pact”), and of a hostile domestic arena. In this a “ruling class” stands supreme over its citizens while serving as a “vassal government” in its foreign relations, a stance explored further by Stämpfli in the next chapter. The common denominator of both domestic and foreign policy in Switzerland, Blocher alleged, was that they pursued the wrong goals in economic and social policy, which would lead to more taxes, increasing unemployment, higher interest rates, and diminished competitiveness. On the other side of the political spectrum the Avenir Suisse think tank characterized the preceding ten years as a “lost decade” for market liberalization and economic growth.55 The tenth anniversary of the rejection of EEA accession also prompted discussion of Swiss relations with the EU. While Blocher argued that rejecting the EEA had saved Switzerland from entering the EU, international economic law professor Thomas Cottier pointed out that the Bilateral Treaties, being overly static, were no substitute for EU membership. Therefore Cottier argued that the past decade had proved that “conceptions of formal sovereignty were no longer sufficient”.56

Post 1990 revisions of the military side of neutrality Observing Switzerland from a distance one might assume that it is the Swiss Foreign Ministry which – with a generous interpretation of the principle of neutrality – has pushed for Switzerland’s maximum integration into regional and global structures. While at the same time the Swiss Defence Ministry [VBS] – based on a restrictive interpretation of military neutrality – has always favored a national unilateralist path, also in order to justify high military costs for autonomous self-defense. Until the early 1990s this was indeed the case. Throughout the Cold War the Swiss armed forces had been in favor of a unilateral course, stressing the great value of neutrality for the defense of the country. As late as 1989, Daniel Frei found that the desire for independence was nowhere as forceful and undiluted as in the area of security policy. There was nobody in

Neutrality: incompatible with EU membership? 67 that sector, he said, “who was inclined to give up neutrality as an instrument of security policy and replace it with accession to a defensive pact”.57 With the fall of the Berlin Wall in 1989, however, this changed and in the last few years the strongest and most effective impulses towards abolishing the isolationist concept of neutrality have come from the VBS and not from the EDA. Adapting to the new global strategic context after 1989 the Defence Ministry presented its radically new Swiss concepts in the 1990 Security Report which, for the first time, explicitly replaced the long-standing unilateral conception of security policy by a collaborative one, arguing that neutrality had to be subjected to a fundamental review”.58 A number of observers were surprised by this radical shift by a government which but two years earlier – largely in response to the GSoA referendum to abolish the armed forces – had argued in its Message of 25 May 1988 that the preservation of “armed neutrality” was nothing less than a national obligation. In fact, between 1945 and 1990, in order to justify its importance and – more immediately – its expenses, the Swiss army had contributed much to the superelevation of neutrality, cultivating the very attitude that it had started to scrap in the 1990s. As far as the debates over European policy were concerned neutrality has also become less of an issue. Instead, the discussion has shifted to issues related to the UN, such as Swiss participation in peacekeeping missions and UN membership. Participation in UN peacekeeping missions was rejected in June 1994 by a majority of 57.2 percent. The view that neutrality constituted an obligation to practice non-interference was an important factor in the rejection of the proposal. Opponents successfully invoked the patriotic legend of Bruder Klaus, a national saint who had urged the Swiss confederation in the fifteenth century not to get caught up in “foreign quarrels” and to tightly restrict the country’s range of action. If the defenders of a rigorous interpretation of neutrality had lost, they would have attempted to anchor neutrality more rigidly in the constitution by a popular initiative. The founding fathers of Swiss federalism had in 1848 wisely avoided making listing the country’s neutral stance as a specific constitutional provision since it was seen as a means and not as an end. It was felt sufficient to mention it inconspicuously in two articles dealing with the responsibilities of the executive and legislative branches. Today, any proposal to enhance the importance of neutrality by giving it a separate article would have a good chance of being accepted. Whereas participation in UN peacekeeping missions had been rejected in 1994, a second popular referendum on lightly armed overseas missions managed to win sufficient backing (51 percent) in June 2001. Naturally, the neutrality issue was an important factor during the preceding campaign. Supporters of the proposal argued that any such missions did not violate Swiss neutrality as they would require the consent of the parties to the conflict, as well as a mandate from the international community. Conversely opponents accused the government of wanting to “bury” the idea of eternal neutrality. A year later, in the votation of March 2002, 54.6 percent of voters supported UN membership, up from

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1986, when only 24.5 percent had backed the same proposal, and Switzerland finally joined the UN as a full member. The backers of UN membership won over some skeptics by arguing that Switzerland’s neutrality could be better preserved within the UN than outside of it. Obviously, the same argument could become important in the case of an eventual EU membership bid. NATO’s offer to let Switzerland take part in the Partnership for Peace [PfP] cooperation program as a neutral state has been debated since 1994, and has generally received cautious approval. When Federal Councilor and Minister of Defence Adolf Ogi advocated PfP participation in public for the first time in May 1996, he stressed that such cooperation would not only be advantageous for Switzerland, but would also avoid encroaching on its neutrality.59 Nevertheless, the project was attacked by both the extreme left and the extreme right-wing parties, with both camps adopting the argument from neutrality. Speaking at an AUNS rally in May 1996, Christoph Blocher protested against the alleged “subversion of independence” and – in the case of the PfP proposal – the “crass contempt for the idea of eternal armed neutrality”. He announced that the AUNS governing board would consider launching a popular initiative to cement the country’s neutrality into the federal constitution.60 Writing in the NZZ he accused the supporters of PfP of misrepresenting the issue: “The latest fashion in circumventing neutrality is the attempt to present every political measure with all kinds of academic and intellectual arguments intended to prove that it is in compliance with neutrality.”61 Reservations about the PfP on the political left were based less on neutrality and more on a desire for a more civil and less militarized “Partnership”. In Parliament critics, including Peter Vollmer, specifically objected to the additional reference to neutrality at the signing ceremony, saying: I do not think it is at all wise to pursue a policy where we pursue a subject which has absolutely nothing to do with neutrality, just to resurrect and celebrate that myth and to cement it in the popular mind – our neutrality, or myth of neutrality, is also a problem of domestic politics – only to risk facing insurmountable walls again in our next crucial foreign policy decisions. This national myth of neutrality, which we now venerate so highly, will come back to haunt us the next time we meet here to discuss European issues before the next referendum.62 There was no popular vote on whether Switzerland should join NATO’s PfP, as such a campaign would have been very unlikely to secure a majority. The Federal Council signed the framework agreement, which was within its area of responsibility, on 11 December 1996, whereupon Switzerland silently joined PfP as the twenty-eighth member state. The government had thus considerably expanded Switzerland’s scope of action – not in the area of foreign military deployments, but in the country’s general efforts to improve cooperation with the rest of the world. Yet the Federal Council had expressly stated in a “position paper” that Switzerland remained committed to neutrality. Surprisingly, and

Neutrality: incompatible with EU membership? 69 partly due to the lack of a national vote on the issue, the resistance to Swiss military integration into NATO’s PfP was noticeably weaker than opposition to economic integration into the EEA or political integration into the EU in previous years. One exception was Zurich historian Jörg Fisch, who in spring 1998 resolutely argued against any form of participation in NATO, as this would be tantamount to “surrendering” to US hegemony. Tellingly, Fisch stressed that he did not see the same problem with regard to the EU, as the Union included also neutral countries, which to him demonstrated that it is nonsensical to claim that Switzerland’s neutrality was incompatible with the EU.63

No regard for neutrality in the clandestine sector While such changes to the military dimension of neutrality were queried, much less was said of the fact that in the past neutrality had been far more one sided than myth allows. Neutrality for Switzerland is a means, a highly cherished means for that matter, but still only a means and not an end unto itself. Security, on the other hand, is an end for Switzerland, and armed neutrality has long been regarded as the traditional means to achieve this end. Swiss historians have long pointed out that the Swiss military had throughout the Cold War always assigned higher importance to actual or apparent security considerations than to the principle of neutrality. Examples include secret agreements with the French General Staff in 1939–40.64 Similar clandestine cooperation continued also after 1945 when the Swiss cultivated clandestine contacts with Field Marshal Montgomery, who was Deputy Supreme Commander of NATO forces in Europe between 1951 and 1958. Montgomery, arguably the most high-ranking British guest in Switzerland during the Cold War, was a friend of Switzerland and its Alps. From 1946 until 1962, he visited Switzerland regularly and usually spent the entire month of February each year in the Bernese Oberland, dedicating part of his time to military affairs. “I do a lot of business with the Swiss Minister of Defence: all done under the cover of tourism and skiing”, Montgomery wrote to Samuel Hood, the head of the Western Department of the British Foreign Office, in 1953.65 Montgomery understood that the Swiss government wanted to stick to neutrality and agreed that “Switzerland must be encouraged to fight for her integrity and to deny passage through her country to an enemy from the East. Provided she will do this, she can remain neutral.”66 The British and the Swiss agreed, however, in secret talks that if in case of total war in Europe Switzerland could not defend its entire territory alone it would cooperate with NATO. Swiss historian Mauro Mantovani concludes that “Switzerland during the Cold War was so obviously part of the western camp that western leaders could only wish that all neutrals would take Switzerland as an example.”67 As has very recently come to light the British MI6, together with the CIA, had also clandestinely operated secret armies in all countries of Western Europe. These so-called stay-behind armies were coordinated by two secret sub-branches of NATO’s Supreme Headquarters Allied Powers Europe [SHAPE], called

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“Clandestine Planning Committee” and “Allied Clandestine Committee”. Modeled after the British World War Two Special Operations Executive the secret forces were set up after the war in France, Germany, Austria, Greece, Italy, Turkey, Norway, Finland, Sweden, Switzerland, Denmark, Luxembourg, Holland, Belgium, Portugal and Spain. Equipped with arms and explosives, and trained by the British SAS and US Green Beret Special Forces, the secret soldiers had the task to form a guerrilla network in case of a Soviet invasion of Western Europe. In the absence of an invasion some of the anti-communist networks, operating beyond democratic control and accountability, took up arms against domestic enemies including communist and socialist parties and became linked to extreme right-wing groups, terror, torture and coups d’états.68 It was in 1990 that a surprised Swiss population first learned of the existence of the secret Swiss stay-behind army which had been hidden within the Swiss military secret service, the Untergruppe Nachrichtendienst und Abwehr. A parliamentary investigation revealed that the secret army had operated under the code-name “P26” whereupon, amid public protests, the unit was closed down. With regard to Swiss neutrality the sensitive question remained, however, whether P26 had been part of NATO’s secret stay-behind network discovered at the time also in other countries. The Swiss government asked judge Pierre Cornu to investigate that matter, and upon receiving the report classified it top secret. In a 17-page summary entitled “P-26: Not part of an international network” the Swiss government explained to an inquisitive press on 19 September 1991: “Participation by the Swiss resistance organization in an international structure of any kind would not have been compatible with the principle of neutrality and would formally have violated the Swiss constitution.” The report reaches a clear finding in the key question: Neither P-26 nor its predecessor organizations had connections with the international committees, or were present in them; neither were they part of an international resistance organization.69 At the same time, and rather contradictorily, the summary of the Cornu report confirmed that P26 had very closely cooperated with MI6 and the SAS, as the Swiss and the British carried out joint military training in both the UK and Switzerland. “These connections included particularly the regular participation of Special Service and P-26 cadres in courses and exercises in Great Britain, as well as the participation of British specialists as instructors or observers during exercises of the Swiss services in Switzerland”, as the summary of the Cornu report as presented by the Swiss government phrased it.70 Allegedly, “the cadres of the Swiss organization regarded the British to be the best specialists in the field”.71 These findings left the British press to headline “UK trained secret Swiss force”, while the British Defence Ministry as well as MI6 strictly refused to comment on their role in NATO’s secret armies.72 Yet in Switzerland some members of Parliament were not amused. Paul Rechsteiner of the Socialist Party made his interpretation of the facts crystal clear when he declared: “It was a violation of neutrality, because the core of neutrality, military co-operation itself, was involved. This cannot be overlooked [. . .] these events [must be] clarified,

Neutrality: incompatible with EU membership? 71 including through investigations abroad”.73 Yet as not only the British officials but also NATO flatly rejected all comment on the secret stay-behind armies the investigations went no further. In all countries of Western Europe the secret anti-communist stay-behind armies were run by the intelligence services of the respective countries, some of which regularly met in Switzerland. Since 1971, representatives of Western European intelligence agencies have been meeting informally as the “Club of Berne”, and the Swiss Federal Police, which is not subject to strict monitoring as to its observation of neutrality, takes part as a matter of course.74 Exactly what effect the so-called “war on terrorism”, in which it explicitly does not participate, will have on Switzerland’s neutrality remains a matter of ongoing debate. In September 2002 the Swiss Federal Justice and Police Department and US authorities agreed to cooperate on a clandestine level and concluded a very discreet investigative assistance agreement – a “working agreement” to combat political violence movements – as a countermeasure to prevent terrorist attacks. In this agreement, the traditional caveats about neutrality played no role, and the executive saw no reason to involve Parliament in the discussions.75 However, just a few years later the “war against terrorism”, as fought by the United States, raised grave concerns in Switzerland and directly challenged Swiss neutrality, when it was revealed that the US Foreign Intelligence Service CIA had kidnapped suspects across Europe and transferred them in CIA planes to secret prisons, so-called “black sites”, where several were tortured. When Swiss parliamentarian Boris Banga of the Socialist Party enquired whether such secret CIA planes had also crossed Swiss airspace or had even landed at Swiss airports, the Swiss government confirmed that three CIA planes had landed at the Geneva airport, while other CIA planes coming from the German US Army base at Ramstein had crossed Swiss airspace on their way to airports in Italy, possibly containing kidnapped suspects. The Swiss Federal Aviation Administration, the Bundesamt für Zivilluftfahrt, thereafter ruled that such flights will be illegal in the future while Swiss Foreign Minister Micheline Calmy-Rey expressed her concerns to US Foreign Minister Condoleezza Rice during a meeting in Washington.76

Conclusions Looking back at the history of Swiss neutrality during the last centuries, and above all at the discourse which shaped the concept and its interpretation from 1945 to our present day, one can conclude with Foreign Minister Micheline Calmy-Rey that indeed “neutrality is a principle of peace”. Ever after the participation of Swiss soldiers in the battle that led to the defeat of Napoleon at Waterloo in 1815, the principle of neutrality has kept Switzerland out of international wars. Therefore the principle of neutrality rightly still remains much cherished today among the Swiss population and equally will remain a characteristic feature of the country in the future.

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On the other hand, the historical record as presented above also clearly shows that the Swiss have always prepared themselves for a future war according to their principle of “armed neutrality”. On the clandestine level of these preparations Switzerland linked up with Great Britain and other NATO members who participated in the stay-behind guerrilla network, an act which several observers in Switzerland consider to be in violation with the principle of neutrality. Underlining this orientation “towards the West” of Switzerland was the way that it silently joined NATO’s Partnership for Peace in 1996, even while, at the same time, the Swiss government stressed that the country is committed to permanent and armed neutrality and has no wish to join NATO. Seen from this perspective it might come as a bit of a surprise to a foreign observer that Switzerland’s path towards Europe has also repeatedly been hindered and slowed down by the principle of neutrality, as demonstrated for instance during the 1992 debate on the EEA. Even though this did not touch on security and military matters, the long-held belief that, because of the obligation of neutrality, they had to reserve the right to pursue economic autonomy in wartime played its part. Once again the desire to remain sovereign and independent was promoted through the concept of neutrality. Looking back over the last 50 years and the neutrality debate in Switzerland it might come as a bit of a surprise that the introduction of a Common Foreign and Security Policy [CFSP] in the EU has until now not led to a greater debate in Switzerland. The CFSP, which was established in the Maastricht Treaty of 1992, and further defined and broadened in the Amsterdam Treaty of 1997, has clearly gained weight and influence during the last decade within the EU. Only slowly did questions start to emerge on what exactly this means for Switzerland. Is Swiss neutrality incompatible with CFSP, and is the CFSP therefore one of the central reasons why Switzerland could not both join the EU and remain militarily neutral? Or can Switzerland in the future opt out of the CFSP and become a neutral EU member? This debate has not yet started in Switzerland, above all, because only very few know anything about the CFSP. But it is a debate which seems unavoidable and which will surely come in the future. Laurent Goetschel argued that neutrality and CFSP are not at all incompatible and that the neutral states were especially well placed to shape an important aspect of CFSP. Goetschel also suggested that EU membership was possible for Switzerland without abandoning its neutrality because every member of this inter-governmental institution could cast a veto or adopt a stance of “constructive abstention” in decisions seen as incompatible with national policy. Within this framework, as Goetschel argued, neutral nations such as Switzerland could point out the value of civilian tools – such as non-military conflict reduction management – to secure peace. According to this vision Switzerland could do what historically it can do best within a CFSP framework, namely to find non-military solutions to conflicts.77 Clearly, the realization of such a vision would demand a shift in perceptions of the function of neutrality, which would no longer be to preserve national Swiss independence, but to uphold the collective international order. With all

Neutrality: incompatible with EU membership? 73 these options available, Goetschel refuses to regard neutrality as an antiquated concept. It is true, he argues, that a neutral stance is no longer useful as a means for preserving individual national sovereignty. However, in his view, neutrality can be exercised within the framework of existing multilateral cooperation mechanisms, and even carries a very progressive creative potential that has so far remained untapped.78

Notes 1 The authors are indebted to Christopher Findlay of the Center for Security Studies at ETH Zurich who kindly assisted them in the translation of the German original of this chapter. 2 P. Singer, Corporate Warriors. The Rise of the Privatized Military Industry, Ithaca, N.Y., Cornell University Press, 2003, p. 27. 3 Switzerland, National Socialism and the Second World War: Final Report of the Independent Commission of Experts, Oxford, Berghahn, 2003. The nine members of the commission were: Jean-François Bergier (Chairman), Georg Kreis, Jakob Tanner, Jacques Picard, Daniel Thürer, Helen Junz, Harold James, Saul Friedländer and Wladyslaw Bartoszewski. 4 T. Luckhurst, “The plucky Swiss. The wartime reputation of a country that did more than most for Jewish victims has been unfairly besmirched”, Guardian, 1 September 2000. 5 B. Vanoni, “Die Neutralität bringt uns einen Mehrwert”, Tages-Anzeiger, 14 January 2005. 6 This paradigm shift is manifest in Cottier and Kopse’s ambitious handbook on Swiss EU accession, which throughout its 1,200 pages allows neutrality only a minor role. One contribution discusses options for security cooperation “despite neutrality” but, tellingly, there is no discussion of whether economic cooperation creates political or even legal conflicts with neutrality – although there used to be a broad debate on this issue. 7 See G. Kreis, Kleine Neutralitätsgeschichte der Gegenwart. Ein Inventar zum neutralitätspolitischen Diskurs in der Schweiz seit 1943, Berne, Haupt, 2004. 8 Christoph Blocher, in his privately published 1992 pamphlet EWR. Der falsche Weg der Schweiz, predicted that merely joining the EEA would weaken the country’s neutrality and undermine its credibility. In another pamphlet published in 1997, five years after the rejection of the EEA referendum, Blocher’s arguments were then mainly business-based, but in the introduction, he stated that Switzerland had, on 6 December 1992, chosen “freedom, self-determination, neutrality, and direct democracy”. See also L. Goetschel, Zwischen Effizienz und Akzeptanz. Die Information der Schweizer Behörden im Hinblick auf die Volksabstimmung über den EWR-Vertrag vom 6. Dezember 1992, Bern, Verlag Paul Haupt, 1994, pp. 177–82. 9 A correspondent, Hardy Reutlinger of Schlieren, remarked in a letter to the editor of the Neue Zürcher Zeitung [NZZ] on 28 February 2005, p. 28, that “Now we must decide whether to give up our already severely overtaxed neutrality, which faithless, haughty, and irresponsible lawmakers would abolish. In return we are offered shaky promises that are sometimes unrealistic and hard to take seriously. Schengen/Dublin and freedom of movement are our entrance tickets to the EU.” 10 Cf Fischer, 2004, p. 140ff. 11 First published in the Federal Agencies’ Administrative Decisions for 1954, vol. 24, pp. 9–13. Republished in Schindler’s 1984 documentary collection. 12 Cf Bindschedler, 1954. 13 87th Annual Report for 1956/57 term of office, Zurich, 1957, p. 31.

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14 H. Schaffner, “Les efforts de l’intégration européenne et la Suisse”, Revue économique et sociale, 1958, 7. 15 P. Aebi, “Gemeinsamer Markt und Europäische Freihandelszone”, Schweizer Monatshefte 37/1, 1957, 22 et seq. 16 Cf Maurhofer, 2001. 17 National Councilor Otto Fischer of Berne (FDP), Proceedings of the National Council, 27 September 1971, p. 1101. 18 Memopress no. 4/72; press release by the Hallau Committee, November 1972. 19 “La Suisse vue par les Européens. De 1291 à 1992”, Cadmo 42, 1988, 13. 20 Cf D. Frei, “Wie gross ist der Neutralitätswille der Schweize?”, in W. Haller, A. Kölz, G. Müller and D. Thürer (eds), Im Dienste der Gemeinschaft. Festschrift für Dietrich Schindler zum 65. Geburtstag, Basel, 1989, p. 371. 21 Report on Switzerland’s status in the European integration process, 24 August 1988. The motion presented by National Councilor Laurent Butty from Fribourg (FDP) on 1 October 1985 simply looked for a better economic framework for cooperation with Europe. National Councilor Helmut Hubacher’s postulat of 12 March 1986 sought better information for lawmakers about the integration process. This in itself was assessed favorably, but was also seen as having become “for all practical purposes uncontrollable”. The National Council’s Economic Commission tabled a “postulat” on 4 March 1987 demanding a report on the latest developments with special reference to the SEA and the Single European Market. The usual system of numbering these reports is misleading, given that the integration report issued as early as September 1971 could be considered the first in the series. 22 Integration Report for 1988, p. 89. 23 Ibid., p. 70. 24 Ibid., p. 92. 25 Ibid., p. 90. 26 Ibid., p. 130. 27 Dietrich Schindler produced an unpublished report on EG-Mitgliedschaft und Neutralität on 31 October 1988. A year later with Brunner he published “Vereinbarkeit von EG-Mitgliedschaft und Neutralität” in Beiheft der Zeitschrift für Schweizerisches Recht 10, 1989, 81–137. 28 Berner Zeitung, 30 September 1989; Tribune de Genève, 12 October 1989. 29 Daniel Thürer, “Vorstellungen über die dauernde Neutralität vor dem Ersten Weltkrieg, heute und für die Zukunft”, Schweizerisches Jahrbuch für internationales Recht, 1989, 82. 30 Tages-Anzeiger, front page, 15 June 1990. 31 “Bedarf nach Klärung in Sachen Neutralität”, NZZ, 11 October 1990. 32 Integration Report for 1988, p. 90, and the Federal Council report on Switzerland’s Position in the European Integration Process of 26 November 1990, p. 58. 33 Ibid., p. 59. 34 Discussed in the context of the sanctions issue in the NZZ of 26/27 January 1991. 35 The findings of this report also impinged on Switzerland’s relations with the EU, although the report had really been commissioned in March 1992 in response to the problems of participation in sanctions regimes which arose during the 1991 Gulf War. 36 Schweizerische Neutralität auf dem Prüfstand – Schweizerische Aussenpolitik zwischen Kontinuität und Wandel, Berne, Chancellery, 1992, pp. 28 et seq. This was republished in an appendix to the foreign policy report on the 1990s in November 1993, although in a much revised form. This quotation comes from the March 1992 version and no attempt has been made to analyze the changes made in the November 1993 version. 37 Ibid., p. 14. 38 Ibid., p. 30. 39 Ibid., pp. 27 and 32.

Neutrality: incompatible with EU membership? 75 40 In view of the EU’s plans for a Common Foreign and Security Policy [CFSP], the codicil “in its current form” is tantamount to disinformation. 41 Media reports on 27 March 1992. Cf the later reaction by Adrian Schaub, Assistant to Senator Prof. R. Rhinow: “Neutralität abschaffen?” in the Basler Zeitung Forum of 17 July 1992. 42 Former Federal Councilor Georges-André Chevallaz was not at all satisfied with the Krafft Report. He claimed that it spent too little time considering fundamental issues and was slanted towards short-term expediency. Chevallaz furthermore refused to restrict the implications of neutrality to military affairs only, as he considered it to be “closely linked to the independence of the political decision making process”. He was also firmly opposed to EC membership, particularly after the Maastricht changes, while refusing to admit that Switzerland would be strongly influenced by the EC, even as a non-member. Thus he was not convinced by promises that neutrality would be upheld and would continue to exist under agreements on collective sovereignty, arguing that “Such a formulation can only satisfy the lawyers, it will never convince the real country.” “Neutralité suisse et integration; Note sur le rapport de groupe d’étude sur la neutralité de la Suisse, Mars 1992”, quoted in: Kreis, op. cit., p. 422. 43 Bundesblatt, [BBl]) 1992 III, pp. 1185–460. See also the separate report on Switzerland’s accession to the EC of 18 May 1992. 44 Message on the Authorization of the EEA Treaty of 18 May 1992, pp. I/3 and I/58. 45 1992 Report, pp. 23 et seq. 46 Ibid., p. V/120. BBl. 1992 III, pp. 1185ff. 47 Ibid., p. V/122. 48 Official Bulletin of the Federal Council, 24–26 August 1992, pp. 1291 et seq. 49 The National Council’s decision was taken on 2 September 1992, and the Council of States followed suit on 24 September. 50 VOX opinion poll no. 47, February 1993, p. 40. 51 NZZ, 28 February 1994. 52 Basler Zeitung, 9 March 1994. 53 Official Bulletin of the Federal Council, 7 March 1994, pp. 175 et seq. 54 Ibid., 15 March 1994, p. 269. 55 Cf D. Ganser, U. Wagschal and H. Rentsch, Der Alleingang. Die Schweiz 10 Jahre nach dem EWR-Nein, Zürich, Orell Füssli, 2002. 56 T. Cottier, “Das Tabu des EU-Beitritts muss aufgebrochen werden”, NZZ am Sonntag, 1 December 1992. 57 Cf Frei, op. cit., p. 369. 58 Federal Council report on Security of 1 October 1990, published as Schweizerische Sicherheitspolitik im Wandel, pp. 32, 56, and 70. Cf also the two-page spread in the NZZ of 11 October 1990. 59 “Report on Presentation to the Security Policy Forum for Central Switzerland”, in NZZ, 21 May 1996. 60 Report by Peter Amstutz in Basler Zeitung of 13 May 1996. 61 Christoph Blocher, “Lockerer Umgang mit der Neutralität” in the NZZ of 31 May 1996. The NZZ offered a determined refutation of Blocher’s comments on the same page under the heading “Keine Gefährdung der Neutralität” explaining that his interpretation was unfounded, too broad, and too fundamentalist. 62 Peter Vollmer speaking in the National Council on 1 October 1996, p. 1719. 63 Jörg Fisch, “Kein vorauseilender Gehorsam”, Weltwoche on 12 March 1998 being a response to a previous article by Jürg M. Gabriel arguing that neutrality was an anachronism. 64 Cf G. Kreis, Auf den Spuren von «La Charité». Die schweizerische Armeeführung im Spannungsfeld des deutsch-französischen Gegensatze, Basle, Helbing und Lichtenhahn, 1977. 65 Quoted in Mauro Mantovani, Schweizerische Sicherheitspolitik im Kalten Krieg

76

66 67

68 69

70 71 72 73 74 75 76

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D. Ganser and G. Kreis 1947–63. Zwischen angelsächsischem Containment und Neutralitäts-Doktrin, Zurich, Orell Füssli, 1999, p. 112. Memorandum from Montgomery, November 1948, on the strategy for the defence of Western Europe. Quoted in ibid., p. 96. Cf ibid., p. 253. On the question to what degree neutrality hindered the Swiss defense strategy compare 1950–1990. La Suisse et la guerre froide/Die Schweiz und der Kalte Krieg, Berne, Colloque de l’Association suisse d’histoire et des sciences militaires, 19 Octobre 2002, 2003, especially the contribution of Neval, who also published a monograph on the topic: A. Neval, Mit Atombomben bis nach Moskau. Gegenseitige Wahrnehmung der Schweiz und des Ostblocks im Kalten Krieg 1945–1968, Zürich, Chronos, 2003. D. Ganser, NATO’s Secret Armies. Operation Gladio and Terrorism in Western Europe, London, Cass, 2005. Schweizer Bundesrat: Schlussbericht in der Administrativuntersuchung zur Abklärung der Natur von allfälligen Beziehungen zwischen der Organisation P26 und analogen Organisationen im Ausland. Kurzfassung für die Oeffentlichkeit, 19 September 1991, p. 2. Ibid., pp. 16–17. Ibid., p. 7. Richard Norton-Taylor, “UK trained secret Swiss force”, Guardian, 20 September 1991. Official Records Swiss Parliament. P26 und Auslandbeziehungen. Nationalrat 12 December 1991. Amtilches Bulletin der Bundesversammlung. Nationalrat 1991, p. 2434. Cf Mantovani, op. cit. Cf the March 2004 debate on a motion introduced by the National Councilor from Solothurn, Boris Banga (SPS), who was a member of the Parliamentary Committees on Security Policy and on Foreign Policy. “Die Schweiz wartet auf Antwort aus Washington. Von den mutmasslichen CIA Flügen habe man aus der Presse erfahren, heisst es bei den Behörden”, Basler Zeitung, 9 December 2005; and, “CIA Jet hat mehrmals die Schweiz überflogen. BAZL bestätigt entsprechende Berichte”, NZZ Online, 10 December 2005. L. Goetschel, “Die Zukunft der Neutralität im Rahmen der GASP: Widerspruch, Gleichgültigkeit oder Ergänzung?”, in T. Cottier and A. Kopse (eds), Der Beitritt der Schweiz zur Europäischen Union. Brennpunkte und Auswirkunge, Zürich, Schulthess Polygraphischer Verlag, 1998, 637–61. Laurent Goetschel, “Neutralität ist kein Vorwand für aussenpolitische Passivität. Ein altes Konzept in einem neuen Umfeld”, NZZ, 5 February 1999. In an academic essay published at the same time, Goetschel offers similar arguments and emphasizes the possibilities for participation in the “WEU Petersberg Tasks”, which had been reconfirmed in the Amsterdam Treaty at the insistence of Finland and Sweden. These “tasks” could be carried out without UN resolutions and allowed neutral states to participate in crisis intervention missions. L. Goetschel, “Neutrality, a Really Dead Concept?”, Cooperation and Conflict 34/2, 1999, 115–39.

Bibliography G. Bächler, Beitreten oder Trittbrettfahren. Die Zukunft der Neutralität in Europa, Chur, Rüegger, 1994, pp. 195–207. R. Bindschedler, Rechtsfragen der europäischen Einigung. Ein Beitrag zu der Lehre von den Staatenverbindungen, Basle, Verlag für Recht und Gesellschaft, 1954. H.P. Brunner, Neutralität und Unabhängigkeit der Schweiz im ausgehenden 20. Jahrhundert – Bestandesaufnahme und Ausblick. Diss. Zürich, Schulthess Polygraphischer Verlag, 1989.

Neutrality: incompatible with EU membership? 77 T. Cottier and A. Kopse (eds), Der Beitritt der Schweiz zur Europäischen Union. Brennpunkte und Auswirkungen, Zürich, Schulthess Polygraphischer Verlag, 1998. P. Du Bois, Die Schweiz und die europäische Herausforderung 1945–1992, Zürich, Verlag Neue Zürcher Zeitung, 1990. T. Fischer, Die Grenzen der Neutralität. Schweizerisches KSZE-Engagement und gescheiterte UNO-Beitrittspolitik im kalten Krieg 1969–1986, Zürich, Chronos, 2004. A. Fleury, “La neutralité suisse à l’épreuve de l’Union Européenne”, in J. Nevakivi (ed.), Neutrality in History, Helsinki, Finnish Historical Society, 1993, pp. 189–200. A. Fleury and M. Zbinden, “The Model of Neutrality: Switzerland and the EEC Enlargement Negotiations 1961–1963”, in R. Griffiths and S. Ward (eds), Courting the Common Market: The First Attempt to Enlarge the European Community, London, Lothian Foundation Press, 1996, pp. 303–24. D. Frei, “Wie gross ist der Neutralitätswille der Schweizer?”, in W. Haller, A. Kölz, G. Müller and D. Thürer (eds), Im Dienste der Gemeinschaft. Festschrift für Dietrich Schindler zum 65. Geburtstag, Basel, 1989, pp. 363–71. J.M. Gabriel, Schweizer Neutralität im Wandel. Hin zur EG, Frauenfeld, Verlag Huber, 1990. J.M. Gabriel, Sackgasse Neutralität, Zürich, Hochschulverlag an der ETH, 1997. D. Ganser, NATO’s Secret Armies. Operation Gladio and Terrorism in Western Europe, London, Frank Cass, 2005. D. Ganser, U. Wagschal and H. Rentsch, Der Alleingang. Die Schweiz 10 Jahre nach dem EWR-Nein, Zürich, Orell Füssli, 2002. M. Gehler, Finis Neutralität? Historische und politische Aspekte im europäischen Vergleich: Irland, Finnland, Schweden, Schweiz und Österreich, Bonn, ZEI Discussion Paper C92, 2001. L. Goetschel, Zwischen Effizienz und Akzeptanz. Die Information der Schweizer Behörden im Hinblick auf die Volksabstimmung über den EWR-Vertrag vom 6. Dezember 1992, Bern, Verlag Paul Haupt, 1994. L. Goetschel, “Die Zukunft der Neutralität im Rahmen der GASP: Widerspruch, Gleichgültigkeit oder Ergänzung?”, in T. Cottier and A. Kopse (eds), Der Beitritt der Schweiz zur Europäischen Union. Brennpunkte und Auswirkunge, Zürich, Schulthess Verlag, 1998, pp. 637–61. L. Goetschel, “Neutrality, a Really Dead Concept?”, Cooperation and Conflict 34/2, 1999, pp. 115–39. L. Goetschel, M. Bernath and D. Schwarz, Schweizerische Aussenpolitik. Grundlagen und Möglichkeiten, Zürich, Schlussbericht des gleichnamigen NFP 42, 2002. K. Haltiner, “Neutralitätsauffassungen in der Schweizer Bevölkerung”, in W. Leimgruber and W. Fischer (eds), “Goldene Jahre.” Zur Geschichte der Schweiz seit 1945, Zürich, Chronos, 1999, S. 59–100. A. Jenny, Konsensformel oder Vorbild? Die Entstehung der österreichischen Neutralität und ihr Schweizer Muste, Bern, Paul Haupt, 1995. G. Kreis, Auf den Spuren von «La Charité». Die schweizerische Armeeführung im Spannungsfeld des deutsch-französischen Gegensatze, Basle, Helbing und Lichtenhahn, 1977. G. Kreis, Staatsschutz in der Schweiz. Die Entwicklung von 1935–90. Bern. – La protection politique de l’Etat en Suisse. L’évolution de 1935 à 1990, Bern, Paul Haupt, 1993. G. Kreis, Kleine Neutralitätsgeschichte der Gegenwart. Ein Inventar zum neutralitätspolitischen Diskurs in der Schweiz seit 1943, Bern, Paul Haupt, 2004. G. Kreis, Die Schweiz und Südafrika 1948–94. Schlussbericht des im Auftrag des Bundesrats durchgeführten NFP 42⫹, Berne, Paul Haupt, 2005.

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S. Kux, “Gründe und Scheingründe für die Neutralität der Schweiz”, in S. Kux (ed.), Zukunft Neutralität?, Bern, Paul Haupt, 1994, pp. 61–86. A. Leonhard (ed.), Neutrality. Changing Conceptions and Practices, Lanham MD, Rowman and Littlefield, 1989. M. Mantovani, Schweizerische Sicherheitspolitik im Kalten Krieg 1947–1963. Zwischen angelsächsischem Containment und Neutralitäts-Doktrin, Zürich, Orell Füssli, 1999. M. Mantovani, “Another ‘Special Relationship’: The British–Swiss Early Cold War Coordination of Defence (1947–53)”, Diplomacy & Statecraft 10/1, 1999, 127–46. R. Maurhofer, Die schweizerische Europapolitik vom Marshallplan zur EFTA 1947 bis 1960. Zwischen Kooperation und Integration, St. Gallen, Dissertation Universität St. Gallen, 2001. H. Mayrzedt and H.C. Binswanger (eds), Die Neutralen in der Europäischen Integration. Kontroversen – Konfrontationen – Alternativen. Wien, Schriftenreihe der österreichischen Gesellschaft für Aussenpolitik und internationale Beziehungen Bd. 3, 1970. H.P. Neuhold (ed.), The European Neutrals in the 1990s. New Challenges and Opportunities, Boulder, Col., Westview Press, 1992. J. Nevakivi (ed.), Neutrality in History, Helsinki, Finnish Historical Society, 1993. A. Riklin, “Die Neutralität der Schweiz”, in A. Riklin, H. Haug and R. Probst (eds), Neues Handbuch der schweizerischen Aussenpolitik, Bern, Paul Haupt, 1992, pp. 191–209. D. Schindler (ed.), Dokumente zur schweizerischen Neutralität seit 1945. Berichte und Stellungnahmen der schweizerischen Bundesbehörden zur Frage der Neutralität 1945–1983, Bern, Paul Haupt, 1984. D. Schindler and H.P. Brunner, “Vereinbarkeit von EG-Mitgliedschaft und Neutralität. Gutachten zuhanden der Direktion für Völkerrecht”, Beiheft der Zeitschrift für Schweizerisches Recht, Heft 10, 1989, 81–137. D. Thürer, “Vorstellungen über die dauernde Neutralität vor dem Ersten Weltkrieg, heute und für die Zukunft”, Schweizerisches Jahrbuch für internationales Recht, Jubiläumsband 1939 XLV (zum 75 jährigen Bestehen), Zürich 1989, pp. 73–103.

5

Populism in Switzerland and the EU From vox populi to vox mediae Regula Stämpfli

There was considerable surprise in the European press about the results of the votation on 5 June 2005. How could it be that this small alpine nation, which for decades had rejected even the most tentative thoughts of joining the European Union, had voted “Ja, Oui and Si”, in favour of a closer bilateral agreement with the EU?1 And this only a few days after two founder states of the EU, France and the Netherlands, had voted down the proposal for a European constitution. Equally it was at a time when all the trends seem to have been running against such an open-minded view. Once again Switzerland had shown itself to be a country where, as far as political issues about the EU are concerned, the exception often turns out to be the rule. It is, of course, true that the Swiss vote regarding the Schengen/Dublin element of the second bilateral package and the French and Dutch referenda on the European constitution were not directly connected. Nevertheless, the voting results across Europe demonstrated just how decisive can be both the quality of general political communications and the way in which campaigns, for and against an issue, are conducted.2 Here Switzerland is not an aberration but rather a model for Europe. In fact, the issue of “Europe” and, in particular, the referenda this has generated, has forced the Swiss into high-level political debate. This has resulted in increasingly sophisticated discussions which, in turn, have caused the political élite to take the issue seriously, to reflect on it, and to share its insights with the ordinary voter.3 Viewed like this, the 2 June 2005 verdict of the Swiss weekly Facts, following the devastating results of the referenda in France and the Netherlands, which ran: “A bunch of fools? What the EU can learn from Switzerland and its citizens” may not be entirely misguided. Despite these positive effects of the mechanism of direct democracy, referenda not only present opportunities for debate but also provide openings for populism. The Swiss paradigm illustrates this perfectly. Since the fall of the Berlin Wall, discussions about Europe have greatly increased in Switzerland, and so have tirades against “Brussels”. Populists (of the left as well as of the right), activists, political parties and movements have all exploited the issue of “Europe” thus polarizing opinion.4 This polarization has its roots not only in the underlying and long-established mechanisms of direct democracy but also, over the last 15 years, in the emergence of a quasi revolutionary system of media-led

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democracy.5 What follows therefore makes use of the example of Swiss rightwing populism to show how instrumental are the mechanisms of media-led democracy and direct democracy in shaping the political climate in general and the debate about Europe in particular.6 So, starting with the case of the September 2005 votations, the chapter seeks to show that Switzerland is an example, perhaps even a model, of the rise of populism in Europe.7 Examining the Swiss experience allows us, on the one hand, to set out some of the key facets and characteristics of populism: its aims, its targets and its behaviour. In Switzerland this includes, notably, an ambiguous use of direct democracy.8 On the other hand, the examination brings out the twoway relationship between populism and the new media. In fact, the negative tone of Swiss populism tones in well with media requirements. Moreover, the former derives much of its dynamic from the way in which media and political communication have changed of late. Taken together the two make a potent, not to say explosive, pairing, centred on the Swiss People’s Party [SVP], the key player in all this. The pairing has, in fact, taken Switzerland from a straightforward popularly based democracy to one in which what counts is the way populist leanings and organizations are mediated through the media. In other words, the evolution of the SVP from a centrist party of government to a would-be dominant populist party of the far right serves as a paradigm of the way right-wing populism, in alignment with a media-led democracy, now influences Swiss EU politics across the board. Yet Switzerland is not unique in this. Indeed, the Swiss example also sheds light on the democratic changes brought about by this structural shift and what its significance for the future of Switzerland’s relationship with the EU might be.

A media bias against understanding The Second Bilateral Agreements were, as Afonso and Maggetti show later in this volume, finalized in May 2004 and signed in October of the same year. The SVP and its related popular movement, the Action for an Independent and Neutral Switzerland [AUNS/ASIN], along with the Swiss Action Committee against Schengen/EU-Membership, immediately organized a referendum challenge to the Schengen and Dublin element of the package. In April 2005 this achieved the requisite number of signatures to proceed. The challenge was also supported both by a mixture of small nationalist parties such as the Lega dei Ticinesi, the Swiss Democrats, the Freedom Party and the Federal Democratic Union who had been opposed to the Second Bilateral Agreements as a whole, and by the political far left in the shape of the Labour (or Communist) Party. Amongst the supporters of the Agreement were all the other main political parties represented in Parliament, the most important trade unions and workers’ cooperatives, as well as employers’ organizations, the cantons and communes, and professional groups directly affected by the Agreement. And it was this alliance which, on 5 June 2005, carried the Schengen/Dublin Agreement to popular approval, with a relatively comfortable majority.9

Populism in Switzerland and the EU 81 Two and a half months later, on 25 September 2005, the Swiss – as Dupont and Sciarini show below – also accepted the extension of the free movement provisions of the first bilateral agreements to the ten new member states of the Union. Only seven cantons opposed this: Ticino, most of the central Swiss cantons and the Inner-Rhoden of Appenzell. All the other cantons voted “yes” – in marked contrast to June 2005. Thus, on two consecutive occasions, Swiss voters had given their blessing to bilateral agreements with Europe and had thereby underwritten their country’s tightrope walk between isolationism and a cautious opening up towards Europe. For a second time in a row, moreover, Swiss voters had remained unimpressed by the alarm calls of populist anti-EU campaigns launched by the SVP, AUNS/ASIN and the extreme right.10 Nor were voters swayed by the arguments of those small fringes of the far left which, as a matter of principle, are firmly opposed to globalization, the EU and any economic union or common currency. On 25 September 2005, therefore, the clear and real loser was the SVP, together with the nationalist splinter groups of the political right with which it had made common cause. Yet what happened as soon as the vote was over belied this fact. Indeed, on that same Sunday, when the voting had ended, the SVP succeeded, despite the contrary evidence (and wholly counter-intuitively), in promoting itself as the winner of the votation. In front of the television cameras, Ueli Maurer, the Party President, proclaimed his party to be the victor. And, without being contradicted, he went on to claim that it was the SVP alone which had saved Switzerland from Europe by forcing the country along the bilateral path. The Zurich MP also declared – still in front of the cameras – that it was now high time to revoke Switzerland’s application for EU membership which been on ice since 1992. Maurer then demanded of the Federal Council that the EU membership option be buried once and for all.11 At this, every opinion maker of consequence followed Maurer’s arguments and the related images beamed at them from their TV screens. It is true that the presidents of other parties tried to object and to make the debate more rational, but they failed to get their point across. So, the next day, newspaper headlines did not read “Biggest defeat in the history of the SVP!” but “The application for EU membership must be withdrawn!”. So, instead of discussing the behaviour of the SVP as a governing party, and the way which it nevertheless regularly undermines the consensual policymaking processes of Swiss government by threatening ever more referenda, thereby engaging in the politics of opposition, the media, all party leaders and political experts, and even the Federal Council itself, could talk only about the “ominous” sheet of A4 paper on which the 1992 application had been written.12 This seems to have turned the all too brief letter into something weighty enough to define future Swiss policy on EU relations. As Dostoyevsky remarked, “there is nothing more unreal than reality itself ”. In other words, on 25 September the SVP once again proved itself the party of communication coups, showing that it can play the media instrument to perfection. What becomes apparent from this mutual nourishing of populism and media is that populism is no longer a mere political category but has become a process integral to modernity.13

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This is an episode which sums up the whole story of the SVP’s success. As a populist party, the SVP was able – not least thanks to the mechanisms of the media – to claim victory. No matter how often the SVP loses at the polls, whether in major referenda or at elections such as those in spring 2005 for the cantonal government of Zurich, in the media the party retains the image of the perennial winner who takes it all.

The many faces of Swiss populism Trying to define the concept of populism, to use a Max Kaase phrase, is like trying “to nail a pudding to a wall”.14 In contrast, for example, to German democracy which, for obvious reason, carries on a highly intensive debate about all forms of right-wing extremism and populism, Switzerland’s interest in the phenomenon is confined to a very small number of authors, institutes and publications.15 Nor is there in Switzerland such a thing as a federal centre for political education. In the alpine republic, therefore, political education in general, let alone specific political education about populism, remains a Cinderella concern.16 For many, Switzerland always represented an exceptional case, compared with its Western European counterparts, when it came to the analysis of radicalright parties, right-wing populism and politics.17 It was always assumed that there was a low tolerance in Swiss political culture for any anti-democratic right-wing stances or a demagogic revitalization of radical-right patterns of thought, thanks to the mechanisms of direct democracy, the consensus system and constitutional patriotism.18 There has been little reflection on the scope that direct democracy offers for powerful campaigns which put considerable pressure upon democratic political institutions and can also offer favourable terrain for anti-democratic discourse – especially in times of socio-economic crisis.19 Church and Skenderovic have both shown that there are numerous reasons why the special case should be revisited not only when it comes to the system of direct democracy as such but also in the context of analysing right-wing populism.20 Until the mid-1980s the Swiss extreme right rarely appeared in public and consisted mainly of individual activists and a few small neo-Nazi groups,21 but anti-immigration and anti-foreigner policies have always remained on the Swiss political agenda; very often without major electoral success, but nonetheless a constant factor within Swiss politics. Right-wing and xenophobic patterns have been reflected in Swiss politics through the choice of issues subjected to referenda and were often expressed in federal elections and referendum votes and regularly detected by opinion surveys.22 From the mid-1980s onwards a new generation of extreme-right activists, mostly racist skinheads, started carrying out open acts of violence against foreigners and asylum seekers.23 But, until the mid 1990s, the extreme-right scene in Switzerland remained substantially smaller than in countries like Germany or France. Since then, however, cross-border collaboration with associates in other

Populism in Switzerland and the EU 83 European countries has been growing stronger, due in part to increased use of the Internet and extreme-right pop concerts as new channels for the purposes of communication and propaganda.24 While these extreme-right subcultures have become more and more europeanized and have gained ground throughout Europe, they also play an important part in mobilization of all right-wing populist parties.25 While the populist parties present a democratic image, with their leaders assuming roles within the democratic system, since the mid 1990s they have attracted more and more support from the extreme right. Thus the rise of the SVP in the last three elections has been fuelled not only by the inclusion of right-wing voters within the SVP’s electorate but also by the continuity of Swiss anti-immigrant discourse which has had a long and well-known history in the country. The success story of the SVP reflects not only the strengthening of these well-known linking mechanisms between the extreme right and populist movements and parties. What was new was the sheer scale of SVP success in national elections and the broader acknowledgement of radical political positions, not only in Parliament, but in government and for a majority of voters.26

Towards a definition of populism By considering the changing components of the Swiss political system, and the controversial issues currently the subject of Swiss political debate, we can see many media mechanisms favourable to the success of right-wing populism.27 The SVP has succeeded in setting the political agenda through popular initiatives to manifest its oppositional stance within the political system. And the SVP has managed to establish itself as the major force within the government while still playing a classical opposition role: launching popular initiatives, mounting xenophobic campaigns and defending restrictive approaches to citizenship, all of which are contrary to the policies of the government in which it plays a leading role. Swiss populist movements and populist parties are different from traditional parties, above all, because of their closeness to the man in the street, or, to put it more negatively, because of their penchant for “chummy simplifications” using a debating style inimical to traditional politics.28 Early on, the SVP and its close allies in AUNS, acting as parties and movements of the political right, began to organize traditional farmers’ breakfast meetings or “Buurezmorge”, a parallel to the American tradition of the “Sunday Brunch” after church. Such informal social meetings separate the populism of the right from that of the left. While the right draws its inspiration from traditional groups and their meetings, and often continues to support many traditions which modern sensibilities can find somewhat anachronistic, leftist populist movements limit themselves mostly to propaganda and intellectual debate, relying on a small number of spokespersons, who lack any great social following, for their impact.29 Populist parties are also keen to draw attention to the gulf between the political elite and ordinary people. In this respect the SVP has been extraordinarily successful, and this in the direct democracy that is Switzerland. Once they had

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adopted the concept of a “classe politique”, a term coined by Christoph Blocher, the SVP was thereafter able to denigrate all those who are democratically elected. Indeed the idea of a political caste has become such an everyday concept that “classe politique” has even become a regular column in the traditional weekly NZZ am Sonntag. From this, we can see that what distinguishes populist parties is, in part, their response to the rise of popular disaffection in politics. This, in turn, results, inter alia, from the limits to the problem-solving capacities of government in the era of globalization. For traditional parties the response to these limitations and frustrations is to continue the uphill struggle to grapple with insoluble problems, to reach out to voters, to restore faith in the democratic political process. For populists the strategic choice is to encourage and harness the mood of cynicism, ultimately seizing for themselves the role of leaders and champions of the disaffected. Thus they undermine democratic institutions in the name of the people and therefore of democracy. And the media, and those who work in it, have few analytical tools to discuss the broader consequences of this process of slowly disintegrating democratic political culture within an undemocratic infected political discourse. At a time when the main news programme gives equal prominence to both a report on the departure of Miss Switzerland to the Miss World contest and the disputed election of the “primus inter pares” president of Switzerland – the “Bundespräsident” – it is almost impossible to reflect on the change of political terms used in the public discourse. Therefore undemocratic rhetoric very often goes unchallenged and gains credibility through frequent use. Populist parties are apt to ridicule the achievements of established, and presumptively democratic, institutions such as Parliament, the judiciary and government in general.30 And they enjoy calling their political opponents “softies”. This happened in Switzerland during the debate over state support for disability insurance. Using the disparaging term “fake invalids” the SVP was able to call into question what had been accepted as basic socio-political rights and to initiate several legal reforms, whose effect was to erode those rights. It is true, however, that in this the SVP was instrumental in lifting the taboo regarding problems of corruption in the social support system. Thus it carved out for itself a role as both populist critic and agent of reform in the sphere of social insurance. The SVP’s polemical public attacks on the social policies of the state has left its mark on Swiss political culture, creating a greater acceptance of an egotistical individualism reminiscent of Margaret Thatcher’s famous slogan “there is no such thing as society”. The SVP’s taboo-breaking use of poster-slogans has also increasingly become a part of everyday political life. Borrowing from the techniques of advertising campaigns based on shock value – such as PETA’s “UnitedCrueltyofBenettonCom” or French Connection’s “FCUK YOU” campaign – the SVP has built its success on using provocation as a mobilizing tool. In Lucerne the Young-SVP used the tower of the well-known “Kappelerbridge” in a newspaper advert and converted it graphically into an Islamic minaret with the heading: “Will Lucerne be turned into an Islamic state?”. These kinds of shocking

Populism in Switzerland and the EU 85 provocations are now not only the rule within the SVP but have increasingly become part of government rhetoric – especially that of the new SVP Minister for Justice Christoph Blocher. Populism in Swiss government For example, on the occasion of the 26 September 2004 votation on facilitating the naturalization of second and third generation foreigners, Blocher refused to express an opinion on behalf of the Federal Council. Not only did he, as the responsible minister, more or less refuse to support the government initiative, but he also broke with the normal practice of expressing the government’s position once the results showed that the citizenry had rejected easier naturalization. Instead of expressing regret the Minister justified his break with collegiality and tradition with a cliché shared by all populist movements: that of the omniscience of the people. Thus he said that “this was the verdict of the sovereign. The Federal Council is merely its subject. So I do not see why the Federal Council should call a press conference after the votes have been cast. The sovereign has decided (. . .). The sovereign does not care in the least whether the Federal Council is pleased with the outcome or not”.31 When, in an interview for the NZZ am Sonntag on 3 October 2004, the Minister for Interior Affairs, the Free Democrat Pascal Couchepin argued, in commenting on the incident, that: “Blocher is a danger to democracy”, the ensuing protests were – surprisingly enough for a democracy – mainly aimed at Couchepin and not at Blocher. Not only that, but on subsequent referendum Sundays, it became the rule that only the President of the Federation was allowed to issue a statement about the outcome of the vote. Once more the SVP Minister for Justice had, by using populist tactics, succeeded in getting the better of liberal and democratic opponents. Thus long-standing Swiss political traditions were changed overnight. Another characteristic of Swiss populism is its cavalier attitude to the basic rules and regulations of the legal state.32 Instead of accepting the laws put in place by the state, they appeal to an imagined and idealized “authentic will of the people”. In a debate concerning the rights for rejected asylum seekers to basic social support, Blocher commented verbatim: “If the withdrawal of emergency support brings about the solution to an actual problem, [yet is deemed illegal] then we should consider changing the law and, possibly, our constitution.”33 In this way the Minister of Justice envisaged overriding state judicial principles on the basis of the supposed will of people and Parliament, yet no professors of law were heard to object. Another SVP spokesman was even more blatant: “Where would be the harm if Switzerland were to be found wanting by Strasbourg?” asked Luzi Stamm, SVP member of the National Council, writing in the NZZ of 13 April 2005 in connection with a revision of the laws governing asylum seekers which many thought was in conflict with the European Convention on Human Rights. A further characteristic is that populists play the media game effectively, both

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by celebrating anti-intellectualism and by engaging in personal attacks on democratically elected politicians. The personalization of politics, of course, plays perfectly to the news values of the tabloid press, which are, increasingly, those of the media as a whole. These attacks go far beyond the airing of political differences to denounce opponents as enemies. For example, Christoph Mörgeli, a university lecturer and leading SVP MP and ideologue, wrote the following about the current President of the Swiss Federation who is, nominally, a member of his own party: “If character were a vital organ one might have to keep Schmid alive by artificial means – he is already nicely tucked up in bed.”34 Lastly there is the underlying dislike of Europe. Paul Taggart defines populism as political power which often lacks defined values and which, like a chameleon, adapts itself to any current political atmosphere.35 Clive Church also suggests that, while Swiss anti-Europeanism can be seen as the politics of opposition, it is opposition of a different kind; more complex, but also potentially more wide ranging.36 More often than not, populist movements are symptomatic of a political system in the throes of change as well as an indication of the fraying consensus within the democratic process. Furthermore, populist movements at work in the member states of the European Union share a strong anti-EU reflex. In each case the ordinary population is identified as the entity which must be protected from the “foreign” political élite in Brussels. Thus “Brussels” becomes a metaphor for all that is evil, and, like Nazism in the Second World War, simply has to be resisted at all costs.37 Each of these characteristics apply equally to the Schweizerische Volkspartei/Union Démocratique du Centre. Populism and vox populi in direct democracy Swiss populism is regularly empowered by direct democracy in a way other movements rarely are.38 And the SVP makes its use of direct democracy a central plank of both ideology and practice. If, through this, parties, movements or individuals succeed in dominating, mobilizing and determining political discourse, public interest is guaranteed and, in the longer term, electoral success will be assured. By means of referenda, issues which neither the Federal Council, the Parliament nor the ruling parties had wanted to consider, can make their appearance on the political agenda, as Trechsel has shown.39 In Switzerland it has been the SVP under Blocher’s leadership which has succeeded in “rubbing salt into the wounds of concordance” and so radically changing the countenance of Swiss democratic life. It has done this by means of referenda, the polarization of opinion, and the dumbing-down of political discourse.40 In this way, for example, the “Referendum on the Acceleration of the Processes of Direct Democracy” – which dealt with the length of time allowable for government consideration of draft referenda – led the Federal Council to commit itself to deal more rapidly with draft referenda and to put them to the vote within a period of 18 months to two years. This was despite well-founded fears that this would curtail and attenuate parliamentary discussions, a vital

Populism in Switzerland and the EU 87 element in representative democracy.41 The initiative, submitted thanks to largescale expenditure by Denner, Switzerland’s third largest retailer, was rejected in parliament by the Christian Democrats [CVP], the Radicals [FDP] and the Social Democrats [SPS]. As usual the SVP refused to toe the line and, together with the small Catholic People’s Party [KVP] and the Freedom Party [FPS], it joined the campaign in support of a “Yes” vote. However, the initiative was unequivocally rejected by the voters by 70 per cent to 30 per cent. Nevertheless, even those who voted against the initiative began to feel that action was required in order to speed up the processes of dealing with referenda, even if the suggested option was obviously too extreme. Given the prescribed parameters of political discourse regarding a manipulative Federal Council and the foot-dragging parliamentary processes, populist forces actually benefited from having lost the vote. Moreover, the combative agenda of the SVP, partly directed against Parliament and the Federal Council, and partly with the aim of prohibiting, or at least curtailing, any proposals backed by the Federal Council, was once more in the public domain. Something similar happened with the initiative “For Regulating Immigration” of 24 September 2000. This so-called “18 per cent-Initiative”, which sought to cap the percentage of foreigners in the overall population, was just one in a series of referenda on immigration which have been called since 1970.42 This one was launched by the Swiss Democrats [SD] and some elements of the SVP, amongst them Hans Fehr MP, Executive Director of AUNS. And, whilst government, Parliament and all party leaders including, this time, Christoph Blocher, opposed the initiative, the assembly of delegates of the SVP supported it. Hence the battle for votes was unusually intense and business interests were obliged to spend considerable sums to fight the proposal.43 Particularly spectacular, therefore, was the subsequent success of the SVP with the near-acceptance of the referendum “Against Asylum Abuse” of 24 November 2002, which was held barely a year before the national general elections. The closeness of the outcome of the vote, 49.9 per cent to 50.1 per cent, and the enormous gulf between town and country it revealed, prompted Swiss newspapers to speak of a clash of cultures in Switzerland and a real crisis in the development of modernization.44 Indeed, across Europe the media had been reporting on the Swiss initiative even before voting took place, so the outcome was indeed seen to constitute a paradigm-shift. Whereas earlier referenda targeting foreigners had usually been launched by marginal parties or factions and had, in due course, been summarily dismissed by the electorate, the “Asylum-Initiative”, launched in 1999 and submitted in 2000, was initiated by the SVP, despite it being a government party. During the campaign the SVP succeeded in keeping its own voters closely aligned and vocal. It was thus able to make visible the deep divisions which existed in a country which had hitherto thought of itself as highly successful in managing political assimilation and consensus. The near-acceptance of the Initiative – described by the party as a “triumphant defeat”, ultimately allowed the new Minister for Justice to get the Federal Council and Parliament to dramatically toughen up the laws on the right to asylum in autumn 2005.

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The rejection of proposals by the Federal Council to liberalize the laws concerning the naturalization of second- and third-generation immigrants constitutes a further important victory for the forces of right-wing populism and nationalism. Once again the SVP succeeded both in demonizing in Switzerland immigration policies which are accepted in other European countries and in blocking them through a typically populist campaign. Hence the initially strong poll support for the initiative began to fade during the campaign and eventually gave way to a clear rejection come the votation. The rejection of both proposals concerning naturalization was much more emphatic than that of a much more radical proposal submitted ten years earlier. Such examples suggest that, for now at least, nothing can be achieved where Switzerland’s foreign policies and its policies on immigration and naturalization are concerned, without the support of the SVP and its allies in the nationalist parties of the right. Switzerland thus made room and, given the voting results, had to make room, for the participation of right-wing populist and nationalist factions in political debate. The outcome of such votes mirrors a changed political climate which is moving away from a democracy of concordance towards a democracy of polarization led by right-wing opinion-makers.

Anti-European positions and media attraction Populists cherish their hostility towards government, bureaucracy, liberalism, elites or other forces embraced in their definition of the “establishment”. Populists also flourish exceedingly by their anti-Europe and/or anti-globalization stances. However, besides their anti-politics, anti-techniques, anti-rhetoric and anti-policies, there is another shared factor which unifies populist parties and movements. This is the link between populism and the media, something which has hitherto received insufficient attention in the social sciences. Populism is a media phenomenon, if not exclusively, then certainly to a very large extent. The media broadcasts populism of every kind thanks to the market value of scandal. Even indignation about populists makes for good news. What holds for advertising also holds for media populism: there is no such thing as bad publicity. The Swiss example shows how important an effective analysis of the issue of populism in a direct democracy can be and how useful and relevant theories about political communication are.45 The fact that Christoph Blocher, for example, has managed to become so extraordinarily important for the SVP, and the fact that the SVP has been able to establish itself so successfully as the party of protest and polarization, must be seen as strongly influenced by the mechanisms which govern modern media-led democracy. Thomas Meyer uses the example of Germany to identify the extent of a radical structural shift in the public life of the Federal Republic towards new political formations and towards a media democracy.46 According to Meyer, politics are becoming a matter of self-promotion through the media and less a matter of arriving at policies through deliberation. Since the end of the Cold War media democracy has offered a kind of ersatz ideology eclipsing traditional party competition.47

Populism in Switzerland and the EU 89 This is an important insight. However, the other side of the equation should not be overlooked since some of the criticisms made of media democracy are themselves open to attack. On the one hand it is clear that the public theatricalization of political utterances and the fixation on a “politics of events” has some inherently undemocratic characteristics. Talk shows, so very popular in Germany and Switzerland, cannot replace parliamentary negotiation. However, the relationship between party politics and media democracy is complex and multifaceted. Not only does the media system control the nature of political discourse, it also empowers a large number of ordinary people, allowing them to participate in it. Similar to the workings of populism which, though it often peddles wild exaggerations, can nevertheless be enlightening, so the media also informs and enlightens. Despite its commercialization, media-led democracy can produce a political culture which is genuinely consistent with the processes of democracy. The power of the media, which has not gone unnoticed by voters, has not resulted in political apathy. On the contrary, it has led to a renewed politicization of society at large. At the same time it has also brought about an exaggerated political antagonism which, in Switzerland, has tended to benefit the political right. Naturally the parties at the centre of the political spectrum criticize the rampant populism of press and television even though they, in turn, also try to exploit the mechanisms of the media-led democracy for their own ends. However, in Switzerland it is mainly the SVP which, so far, has best succeeded in exploiting the media for its own purposes, and this, paradoxically, within those media channels which, traditionally, have opposed the SVP. The criteria determining the commercialization of news and entertainment are a perfect complement to the tactics adopted by populist movements in their voting and electoral campaigns. Indeed, they are so well matched that nowadays left-of-centre parties have also begun to rely on professional media management in their campaigns, in a bid to imitate the media professionalism of the populists on the political right.48 The media as an engine of populism It is somewhat unclear which came first: the egg of populism, a political phenomenon in times of crisis, or the chicken of populist media coverage, which sooner or later forces all parties into some sort of populist discourse. Are the presentation, debate and imaging of populist strategies really a reflection of “reality” or are they – as seems more likely – a construct and a means of persuasion for populists and their movements and parties? To what extent do the intensity, content and the personality cult inherent in media reportage help to multiply, dramatize and propagate, yet also to play down the effects of populism? Is populism becoming so media-effective, that it could now, through a clever use of media dynamics, summon up ghosts, not only awaken fears but also spread a fog across political discourse? Indeed has it not already done so?49 Since little empirical data is available to answer these questions, we have to make do with factual illustrations. In fact, the close interrelation of populism and

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the media runs in tandem with the current information revolution. Hence the phenomenon of media populism does not constitute a process of cause and effect but one of simultaneity and amplification. Media democracies depend on structures of communication which are governed by the criteria of commercialization. These demand simplification, increased polarization, a focus on the personal and a perceived entertainment value in all political issues. Moreover, the media function in a hierarchical manner. They remain ineffectual if they fail to supply interesting topics for an audience which is fluid and heterogeneous as well as easily bored. The media’s focus must therefore be topical, entertaining, iconic, of the day, snappy, informative, polarizing and concise. They are hungry for everything that is fresh, brisk and scandalous; in short, for material which is “sexy”. More often than not, populist activists, their opinions and their actions, meet these criteria. In turn, populist movements rely for the shaping of their arguments on scandal, confrontation, simplification and a focus on people’s private lives. It is true that, in the past, political reality was also frequently constructed and distorted, and only very rarely portrayed in ways which accurately reflected the truth. Politics has always had a tendency to define itself in terms of metaphors and substitute symbols.50 This has been a flaw of modern democracy since its beginnings, because true democracy is realized not through symbols but through promoting the actual and authentic participation of the people. Democracy does not need spectacle but action. Yet we note that, where political reporting in media democracy is concerned, it is precisely democratic political action which is given next to no time on the screen. This is because political action by its very nature is a process and cannot, as a rule, be reduced to just a few images. Political processes, which are the bedrock of a sophisticated modern democracy, are therefore apt to become invisible behind the ephemeral pictures of political reporting. The democratic process, more often than not, consists of long negotiations, struggles to find a consensus, the building of coalitions and a generally quite unglamorous political routine. Democracy is not, as a rule, strident or centred on a single person. It is plural rather than one-dimensional. No wonder, then, that it is precisely the most democratic politicians who find it hardest to be credited as such by the media! In this respect the populists have it a lot easier. Compromise and the mediated opinions characteristic of the centre ground never seem particularly sexy. A shrill voice is more easily heard. This is why the tactics of representation adopted by populist movements are a clear recipe for success. In Switzerland, no one knows better how to use these tactics than the SVP. And, while it is true that the media are careful to be seen to distance themselves from the populist position, nonetheless, the intensive coverage they give to every last populist squeak guarantees an effective platform for the populist cause. The breaking of taboos affords the power to define the nature of political discourse.

Populism in Switzerland and the EU 91 No special case? Using the example of the gap between the “Danish mass” and “attitudes towards the Europeanization of the élite”, Trine Flockart shows that there are critical moments of transition in every country.51 These can bring about major shifts in the conduct of politics at the national level. This is also the case in Switzerland and, to a certain extent, it explains why it is precisely the smaller parties representing farmers, artisans and the lower middle classes, along with the often archaic-seeming campaigners for an independent and neutral Switzerland, which, in the last 20 years, have been able to bring about nigh-revolutionary changes in Swiss politics. Not least thanks to the right-wing populist SVP, the Swiss often want to claim – just as Trine Flockart observes of the Danes – that their political system is the best in the world. Even though confidence in the government has diminished in the last 20 years, confidence in direct democracy still remains an age-old article of faith which enjoys near-mystical status across the Swiss political spectrum as Trechsel has already shown. The fact that Switzerland has succeeded in negotiating a relationship based on bilateral contracts with the European Union, in such a way that it can continue to trade on the internal European market without actually becoming a member of the Union, reinforces Switzerland’s national self-esteem. Yet this achievement in no way affects the success of the populists, even if it means they have to accept a few Euro-political defeats at the ballot-box on their way to blocking EU entry. Hence populists are likely to be a continuing influence on Swiss relations with Europe. And this is likely to reduce further the government’s freedom of action. These recent shifts in the nature of Swiss politics are also, as already suggested, indicative of how Euroscepticism might affect developments in European member states. Switzerland, in other words, is far from being a “Sonderfall” case. It is actually leading the way in what is clearly a European trend. Thus in Switzerland as well as elsewhere, nationalist politicians and policies intent on short-term economic benefits are what shape the democratic agenda and they bring about a climate of narrow self-serving as well as the formation of interest groups and a politics of separation rather than integration. The success of Switzerland’s right-wing populism shows how an upheaval in the balance of party-political power can radically, and lastingly, undermine the power structures of liberal-democratic governments in Europe. Adherence to an ideology instead of a programme of reform is the clear consequence of such a fundamental change in the political culture. Against the background of European history these are ominous developments indeed. Should political extremism become an everyday phenomenon, liberal and democratic vigilance is called for. More than other right-wing populist parties in Europe, the SVP shows how quickly anti-liberal and anti-democratic positions which are in conflict with the lawfully established state, can be accepted into the mainstream – even in a country which, for centuries, has built its political culture on notions of pluralism and consensus. Contrary to the views

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of most commentators on the phenomenon of “populism”, right-wing populism is no longer a minor political movement which recurs at regular intervals. Rather, and in combination with the radical changes currently taking place in society at large, notably in the role of the media, and in the growth of a climate of political pessimism and disaffection, it has become the sign of a continuing process which is, ultimately, designed to bring about the abolition of the fundamental values inherent in the division of power, the state under the rule of law, and democracy itself. This newly powerful symbiosis between right-wing populism and tabloid-led media gives the SVP in effect a power of veto over any significant movement by Switzerland towards a closer relationship with the European Union. It is hard to see this changing in the near future especially since the far left has now started as well using some of the described SVP tactics against the European Union as their anti-globalization strategy. So Switzerland is highly unlikely to join the European Union in the near future. The trend which this chapter has examined in Switzerland is also at work in many member countries of the European Union itself with various different outcomes of course. In most of the 15 “old” member states disaffection and euroscepticism is on the rise and populist movements are gaining in prominence. Switzerland can therefore serve as an illustration – while recognizing that in detail the outcome will depend on particularities and political cultures – of what may lie ahead in Europe if neither the traditional political parties, civil society nor the media find an effective riposte to the twenty-first century ailments of populism, disaffection for politics and trivialization.

Notes 1 On 4 March 2001 76.9 per cent of the 55.3 per cent voters who turned out rejected the popular initiative “Yes to Europe”. Then, on 5 June 2005, when the turnout was 56 per cent, 54.6 per cent of voters approved “the Bilateral Agreements on the Association of Switzerland with the Schengen and Dublin Conventions”. 2 Since the introduction of referenda in 1874 and of initiatives in 1891 the Swiss government has been forced to legitimate, argue and explain political change, revision and/or innovation to its citizens. Needless to say that this not only has shaped the government but also political culture, political identity and political communication in Switzerland. See R. Stämpfli, Vom Stummbürger zum Stimmbürger, Das ABC der Schweizer Politik, Zurich, Orell Füssli, 2003. 3 C. Longchamp, Ein Jahr im Zeichen des Vertrauensverlustes in die Regierung. Bericht zur Vox-Trendberichterstattung für das Jahr 2004, Bern, 14 January 2005, available at www.gfs-bern.ch. 4 C. Offe, “Demokratie und Wohlfahrstsstaat: eine europäische Regimeform unter dem Stress der europäischen Integration”, Swiss Political Science Review 4/4, 1998, 35–57. 5 O. Jarren, K. Imhof and R. Blum, Zerfall der Öffentlichkeit, Wiesbaden, Westdeutscher Verlag, 2000. 6 Contemporary history and political science use a wide range of terms to describe political parties, interest groups and movements on the centre right and far right of the political spectrum. These terms range from “extreme right” to “radical right” and “far right” to “right-wing populism”. There are analytical reasons for this diversity and we

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15 16 17

18

would argue for a pragmatic approach when it comes to the use of the term “populism”. Here the term is mainly used of the political strategies and techniques of the Swiss People’s Party in the media-led direct democracy. So far there has not been much research on the connection between the rise of media democracy and the rise of populism in Switzerland. But there are numerous studies which deal with the rise of the Swiss People’s Party as a major political force in Switzerland, notably those by H.P. Kriesi. On party policies, national identity and European integration see the insights on local variations on wider themes in Swiss Euroscepticism in C. Church, “Swiss Euroscepticism. Local Variations on Wider Themes”, European Studies 20, 2004, 269–90. For the Swiss Radical Right Damir Skenderovic presents an excellent overview of the general conditions of extreme right-wing successes in Switzerland in “The Swiss Radical Right in Perspective. A Re-evaluation of Success Conditions in Switzerland”, Paper for a Workshop on “Democracy and the New Extremist Challenge in Europe”, Grenoble, 2001. Peter Niggli and Jürg Frischknecht use the term “Right-wing climbing ropes” for the rise of populism in Switzerland. P. Niggli and J. Frischknecht, Rechte Seilschaften. Wie die “unheimlichen Patrioten” den Zusammenbruch des Kommunismus meisterten, Zurich, Rotpunkt, 1998. U. Altermatt and D. Skenderovic, Switzerland. Extremism in Europe, Paris, Camus, 1998, esp. pp. 340–52. Vox, 5 June 2005. From 2000 to 2004 Swiss citizens have voted three times in favour of closer ties with Europe and the “World”: on 21 May 2000 on the first bilateral agreement (67.2 per cent); on 10 June 2001 on military cooperation with NATO (two amendments with a narrow majority of 51 per cent to 49 per cent); and on 3 March 2002 with 54.6 per cent in favour of Switzerland’s membership in the UN. On all three occasions the SVP led the opposing campaigns. However, on 4 March 2001 government, parliament and Swiss voters resoundingly defeated (76.9 per cent) the popular initiative “Yes to Europe” which wanted to force the government to open immediate negotiations with the EU. See the VOX surveys for 2000, 2001 and 2002. This was deemed sufficiently important for Swiss TV to show it on a Tagesschau video for a while. Swiss Broadcasting dedicated its weekly political talk show to the question of withdrawing the application. The SVP then decided on 3 December 2005 to launch a popular initiative to force the government to withdraw the application. A. Dörner, Politainmen: Politik in der medialen Erlebnisgesellschaft, Frankfurt am Main, Suhrkamp, 2001; and T. Meyer, “Die Theatralität der Politik in der Mediendemokratie”, Aus Politik und Zeitgeschichte, B 53, 2003, 12–19. M. Kaase‚ “Sinn oder Unsinn des Konzepts ‘Politische Kultur’ für die Vergleichende Politikforschung, oder auch: Der Versuch, einen Pudding an die Wand zu nageln”, in Wahlen und politisches System. Analysen aus Anlass der Bundestagswahl 1980, edited by M. Kaase and H.D. Klingemann, Opladen, Verlag für Sozialwissenschaften, 1983, pp. 144–71. K. Armingeon‚ “Der Schweizer Rechtsextremismus im internationalen Vergleich”, Swiss Political Science Review 4/1, 1995, 41–64. In the Canton of Berne for example, it has been possible, since 2003, for pupils to finish state secondary education without having had a single lesson either of history or of political education. Armingeon, op. cit.; L. Helms, “Right-Wing Populist Parties in Austria and Switzerland: a Comparative Analysis of Electoral Support and Conditions of Success”, West European Politics 20/2, 1997, 37–52; and K. Deutsch, Die Schweiz als ein paradigmatischer Fall politischer Integration, Bern, Haupt, 1976. W. Linder, Swiss Democracy. Possible Solutions to Conflict in Multicultural Societies, Basingstoke, Macmillan, 1998.

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19 Stämpfli, op. cit. 20 Church, op. cit.; Skenderovic, op. cit. 21 J. Frischknecht, “Schweiz wir kommen”. Die neuen Fröntler und Rassisten, Zurich, Rotpunkt, 1991. 22 C. Longchamp, “Die nationalkonservative Revolte in der Gestalt der SVP. Eine Analyse der Nationalratswahlen 1999 in der Schweiz”, in F. Plasser (ed.), Das österreichische Wahlverhalten, Wien, Böhlau, 2000, pp. 393–423. 23 Altermatt and Skenderovic, op. cit. 24 Skenderovic, op. cit. 25 H.P. Kreisi, Der Aufstieg der SVP. Acht Kantone im Vergleich, Zurich, NZZ Verlag, 2005. 26 R. Stämpfli, “Die organisierte Unverantwortlichkeit. Die Schweiz hat Gewählt”, Rote Revue, Zeitschrift für Politik und Kultur 4, 2003, 16–22. 27 Meyer, op. cit. 28 A. Vatter and M. Freitag, “Die Janusköpfigkeit von Verhandlungsdemokratien”, Swiss Political Science Review 8/2, 2003, 53–81. 29 It is no coincidence that the two major opponents in the current Swiss government, the SVP’s Christoph Blocher and the Social Democrat Moritz Leuenberger, embody two completely different political cultures (urban versus country) despite both being sons of pastors, both being of the same generation, and both having grown up in the same canton. Both could be taken as archetypes of the existing Swiss political, cultural and economic cleavages. 30 The ridiculing of democratic and especially of parliamentary institutions was a distinguishing feature of right-wing academic discourse in the Republic of Weimar, so this is not without significance. See J.P. Müller, Gutachten betreffend Beschluss der Staatspolitischen Kommission des Ständerates vom 13. Januar 2005 (Teilrevision Asylgesetz) über Einschränkung der Nothilfe im Auftrag der Schweizerischen Flüchtlingshilfe, Bern, 7 March 2005. 31 Die Tagesschau, 26.9.2004. 32 Prof. Dr. Jörg Paul Müller, Professor of Constitutional and International Law, University of Berne, stated on 7 March 2005 that the Swiss government must, at all costs, respect human rights even if the Swiss Constitution does not provide – due to direct democracy – for a constitutional ruling by the Supreme Court in Lausanne. 33 Berner Zeitung, 19 March 2005. 34 Die Weltwoche, 2 June 2005. 35 P. Taggart, Populism, Milton Keynes, Open University Press, 2003. 36 Church, op. cit. 37 Blocher takes every opportunity to “use” history against the European Union. In his 8 May 2005 speech celebrating the 60th anniversary of the end of the Second World War in Europe on 8 May, given in the little Zurich town of Rafz, he praised neutrality and closed borders as best defence measures against “invasion”. He thus combined the mythologized experience of Swiss neutrality during the Second World War with the need for stronger borders in view of the then forthcoming votation on association with Schengen, to which he was clearly opposed. See Der Bund, 9 May 2005. 38 See also Skenderovic 2001. 39 R. Stämpfli, Vom Stummbürger zum Stimmbürger, Das ABC der Schweizer Politik, Zurich, Orell Füssli, 2003. 40 J. Hennecke‚ “Das Salz in den Wunden der Konkordanz: Christoph Blocher und die Schweizer Politik”, in N. Weiz (ed.), Populismus. Populisten in Übersee und Europa, Opladen, Verlag für Sozialwissenschaften, 2003, pp. 145–62. 41 The Initiative “für die Beschleunigung der direkten Demokratie” (for the acceleration of direct democracy) was defeated on 12 March 2000 with a large majority of 69.8 per cent. Nevertheless, the Federal Council committed itself to a limited time in dealing with popular initiatives (Vox 2000).

Populism in Switzerland and the EU 95 42 43 44 45 46 47 48

49 50 51

Skenderovic, op. cit. Vox 2000. Idem, 2002. O. Jarren and U. Scarcinelli, Politische Kommunikation in der demokratischen Gesellschaft. Ein Handbuch, Opladen, Westdeutscher Verlag, 2000. T. Meyer, Media Democracy, Cambridge, CUP, 2002. H.M. Kepplinger, Ereignismanagement. Wirklichkeit und Massenmedien, Zürich und Osnabrück, Interfrom, 1992. The Young Liberals, for example, launched their party mobilization campaign with two versions of bottoms in jeans with underwear showing, with the heading “Politik darf dir nicht am Arsch vorbeigehen” – “Don’t arse around in politics, participate” in the spring of 2005. R. Stämpfli, “Political Communication in Switzerland and Europe”, Paper given at a Conference on Identity and Representation, Centre for European Studies, Carlton University, Ottawa, Canada, 9–10 May 2002. Habermas, op. cit. T. Flockhart, “Critical Junctures and Social Identity Theory: Explaining the Gap between Danish Mass and Elite Attitudes to Europeanization”, Journal of Common Market Studies 43/2, 2005, 251–71.

Bibliography U. Altermatt and D. Skenderovic, Switzerland. Extremism in Europe, Paris, Camus, 1998. K. Armingeon‚ “Der Schweizer Rechtsextremismus im internationalen Vergleich”, Swiss Political Science Review 4/1, 1995, 41–64. C. Church, “Swiss Euroscepticism. Local Variations on Wider Themes”, European Studies 20, 2004, 269–90. K. Deutsch, Die Schweiz als ein paradigmatischer Fall politischer Integration, Bern, Haupt, 1976. A. Dörner, Politainmen: Politik in der medialen Erlebnisgesellschaft, Frankfurt am Main, Suhrkamp, 2001. T. Flockhart, “Critical Junctures and Social Identity Theory: Explaining the Gap between Danish Mass and Elite Attitudes to Europeanization”, Journal of Common Market Studies 43/2, 2005, 251–71. J. Frischknecht, “Schweiz wir kommen”. Die neuen Fröntler und Rassisten, Zurich, Rotpunkt, 1991. J. Habermas, Strukturwandel der Öffentlichkeit, Darmstadt und Neuwied, Luchterhand, 1986. L. Helms, “Right-Wing Populist Parties in Austria and Switzerland: a Comparative Analysis of Electoral Support and Conditions of Success”, West European Politics 20/2, 1997, 37–52. J. Hennecke‚ “Das Salz in den Wunden der Konkordanz: Christoph Blocher und die Schweizer Politik”, in N. Weiz (ed.), Populismus. Populisten in Übersee und Europa, Opladen, Verlag für Sozialwissenschaften, 2003, pp. 145–62. O. Jarren and U. Scarcinelli, Politische Kommunikation in der demokratischen Gesellschaft. Ein Handbuch, Opladen, Westdeutscher Verlag, 2000. O. Jarren, K. Imhof and R. Blum, Zerfall der Öffentlichkeit, Wiesbaden, Westdeutscher Verlag, 2000. M. Kaase‚ “Sinn oder Unsinn des Konzepts ‘Politische Kultur’ für die Vergleichende Politikforschung, oder auch: Der Versuch, einen Pudding an die Wand zu nageln”, in

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M. Kaase and H.D. Klingemann (eds), Wahlen und politisches System. Analysen aus Anlass der Bundestagswahl 1980, Opladen, Verlag für Sozialwissenschaften, 1983, pp. 144–71. H.M. Kepplinger, Ereignismanagement. Wirklichkeit und Massenmedien, Zürich und Osnabrück, Interfrom, 1992. H.P. Kriesi, “Movements of the Left, Movements of the Right: Putting the Mobilization of Two Types of Social Movements into Political Context” in H. Kitschelt, P. Lange, G. Marks and J.D. Stephens (eds), Continuity and Change in Contemporary Capitalism, New York, Cambridge UP, 1999, pp. 398–426. H.P. Kriesi, Der Aufstieg der SVP. Acht Kantone im Vergleich, Zurich, NZZ Verlag, 2005. W. Linder, Swiss Democracy. Possible Solutions to Conflict in Multicultural Societies, Basingstoke, Macmillan, 1998. C. Longchamp, “Die nationalkonservative Revolte in der Gestalt der SVP. Eine Analyse der Nationalratswahlen 1999 in der Schweiz”, in F. Plasser (ed.), Das österreichische Wahlverhalten, Wien, Böhlau, 2000, pp. 393–423. C. Longchamp, Ein Jahr im Zeichen des Vertrauensverlustes in die Regierung. Bericht zur Vox-Trendberichterstattung für das Jahr 2004, Bern, 14 January 2005, available at www.gfs-bern.ch. T. Meyer, Media Democracy, Cambridge, CUP, 2002. T. Meyer, “Die Theatralität der Politik in der Mediendemokratie”, Aus Politik und Zeitgeschichte, B 53, 2003, 12–19. J.P. Müller, Gutachten betreffend Beschluss der Staatspolitischen Kommission des Ständerates vom 13. Januar 2005 (Teilrevision Asylgesetz) über Einschränkung der Nothilfe im Auftrag der Schweizerischen Flüchtlingshilfe, Bern, 7 March 2005. J.W. Müller, A Dangerous Mind. Carl Schmitt in Post-War European Thought, Yale, Yale University Press, 2003. P. Niggli and J. Frischknecht, Rechte Seilschaften. Wie die “unheimlichen Patrioten” den Zusammenbruch des Kommunismus meisterten, Zurich, Rotpunkt, 1998. C. Offe, “Demokratie und Wohlfahrstsstaat: eine europäische Regimeform unter dem Stress der europäischen Integration”, Swiss Political Science Review 4/4, 1998, 35–57. P. Sciarini, S. Hug and C. Dupont (eds), “Example, Exception or Both? Swiss National Identity in Perspective”, EUI, Working Paper 32, San Domenico di Fiesole, European University Institute, 1997. D. Skenderovic, “The Swiss Radical Right in Perspective. A Reevaluation of Success Conditions in Switzerland”, Paper for a Workshop on “Democracy and the New Extremist Challenge in Europe”, Grenoble, 2001. R. Stämpfli, “Political communication in Switzerland and Europe”, Paper given at a Conference on Identity and Representation, Centre for European Studies, Carlton University, Ottawa, Canada, 9–10 May 2002. R. Stämpfli, Vom Stummbürger zum Stimmbürger, Das ABC der Schweizer Politik, Zurich, Orell Füssli, 2003. R. Stämpfli, “Die organisierte Unverantwortlichkeit. Die Schweiz hat Gewählt”, Rote Revue, Zeitschrift für Politik und Kultur 4, 2003, 16–22. P. Taggart, Populism, Milton Keynes, Open University Press, 2003. A. Vatter and M. Freitag, “Die Janusköpfigkeit von Verhandlungsdemokratien”, Swiss Political Science Review 8/2, 2003, 53–81. VOX. Analysis of Swiss Referenda and Initiatives since 1977, Bern, GfS in collaboration with the Universities of Bern, Geneva and Zürich.

Part II

Economic and social difficulties

6

Swiss international economic relations Assessing a small and open economy Rolf Weder1

Inside and outside Switzerland the country’s economic relations with the European Union (EU) and the world economy are seen as a crucial factor that determines the standard of living in the country. For some the country is already highly integrated economically with the rest of the world and thus hardly needs a further dose of economic or even political integration in the EU. Others feel, however, that the country is losing out because of its self-imposed exclusion from the EU. They believe that the country is not as integrated or open as it could be and claim that the lack of integration is putting a burden on the country’s prosperity and growth. The question is, therefore, how the country’s economic relations with the EU and the world economy differ from those of other countries. And how do we assess the country’s degree of integration in the light of other countries’ experience? Is it a small and open economy? To answer this we need to ask what we mean by “small” and “open” and how these qualities can be assessed statistically, and in comparison to similar countries. Hence this chapter starts by considering the meaning of the key terms. It then briefly presents the regulatory framework that integrates or links the country’s economy to others’ and shows its position on some widely used indicators of openness and trade policy. The chapter next goes on to evaluate the country’s size and degree of openness by analysing the country’s relative position in some helpful data series of economic integration. Doing this shows that Switzerland counts for more than is often realized and is, moreover, highly integrated into the European and world economy. And the evidence does not support the belief that, overall, internal protectionism limits Swiss openness to a degree that would make the country appear more closed than other comparable countries. In other words, the country’s present level of economic integration vis-à-vis the EU and the world economy appears appropriate though it did not increase as much as in some recent members of the EU during the last decades.

What is “small” and “open”? Many people would argue that Switzerland is a “small open economy”, a socalled SMAPEC.2 The same is often said of countries like Canada, especially when the Canadian economy is compared to that of the United States. For

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Switzerland, the statement is quite general and not primarily made when comparing the country with neighbouring countries such as Germany, Italy or France. But what if Switzerland is compared to its other neighbours, Austria or Liechtenstein? Of course, Switzerland is not considered to be a “large closed economy” which would be the opposite. In the case of Canada, however, some people may argue that the term “large open economy” is more appropriate. But then, how would it differ from the US? Is the US a large closed economy? Probably not. Thus, it seems to be worthwhile to think about this term a little more deeply and to compare the Swiss economy with other, especially European, economies from this perspective. Let us start with the supposedly easy consideration, the question of “smallness”. Switzerland obviously turns out to be rather small if you try to find it on a global map, on which it can be quite difficult to detect. Switzerland does not increase in size by much if you compare its population with that of other countries. Of course, in the case of Canada, it makes a big difference whether you take surface area or population as a measure of country size, the latter being the reason why the country may be regarded as a small country. From an economic point of view we may, however, argue that the size of the country should be assessed by factors such as “economic power”, “economic performance” or “economic influence” in the global economy. These attributes could be captured by indicators such as gross domestic or national product [GDP or GNP], absolute values of trade in goods and services, capital flows or stocks of investment.3 Note that, in this case, Switzerland becomes more visible, ranking nineteenth and sixteenth on the list of the major world exporters of goods and services, respectively, in 2003.4 Let us come to the second consideration, that of “openness”. Like many other countries, Switzerland is quite well integrated into the world economy. In fact, the share of imports of goods and services of Swiss GDP is approximately 40 per cent which is similar to that in Canada or Sweden. Note, too, for large countries like the US or Japan, imports account for about 10 per cent to 15 per cent of GDP, whereas small countries such as Austria (50 per cent) or Belgium (80 per cent) tend to have higher shares.5 The question arises whether these measures of integration or, more precisely, of import penetration imply that a country is fully accessible to foreign business. In other words, do the shares imply that the countries follow an outward-oriented trade policy? Is Switzerland more protective than Austria or Belgium because of the lower share of imports in its GDP? How about Canada, Japan or the United States? The question shows clearly that the two aspects – smallness and openness – are to some extent connected. Small countries tend to appear more open. This, however, probably depends on how we define size, and also on the precise definition of openness. This is not an artificial discussion. It has, in fact, entered policy debates. When presenting and discussing different measurements of openness, Edwards states that there is, and always has been, some controversy about the openness of individual countries.6

Swiss international economic relations 101 This is illustrated by the fact that, while for some, South Korea has been an open and outward-oriented economy (Greenaway and Nam, 1988), for others it is a prime example of a semi-closed economy with a high degree of government intervention. (Wade, 1994)7 The same is true for Switzerland. Stating that “openness is more a myth than reality”, Borner and Bodmer argue that Switzerland does “not rise above mediocrity” when looking at measures of openness and correcting for the country size.8 In addition they argue both that, during the last 40 years, countries such as Austria and Ireland have increased their degree of openness more than has Switzerland and that in ratings of openness, such as that of the IMD International Business School’s World Competitiveness Report, Switzerland would be found somewhere in mid-table and way behind the leaders. This is a strong statement and one related to the view found in Switzerland that the country’s limited rate of economic growth since the 1990s is, to some extent, due to the lack of integration in the world economy, particularly the European Union. But what if Switzerland has been an early mover in opening up the economy and others are only catching up?

Regulatory frameworks and positions on widely used indicators of openness As a small country, lacking primary resources, Switzerland opened up its economy early in the history of western industrialization. The country developed comparative advantages in a large number of industries such as banking, watches, world trading, textiles, dyestuffs and pharmaceuticals, insurance, machinery, precision and optical products, food products (notably chocolate) and electronics. Many of these industries go back to the eighteenth or nineteenth century. Indeed, the diversity of Swiss industries and firms achieving a competitive advantage on the world market is rather striking if compared with those of other nations of similar size. As Enright and Weder show, many of the firms in these industries started both to export their products and services and to invest abroad early in the industrialization process.9 This quickly led to continuing and extremely high export ratios10 which, in the 1990s, ranged between 70 per cent and 95 per cent. It also implied that, in many industries, the foreign business of Swiss firms was highly important as this provides a large share of Swiss firms’ overall turnover leading in the 1990s to shares of 70 per cent for those engaged in “world trading” (that is exporting and importing goods without producing them), 95 per cent for reinsurance, 60 per cent for asset management and 50 per cent in non-life insurance. These descriptions and figures are interesting but, of course, they only give a flavour of the degree of a country’s economic integration. Similar stories and numbers may well be found, and indeed have been found for other countries, at least for some industries and firms.

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Regulatory frameworks for Swiss integration Switzerland’s membership of the World Trade Organization constitutes, in my view, the most important regulatory framework for the Swiss economy where market integration is concerned. Comparing the individual pillars of the WTO, the General Agreement on Tariffs and Trade [GATT] has been decisive not only in securing access to other countries’ markets for Swiss firms but also for liberalizing many sectors of the Swiss economy. An exception is, of course, Swiss agriculture which is still highly protected, but is moving towards a gradual integration into the GATT framework. The other two pillars, the General Agreement on Trade in Services [GATS] and the Agreement on Trade-Related Aspects of Intellectual Property Rights [TRIPS], are likely to have major impacts on Swiss service industries in the future. Membership of the European Free Trade Association has helped Switzerland to reduce some of the discriminatory effects that arose from the creation of the European Economic Community in 1958. However, with the expansion of the EEC and the deepening of the integration process, leading to the creation of the EU, Switzerland had to find new ways to ensure that its economy did not become detached from the increasingly integrated regional markets in Europe. One step in this direction was the creation in 1972 of the Free Trade Agreement [FTA] between Switzerland and the European Community [EC], as it then was. Another possibility would have been the participation in the European Economic Area. This, however, was voted down in 1992 by Swiss voters as is shown elsewhere in this volume. Other attempts which, to some extent, succeeded were the set-up of bilateral free-trade agreements with other countries through EFTA or by its own, a path that is still an important item on the Swiss foreign affairs agenda.11 The Bilateral Agreements I and II between Switzerland and the EU, again as frequently discussed in these pages, are the most recent accords on economic and, to some extent, political integration. The former are leading to further market integration between the members of the EU and Switzerland especially in the areas of agriculture, public procurement, air traffic and the labour market. The latter should facilitate cross-border exchange in agricultural products and tourism, but could also lead to some common regulation, supervision and cooperation in the areas of crime, taxes on capital income, refugees and statistics among others. Further attempts to deepen economic integration have been proposed in 2005 in Switzerland such as the unilateral introduction of the so-called Cassis-de-Dijon Principle vis-à-vis the EU which would open up product markets in those areas where Switzerland currently applies different product regulations. Furthermore, the establishment of a regional agreement in trade in services between the EU and Switzerland would be an area of mutual trade liberalization with major impacts. Overall, Switzerland is part of a complex network of multilateral, regional and bilateral agreements that support and stabilize the integration of the Swiss economy in the world economy. The Bilateral Agreements I and II have made it

Swiss international economic relations 103 more likely that the Swiss bilateral approach to fostering market integration with the EU, often known as “integration ‘à la carte’ ”, may be a sustainable and viable alternative to normal EU membership with its full economic and political integration. Swiss rankings on commonly used indicators of openness The question now arises as to whether this high degree of internationalization of Swiss firms, along with Swiss participation in many regulatory frameworks supporting economic integration, does in fact promote a high degree of openness or outward-orientation in the country. Such a link does not necessarily follow. Thus, first, Switzerland is not a member of the EU and therefore is not obliged to eliminate so-called non-tariff barriers to trade as are members of the Union. Second, Switzerland may still protect some sectors or markets in spite of being the home base for a large number of international firms. One highly protected sector, that of agriculture, has already been identified. Moreover, the many Swiss voices – politicians, citizens, entrepreneurs and scientists – emphasizing the existence of a considerable degree of protection in the non-tradable goods sector as a consequence of government regulations and the anti-competitive behaviour of firms should not be overlooked. However, it is not clear at this stage whether this alleged lack of openness is a myth or a reality and, most importantly, whether its extent differs from that of other countries. A first step resolving this conundrum is to analyse and to identify the Swiss rank with respect to different widely used and readily accessible indicators of openness. In Table 6.1, I have assembled the information from some of the studies mentioned in Edwards.12 The information that can be drawn from these various indicators should not be overemphasized because it is not always clear how the indices have been put together and exactly which areas of the individual economies they cover. The first set of rankings has been taken from the 1999 global competitiveness report of the World Economic Forum covering an overall indicator of “openness” as well as some individual aspects of openness such as “tariffs and quotas”, “hidden import barriers”, “access to foreign capital markets”, “foreign access to capital markets” and “average tariff rate” for 59 countries. The second set of rankings is from the Heritage Foundation. This constructs the widely used “index of economic freedom”,13 but also classifies countries into five categories regarding (perceived) distortions of trade policy. Table 6.1 covers the indicators “trade policy”, “capital flows and foreign investment” as well as “regulation”. The last one has been taken into consideration because it describes the general interference of governments in markets with possible distortions to international trade. Finally, two indicators from Sachs and Warner’s study have also been used: “average tariff ” and “quotas coverage”,14 based on which a ranking among the countries has been established in Table 6.1. Finally, an unweighted average of all these ranks is reported in the final column of the table for each country figuring in the rankings.15 The results of this comparison can be summarized as follows for the Swiss economy.

OECD-members Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Korea, Republic of Luxembourg Mexico Netherlands New Zealand Norway Poland Portugal Slovakia Spain Sweden Switzerland Turkey

15 7 16 4 25 18 22 20 14 31 47 30 17 13 34 35 1 28 5 10 24 48 8 37 26 27 11 36

Openness

26 5 10 12 29 8 2 7 14 25 31 30 18 20 24 36 1 28 13 3 27 42 10 37 16 6 17 21

Tariffs and quotas

18 4 16 14 23 2 1 12 24 20 25 31 15 27 48 36 10 32 6 5 28 42 13 46 17 3 26 19

Hidden import barriers

11 4 15 18 48 8 1 34 9 38 43 21 32 30 25 47 3 36 6 5 29 55 19 51 22 27 2 12

Access to foreign capital markets

19 4 7 12 40 20 1 27 11 15 36 54 23 28 34 46 5 25 2 16 32 49 14 48 22 9 8 3

Foreign access to capital markets

8 13 16 27 7 16 31 16 8 16 44 5 16 16 11 39 11 27 16 26 4 35 16 35 16 10 6 30

Average tariff rate

2 2 2 2 3 2 2 2 2 2 3 2 2 2 2 5 2 3 2 2 2 2 2 3 2 2 2 3

Trade policy

2 2 1 3 2 2 2 2 1 3 2 2 1 2 3 5 1 3 1 1 3 3 2 2 2 1 2 3

Capital flows and foreign investment

Table 6.1 Readily available and widely used indicators of openness in the literature

2 3 3 2 3 1 2 3 3 3 3 2 2 3 3 5 2 3 3 2 3 3 3 3 3 3 3 4

NA 0.047 0.036 0.046 NA 0.042 0.059 0.019 0.039 0.041 NA NA 0.019 0.021 0.02 0.137 0.036 0.082 0.04 0.176 0.014 NA 0.047 NA 0.042 0.033 0.012 0.133 16 10 1 28

19

5 9 7 30 11 24 14 34 2

16 21 5 13 15

19 11 18

NA 0.021 0.112 0.019 NA 0.112 0.067 0.05 0.119 0.042 NA NA 0.054 0.069 0.058 0.1 NA 0.064 0.126 NA 0.041 NA 0.194 NA 0.123 0.028 0.176 0.872

Regulation Average Calculated Quotas tariff ranking coverage average tariff

29 6 32 45

33

7

19 31

15 21 18 23

26 20 14 28 8

5 26 4

NA 6 11 11 20 11 10 13 12 16 26 20 13 16 19 28 5 21 9 10 15 31 13 29 16 9 10 19

NA 2 14 11 28 12 8 18 15 24 38 27 19 22 26 43 1 32 5 10 21 49 17 46 22 7 9 25

Calculated Unweighted Ranking of ranking average* average quota coverage

32 54 48 49 19 45 50 46 57 51 35 4 52

Other reported countries Argentina 43 Bolivia 41 Brazil 53 Bulgaria 54 Chile 32 China 52 Colombia 49 Costa Rica 29 Ecuador 44 Egypt 50 El Salvador 46 Hong Kong 6 India 59

34 57 49 44 12 50 52 51 58 43 35 6 41

NA

NA

9 21

12

15 22

11

19 9

Additional EU-25 members Cyprus Estonia Latvia Lithuania Malta Slovenia EU-15 (average rank) ** 16 EU-25 (average rank) NA

UK USA

16 35 50 53 37 57 44 26 42 23 31 24 59

NA

17

7 12

6 41 37 52 29 58 51 26 47 24 38 21 57

NA

14

17 10

41 29 50 55 32 57 44 46 40 53 32 1 59

NA

16

16 13

4 2 4 2 1 4 4 3 4 4 2 1 5

NA

2

3 1 2 2 3 2

2 2

3 3 3 3 2 4 3 2 4 3 2 1 3

NA

2

3 1 2 2 3 3

1 2

3 4 3 4 3 4 3 3 4 4 2 1 4

NA

3

2 2 3 3 2 2

2 2

0.294 0.129 0.159 NA 0.213 0.254 0.31 0.157 0.275 0.104 0.133 NA 1.319

NA

NA NA

0.078

0.018 0.02

47

37 40 44 32 41 26 28

42 27 33

NA

13

23

4 7

0.055 0.042 0.047 NA 0.098 0.291 0.52 0.703 0.399 0.247 0.043 0.001 0.888

NA

NA

0.354

0.044 0.123

22 35 42 43 40 34 10 1 46

16 8 13

NA

20

37

11 29

22 27 31 35 21 37 35 28 35 29 24 7 39

NA

11

14 NA NA NA NA NA

9 12

33 41 50 54 30 56 53 43 52 45 34 3 60 continued

NA

13

20 NA NA NA NA NA

6 16

21 40 45 23 12 38 42 56 2 51 3 33 58 39 55 57

53 33 44 38 41 34 40 56 9 39 23 47 58 43 55 59

Tariffs and quotas

55 40 37 38 29 30 45 54 8 33 22 47 56 53 59 39

Hidden import barriers

33 39 28 45 20 10 41 52 17 54 40 46 56 14 49 58

Access to foreign capital markets 39 18 30 43 50 13 42 53 31 35 56 44 55 33 59 46

Foreign access to capital markets 32 3 52 37 51 42 48 49 2 47 15 38 54 43 56 58

Average tariff rate

2 2 4 3 5 4 2 3 1 2 2 3 3 4 5 4

Trade policy

4 2 2 4 3 2 4 4 1 3 2 4 4 5 4 5

Capital flows and foreign investment 4 3 3 3 3 4 4 4 1 3 3 3 4 4 5 4

0.137 NA 0.187 0.087 0.347 0.409 0.221 NA 0.016 NA 0.073 0.294 NA 0.182 NA 0.229 39

35

22 42

3

36 25 45 46 38

30

0.101 NA 0.109 0.045 0.337 0.37 0.467 NA 0.005 NA 0.375 0.055 NA 0.002 NA 0.867

Regulation Average Calculated Quotas tariff ranking coverage average tariff

44

2

39 16

3

25 12 36 38 41

24

27 20 28 25 27 24 32 37 7 30 21 29 39 25 39 38

40 28 42 36 39 34 51 55 4 48 31 47 59 37 58 57

Calculated Unweighted Ranking of ranking average* average quota coverage

Notes * Based on those ranks available. ** For those countries available.

Source: Based on data found in World Economic Forum (1999, p. 103), The Heritage Foundation (2005) and Sachs and Warner (1995, p. 26). Cf World Economic Forum, The Global Competitiveness Report 1999, New York, Oxford, 1999.

Indonesia Israel Jordan Malaysia Mauritius Peru Philippines Russia Singapore South Africa Taiwan Thailand Ukraine Venezuela Vietnam Zimbabwe

Openness

Table 6.1 continued

Swiss international economic relations 107 First, on the World Economic Forum “openness” indicator Switzerland is ranked 11 of 59 countries. The list is led by Luxembourg (1), Singapore (2) and Taiwan (3). Switzerland is better placed than the average of the EU-15 (16) and is only less open than four of its member states, to wit Luxembourg (1), the Netherlands (5), Austria (7) and Portugal (8). Second, Switzerland has very good positions on indicators relating to the openness of the capital markets (ranking number 2 for imports of capital and 8 for exports) in the Global Competitiveness Report. It also ranks 6 and 1 with respect to low average tariff rates in the studies by the World Economic Forum and Sachs and Warner respectively. Third, Switzerland has relatively weak positions where non-tariff barriers to trade are concerned, ranking 26 for “hidden trade barriers” in the Competitiveness Report and 32 for “quota coverage” in Sachs and Warner. This is the unfortunate result of a protective agricultural policy but, very likely, of special product regulations in other industries as well. Fourth, Switzerland shows a higher degree of openness than the unweighted average of the EU-15 in all indicators other than “tariffs and quotas”, “hidden import barriers” and “quotas”. Fifth, Switzerland is ranked 9th if we calculate a ranking that includes all individual ranks of the reported indicators, as the last column of Table 6.1 shows. This rates the country higher than the EU-15 average (13), but behind Luxembourg (1), Austria (2), Hong Kong (3), Singapore (4), the Netherlands (5), United Kingdom (6), Sweden (7) and Finland (8). Switzerland is, however, better positioned than Canada (11), Denmark (12), Belgium (14), Germany (15), United States (16), Portugal (17), France (18), Ireland (19), Norway (21), Spain and Italy (22) or Japan (26). We should note that these results are based on indicators of trade interference by governments as well as on judgements by business people. Below we will extend this picture by focusing on some data about actual economic exchanges between countries, i.e. what could be described as “revealed integration”. First, however, I want to position Switzerland with respect to its size.

Switzerland: a small country? Table 6.1 includes some data that is interesting and relevant when we come to compare the size of Switzerland with that of other countries. In particular, it looks at the surface and population, followed by variables that describe the economic size or importance of the countries. We should note that it only considers the OECD countries plus the six new member states of the EU who are not presently OECD members. This allows us to make comparisons with the EU-25 as well as with the EU-15. The data refers to 2003 for most indicators, this being the most recently available data set at the time of writing. Switzerland ranks 31 if we take land area as an indicator of country size. Canada is the largest country, followed by the United States and Australia. Mexico is fourth but would, however, be replaced in its rank by the EU if we were to consider the EU as one (federal) state as some would like. Interestingly,

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Switzerland is one of the smallest countries in Europe. Only Belgium (32), Slovenia (33), Cyprus (34), Luxembourg (35) and Malta (36) are smaller.16 With a population of 7.3 million, Switzerland improves on this performance with a rank of 22 in Table 6.1. So it becomes “bigger” although the biggest countries in terms of population are the United States, followed by Japan, Mexico, Germany, Turkey, France, United Kingdom and Italy. Canada only ranks 12. Note again that, if we were to take the EU as one entity, it would be the largest member of the OECD. In terms of population Switzerland is a tad smaller than Austria (21) but is larger than Denmark (23), Slovakia (24), Finland (25), Norway (26), New Zealand (27), Ireland (28) and eight other European countries. Population density in Switzerland is higher than the EU-25 average but is considerably less than that of countries such as Malta, Korea, the Netherlands, Japan, Belgium or even of the United Kingdom, Germany and Italy.17 The “size” of Switzerland increases further if the total value of all (final) goods and services produced in the country, the GDP in other words, is considered. Table 6.2 shows that Switzerland ranks 13th with respect to the GDP in current US dollars.18 The largest economies are those of the United States, followed by Japan, Germany, the United Kingdom and France. Only the Netherlands, amongst the “small countries”, has a really markedly higher GDP. It is a country with the same surface area, but more than twice the population as Switzerland. Switzerland is followed closely by Belgium (14) and Sweden (15) and also by countries such as Austria (16), Turkey (17), Norway (18), Denmark (19) and Poland (20). The much “smaller” Luxembourg is ranked 30th. Note that the EU-25, taken as a whole, could in 2003 claim a GDP roughly equal to that of the United States. We can also take the volume of international trade as an indicator of the size of a country arguing that, to some extent, exports reflect the productive capacity of a country’s economy.19 Table 6.2 reports merchandise exports (i.e. food, electronics or machinery) as well as exports of commercial services (tourism, insurance or asset management services). Switzerland ranks 14th on both of these indicators. Table 6.2 also demonstrates a widely known fact, that the leading exporter of goods is Germany, followed by the United States (2), Japan (3), France (4) and the United Kingdom (5), whereas the United States (1) and especially the United Kingdom (2) are relatively better positioned in the exports of commercial services, followed by Germany (3), France (4) and Spain (5). Note that Switzerland is a more important exporter of merchandise than Austria (15), Ireland (16), Australia (17), Norway (18), Denmark (19) and Poland (20). Equally striking are the positions of the Netherlands (6) as well as Belgium (9) in the list of the leading merchandise exporters. With respect to exports of commercial services, other small countries such as Austria (9), Belgium (10), Ireland (12) and Denmark (13) are better positioned than Switzerland. Korea (15), Sweden (16), Luxembourg (17), Greece (18), Norway (19) and Australia (20) are among the less important exporters of commercial services than Switzerland. Note that the EU, taken as one entity, becomes the largest exporter of merchandise as well as of commercial services;

Swiss international economic relations 109 this is shown by the 1,105,350 Mio. $ exports of the EU-15 to the rest of the world (i.e. “extra-EU-15 exports”). The “size” of Switzerland rises once more if capital outflows are considered. We focus on the so-called foreign direct investments (FDI) which describe a particular type of capital flows: funds provided to other countries which also involve some degree of control with respect to the use of these funds. Examples are both the considerable holdings of foreign multinational companies or the full ownership of subsidiaries by Swiss multinational companies. Table 6.2 lists FDI outflows in 2003 as well as the stock of FDI ownership abroad. Switzerland ranks 12 among the world’s largest foreign direct investors abroad in 2003. The most striking fact, however, is that Luxembourg ranks 2 after the United States, followed by France (3), the United Kingdom (4), Belgium (5), the Netherlands (6), Japan (7) and Spain (8). Regarding foreign direct investment [FDI] abroad, Switzerland rises up the ranking showing the country to be the world’s 6th largest stock holder of FDI abroad. As this figure reflects the accumulated net FDI over time, Switzerland must have been a large investor abroad as was suggested earlier. Table 6.1 also shows that the top owners of FDI abroad are the United States, followed by the United Kingdom (2), France (3), Germany (4), the Netherlands (5) and Switzerland (6). They are followed by Japan (7), Canada (8), Sweden (9) and Italy (10). Given the high FDI outflows in 2003, it is likely that Luxembourg and Belgium also figure among the top holders of FDI stock abroad. What do we learn from this data? Two findings are especially interesting. First, size, in terms of surface area and population, is a rather limited indicator of a country’s economic size and importance in the world economy. It is very striking by how much the size of some countries increases if economic variables, such as the value of total output produced, exports in goods and services and foreign investment, are taken into account. Second, Switzerland becomes “quite a large economy” if these economic variables are considered. This general picture may not be, and probably is not, at all surprising. The precise figures are, I would argue, quite surprising especially if one looks at, for example, ranks such as the ownership of and participation in multinational companies abroad. It is clear that figures like this increase the influence of Switzerland and other small countries in the world economy and to some extent suggest that “smallness” may well apply to the pure size of these countries, but is not so applicable to the size of their economies – at least not in the current state of the world economy.

Switzerland: an open economy? The recent WTO trade policy review of Liechtenstein and Switzerland “commended the two countries for maintaining a generally low level of protection on non-agricultural products”.20 More specifically, the Report emphasizes the freetrade policy of Switzerland on non-agricultural products as a member of EFTA “with other EFTA members, the EU and a number of other European countries,

OECD members Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Korea, Republic of Luxembourg Mexico Netherlands New Zealand Norway Poland Portugal

7,686,850 83,870 30,528 9,984,670 78,866 43,094 338,145 547,030 357,021 131,940 93,030 103,000 70,280 301,230 377,835 98,480 2,586 1,972,550 41,526 268,680 324,220 312,685 92,391

Surface (km2) (1)

3 22 32 1 23 29 11 6 10 17 20 18 24 14 9 19 35 4 30 15 12 13 21

Rank

Table 6.2 State size and trade

19,890,000 8,059,000 10,348,000 31,630,000 10,202,000 5,387,000 5,210,000 59,725,000 82,551,000 10,680,000 10,120,000 286,000 3,947,000 57,646,000 127,210,000 47,912,000 448,000 102,291,000 16,215,000 4,009,000 4,560,000 38,195,176 10,191,000

Population (2)

13 21 16 12 17 23 25 6 4 15 19 36 28 8 2 9 34 3 14 27 26 11 18

Rank

522.4 253.1 301.9 856.5 89.7 211.9 161.9 1,757.6 2,403.2 172.2 82.7 10.5 153.7 1,468.3 4,300.9 605.3 26.5 626.1 511.5 79.6 220.9 209.6 147.6

Gross domestic product (Bill. USD) (2)

11 16 14 7 25 19 22 5 3 21 26 34 23 6 2 10 30 9 12 27 18 20 24

Rank

71,544 95,832 255,320 272,739 48,740 67,377 52,953 386,699 748,320 13,199 42,532 2,385 92,723 292,052 471,817 193,817 13,317 165,396 294,051 16,496 67,480 53,537 31,369

17 15 9 8 22 19 21 4 1 29 24 35 16 7 3 10 28 11 6 27 18 20 25

Exports of Rank merchandise (Mio. USD) (3)

20,683 42,971 42,397 41,945 7,763 32,104 7,689 98,930 115,599 24,877 7,894 1,291 35,655 72,690 70,624 31,337 25,234 12,572 62,992 6,170 21,588 12,339 11,703

20 9 10 11 26 13 27 4 3 18 25 35 12 6 7 15 17 22 8 28 19 23 24

Exports of Rank commercial services (Mio. USD) (3)

15.108 7.08 36.65 21.54 0.23 1.16 –7.37 57.28 0.26 0.59 1.58 0.17 1.91 9.12 28.8 3.43 95.99 1.39 36.09 0.19 2.18 0.39 0.1

11 14 5 9 27 20 36 3 26 21 18 29 17 13 7 15 2 19 6 28 16 23 31

Foreign Rank direct investment, outflows (Bill. USD) (4)

117.091 59.1 NA 307.86 1.73 77.07 68.7 643.4 622.5 10 3.92 1.37 33.53 138.88 335.5 34.53 NA 13.82 384.4 8.74 40.64 1.84 38.54

11 15 NA 8 27 13 14 3 4 21 24 29 19 10 7 18 NA 20 5 22 16 25 17

Foreign Rank direct investment, owned stock abroad (Bill. USD) (4)

48,845 504,782 449,964 41,290 780,580 244,820 9,631,418

34 28 26 25 36 33

27 7 8 31 5 16 2

770,000 1,350,000 2,321,000 3,454,000 399,000 1,964,000 379,744,000 453,900,176

5,381,000 41,101,000 8,956,000 7,344,000 70,712,000 59,280,000 291,044,000

33 32 30 29 35 31

24 10 20 22 5 7 1

11.4 9.1 11.1 18.2 4.9 27.7 10504.6 11001.4

32.5 838.7 301.6 320.1 240.4 1794.9 10948.6

32 35 33 31 36 29

28 8 15 13 17 4 1

26 12 13 14 23 5 2

923 36 5,597 32 2,893 33 7,234 31 2,464 34 12,767 30 2,900,735 3,099,382 (extra-EU-15 exports: 1,105,350)

21,960 151,682 101,245 99,390 46,576 304,596 723,805

30 5 16 14 21 2 1

5,295 29 2,205 32 1,509 34 1,703 33 1,238 36 2,786 31 822,840 868,820 (extra-EU-15 exports: 361,500)

3,248 76,252 30,336 31,996 18,931 143,411 287,695

0.35 0.15 0.03 0.04 0.02 0.3 334.69 337.8

0.02 23.37 17.38 10.92 0.5 55.09 151.88

24 30 33 32 34 25

35 8 10 12 22 4 1

31 12 9 6 23 2 1

1.58 28 1.02 30 0.11 34 0.12 33 0.27 32 1.79 26 3501.51 3514.44 (excl. Luxembourg and Belgium)

0.56 107.53 189.28 344.1 5.55 1128.58 2069.01

Sources: CIA (2005) for (1), World Bank (2005) for (2), WTO (2004, p. 171) for (3), UNCTAD (2005) for (4). Cf CIA (⫽Central Intelligence Agency) (2005), The World Factbook, Washington. Internet: www.cia.gov/cia/publications/factbook/; World Bank (2005), World Development Indicators Database. Data Query, Washington. Internet: www.worldbank.org/data/dataquery.html; WTO (⫽World Trade Organization) (2004), International Trade Statistics 2004, Geneva; UNCTAD (⫽United Nations Conference on Trade and Development) (2005), World Investment Report 2004, Country Fact Sheets. Unctad Database, Internet: www.unctad.org/ Templates/Page.asp?intItemID⫽3198&lang⫽1.

Additional EU-25 members Cyprus 9,250 Estonia 45,226 Latvia 64,589 Lithuania 65,200 Malta 316 Slovenia 20,273 EU-15 total 3,239,207 EU-25 total 3,977,487

Slovakia Spain Sweden Switzerland Turkey UK USA

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as well as with Chile, Israel, Jordan, Lebanon, Mexico, the Palestinian Authority, Singapore and Turkey”. On a multilateral level, the trade policy instruments of the two countries are assessed more precisely as follows:21 The overall simple average applied MFN tariff rate (ad valorem equivalent) was 9.3 per cent in 2004 (up from 8.9 per cent in 2000); this masks a considerable dispersion of rates. Ad valorem equivalents [AVEs] of tariffs on agricultural products (WTO definition) average 36 per cent and range up to 1,705 per cent; the average AVE of tariffs on non-agricultural products is 2.3 per cent. While only 18 per cent of all tariff lines are duty-free, another 39 per cent of lines carry “nuisance” rates less or equal to 2 per cent.22 The question is whether this assessment implies that Switzerland really follows an open, outward-oriented trade policy – in non-agricultural products. If we take into account that “changes in average tariff rates are not very strongly correlated with changes in trade volumes” (as found by both Dollar and Kraay23), implicit import protection may be higher than suggested by the level of tariffs. The existence of non-tariff barriers to trade could lead to a lesser degree of openness than expected, something which was already touched upon above when, in one of the studies, Switzerland received a low openness rating on the indicator “hidden import barriers” (see Table 6.1). The Federal Council’s 2004 Foreign Affairs Report also states that, in connection with EU membership, European countries of similar size – such as Sweden, Finland and Austria – increased their degree of international integration more than did Switzerland.24 The calculated indices of trade intensity shown in the report support this view. Even though it is not possible to provide a full analysis of the revealed degree of openness or economic integration in this section, we want to look again at some data assembled below. In the next subsection, the relative position of Switzerland on some indicators of world integration is analysed. The chapter then goes on to describe the integration of Switzerland into the EU relative to other countries. In the following subsection, we then provide a first step towards linking size and openness. This is the start for a deeper analysis. Integration into the world economy In Table 6.3, the first indicator of a country’s integration into the world economy is global trade intensity, defined as exports and imports of goods and services as a percentage of GDP. This is an often used indicator of openness. Switzerland ranked 17 in 2002, behind Sweden (16), Denmark (15), Cyprus (14), Latvia (13), Austria (12), Lithuania (11) and Slovenia (10). Luxembourg is the most integrated economy on this indicator, followed by Ireland (2) and Belgium (3). The trend confirms that countries such as Austria, Sweden or Spain have increased their economic integration by more than Switzerland in the last 20 and 40 years. This is, however, likely to be due to the fact that these countries started at a much lower level of integration or openness.

Swiss international economic relations 113 The second indicator, global import penetration, looks at imports of goods and services as percentages of domestic consumption of these goods and services. The idea is to measure how accessible domestic consumption is for imports, consumption being measured as production minus exports plus imports. Switzerland ranked 15 in 2003, before Sweden (16), Denmark (17) and Poland (18) but behind Austria (14), Cyprus (13) and Latvia (12). Thus, Switzerland is slightly better ranked if integration is only measured in terms of import penetration rather than in terms of overall trade intensity. This is an interesting observation. The next three indicators analyse economic integration with respect to the exchange of capital in the same way as is done for trade in goods and services. The indicator global FDI exchange intensity measures FDI inflows plus FDI outflows in per cent of GDP. Switzerland ranked 8 in 2003 before Sweden (9), France (10), Spain (11) and Austria (12) and behind Malta (7), Cyprus (6), the Netherlands (5) and Estonia (4). The leading countries were Luxembourg (1), Belgium (2) and Ireland (3). The indicator gross private capital flow intensity is more broadly based than the first indicator because it also consists of other international capital flows such as portfolio investments. Switzerland ranked 6 in 2002, coming above Belgium (7), Austria (8), Finland (9) and Norway (10) but below the United Kingdom (5), the Netherlands (4), Malta (3) and Ireland (2). Once again the leading country was Luxembourg. The indicator global income exchange intensity measures the income from factors of production used abroad plus the payments for foreign factors of production used domestically in per cent of GDP. This is another way of capturing the exposure of the economy to the exchange of capital that, however, now also includes the exchange of labour as another factor of production (i.e. payments for and income from cross-border workers). Switzerland ranked 5 in 2002, before the United Kingdom (6), the Netherlands (7), Denmark (8), Sweden (9) and Austria (10). Switzerland is ranked after Malta (4), Ireland (3), Belgium (2) and Luxembourg (1) with considerably higher figures. The indicator foreign population as a percentage of total population describes the share of the stock of foreign population and assesses not only to what extent the country has been open for immigration in the past, but also how attractive it was for immigration. Switzerland ranked 3 in 2001, after Luxembourg (1) and Australia (2) and before Canada (4). These four countries have by far the highest share of foreign population with 37.6 per cent, 23.1 per cent, 19.7 per cent and 18.2 per cent, respectively. They are followed by countries with much lower shares such as the United States (5), Austria (6), Germany (7), Belgium (8), Greece (9) and Sweden (10). It is often argued that the high share of foreign population may be related to the fact that it is hard for foreign immigrants to become citizens in some countries. In order to get around this problem, at least partially, and to analyse migration in an analogous way as trade, the next indicator, global migration intensity, is calculated. This measures the flows of migration in 2000 relative to the total population, i.e. immigrants plus emigrants divided by the population. It turns out

OECD members Australia 29.4 Austria 48.1 Belgium 79.7 Canada 35.6 Czech Republic NA Denmark 64 Finland 43.5 France 26.4 Germany NA Greece 24 Hungary NA Iceland 84.6 Ireland 64.7 Italy 25.9 Japan 20.7 Korea, Republic of 16.1 Luxembourg 177.6 Mexico 22.2 Netherlands 93.3 New Zealand 45.1 Norway 71.2 Poland NA Portugal 35.7

33.1 74.1 118.5 54.3 87.7 65.5 64.6 43.2 45.8 51.4 85.2 69.9 106.5 46.1 28.2 73.3 188.6 28.5 104.2 60.2 80.0 56.9 60.3

41.9 103.3 164.1 78.8 125.1 83 69 52.2 67.5 48.6 133 77.3 168.7 53.0 21.1 69.1 273.8 55.5 120.1 63.1 68.5 58.8 67.9

34 12 3 18 8 15 21 32 24 33 7 19 2 31 36 20 1 29 9 25 22 27 23

Rank 2002

NA 37.3 59.0 26.7 NA 33.0 32.5 22.3 24.2 26.7 NA 35.0 52.8 23.8 14.4 NA 93.5 NA 52.1 NA 39.4 NA 32.2

1980

1980*

1960

2002

Global import penetration (2)

Global trade intensity (1)

Table 6.3 Integration in the world economy

15.9 46.1 80.8 35.3 63.2 38.8 32.7 24.9 33.3 26.4 63.5 30.7 80.7 25.4 10.4 30.3 146.1 27.0 59.5 23.7 23.6 36.0 34.3

2003

34 14 2 19 8 17 22 31 21 29 7 23 3 30 36 24 1 28 9 32 33 18 20

Rank 2003

4.4 5.5 21.9 3.3 3.1 1.8 -2.8 5.9 0.5 0.4 4.9 3 17.8 1.7 0.8 1.2 692.6 1.9 10.9 2.8 2.1 2.2 0.7

2003

Global FDI exchange intensity (3)

14 12 2 17 18 25 36 10 33 35 13 19 3 27 31 29 1 23 5 20 22 21 32

Rank 2003

20.0 41.9 49.3 13.4 28.6 12.1 38.8 20.2 21.7 22.6 19.3 30 278.2 13.7 15.3 7.4 2,314.1 6.3 69.1 9.2 38.3 10.2 37.6

2002

Gross private capital flow intensity (4)

23 8 7 27 17 29 9 22 20 19 24 14 2 26 25 34 1 35 4 32 10 30 11

Rank 2002

2.8 7 30.2 10 NA 7.7 3.5 5.7 3 1.6 5.2 4.2 12.1 3.1 2 7.7 NA 4.3 13.5 3.7 6.1 4.8 3.2

6.8 13.8 68.2 8.0 11.1 15.8 13.7 10.3 10.7 3.8 6.2 6.8 63.4 8.5 2.9 2.8 483.6 3.1 19.7 9.1 9.5 3.1 11.5

25 10 2 21 14 8 11 16 15 32 26 24 3 20 35 36 1 33 7 19 18 34 12

1980** 2002** Rank 2002

Global income Foreign exchange intensity population in (%) (5) % of total population (6)

23.1 9.4 8.2 18.2 2.0 5.0 1.9 NA 8.9 7.0 1.1 NA 3.9 2.4 1.4 0.5 37.6 NA 4.3 NA 4.1 NA 2.2

2001

2 6 8 4 19 11 20 NA 7 9 22 NA 15 17 21 24 1 NA 13 NA 14 NA 18

Rank 2001

0.7 1.8 1.2 1.0 0.7 1.8 0.6 NA 1.8 NA 0.2 3.1 1.7 0.5 0.4 NA 4.5 NA 1.3 1.4 1.4 0.1 0.2

19 7 14 16 18 6 21 NA 5 NA 27 2 8 23 24 NA 1 NA 12 10 9 29 28

22.3 10.3 6.3 17.0 14.7 15.3 26.0 NA 20.7 NA 15.7 13.3 4.3 27.0 30.3 NA 1.0 NA 8.7 18.3 17.7 25.7 27.7

Based on (1), (3) and (7)

Overall ranking (unweighted)

2000*** Rank 2000

Global migration intensity (7)

108.3 114.7 96.7 112.8 187.4 157.7

Additional EU-25 members Cyprus 79.7 Estonia NA Latvia NA Lithuania NA Malta NA Slovenia NA

95.0 158.0 97.4 109.5 163.5 113.0

150.7 58.3 81.5 81.0 59.9 55.4 23.4

14 5 13 11 4 10

6 28 16 17 26 30 35

53.5 NA NA NA 91.4 NA

NA 16.8 30.2 36 NA 25.5 10.5 47.5 76.8 48.8 54.5 80.1 56.5

78.0 29.0 39.7 39.9 29.7 27.5 13.4 13 6 12 11 4 10

5 26 16 15 25 27 35 10.3 11.4 3.5 1.2 8.2 1.8

1.8 5.8 6.9 7.2 0.4 3.9 1.7 6 4 16 30 7 26

24 11 9 8 34 15 28 34.2 30.1 29.5 13.3 144.8 21.2

NA 26.9 29.3 59.9 7.7 60.3 9.2 12 13 15 28 3 21

18 16 6 33 5 31 7.5 NA NA NA 18.6 NA

NA 2.2 3.0 16.3 1.8 20.6 4.2 9.6 11.2 7.0 4.1 43.9 4.8

4.7 7.7 15.0 26.7 5.2 21.7 5.0 17 13 23 31 4 29

30 22 9 5 27 6 28 NA NA NA NA NA NA

0.6 2.7 5.3 19.7 NA 4.4 11.1 NA NA NA NA NA NA

23 16 10 3 NA 12 5 2.9 NA 0.4 0.7 0.3 0.5

0.1 0.9 1.0 2.8 NA 1.4 1.3 3 NA 25 20 26 22

30 17 15 4 NA 11 13 7.7 NA 18.0 20.3 12.3 19.3

20.0 18.7 13.3 9.7 NA 18.7 25.3

Notes * Global trade intensity (1980) is taken from 1987 (Slovakia), 1990 (Czech Republic and Latvia), 1991 (Slovenia) and 1992 (Estonia). ** For Denmark and Hungary 1982 rather than 1980 values are included. For Belgium 2001 rather than 2002 values are included. *** Due to data availability only immigration is used for Canada, Spain, United States and Malta. Calculations and sources: (1) is calculated as exports plus imports of goods and services in % of GDP. Data are from Penn World Table (2005) for 1960 and partly for 1980, UNECE (2005) for 1980 and World Bank (2004) for 2002. (2) is calculated as imports in % of apparent consumption (i.e. production minus exports plus imports). Data are from UNECE (2005). (3) is calculated as FDI outflows plus FDI inflows in % of GDP. FDI data are from UNCTAD (2005) and World Bank (2005. (4) is calculated as gross private capital flows in % of GDP. Data are from World Bank (2004). (5) is calculated as income payments plus income receipts divided by GDP. Income payments and receipts are from World Bank (2004), GDP is from United Nations (2005). (6) data is taken from United Nations (2002). (7) is calculated as immigration plus emigration divided by total population. Data is from European Commission (2004), OECD (2003) and OECD (2005).

Sources: Penn World Table (2005), Center for International Comparisons, University of Pennsylvania Databank, Internet: pwt.econ.upenn.edu/; UNECE (⫽United Nations Economic Commission for Europe), GDP (in USD) by Country, Expenditure, Year and Measurement, UNECE-Databank. Internet: w3.unece.org/pxweb/database/STAT/2-ME/1-MECC/1-MECC.asp.; World Bank (2004), World Development Indicators Database. CD-Rom, Washington; UNCTAD (⫽United Nations Conference on Trade and Development) (2005), World Investment Report 2004, Country Fact Sheets. Unctad Database, Internet: www.unctad.org/Templates/Page.asp?intItemID⫽3198&lang⫽1; World Bank (2005), World Development Indicators Database. Data Query, Washington. Internet: www.worldbank. org/data/dataquery.html; United Nations (2005), Databank from the UN Statistics Division, Washington. Internet: unstats.un.org/unsd/snaama/dnllist.asp; United Nations (2002), International Migration Profiles by Country or Area, Washington. Internet: www.un.org/esa/population/publications/ittmig2002/locations; European Commission (2004), Bevölkerungsstatistik, Detaillierte Tabellen. Ausgabe 2004, Luxembourg; OECD (2003), Trends in International Migration, Paris; OECD (2005), Demography and Population. International Migration Data, Paris. Internet: www.oecd.org/document/ 36/0,2340,en_2825_494553_2515108_1_1_1_1,00.html.

68.4 32.0 59.8 71.1 17.2 52.0 20.6

NA 15.5 45.6 55.7 6.7 41.3 9.5

Slovakia Spain Sweden Switzerland Turkey UK USA

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that Switzerland ranks 4 on this indicator, behind Cyprus (3), Iceland (2) and Luxembourg (1). We should also note that most of the above-mentioned countries with a high share of foreign population do not experience these high flows of migration. In global migration intensity, Switzerland is ranked above Germany (5), Denmark (6), Austria (7), Ireland (8), Norway (9) and New Zealand (10). We may, as a final step, calculate an average degree of integration in the world economy based on the existing indices in Table 6.2. As some indicators are measuring the same aspect of integration in different ways, the overall ranking (last column) is based on three indicators: global trade intensity in 2002, global FDI exchange intensity in 2003 and global migration intensity. If we take the unweighted average of each country’s rank on these three indicators, Switzerland achieves a rank of 9.7. This places the country above Austria (10.3), Malta (12.3), Sweden (13.3) and Iceland (13.3), the Czech Republic (14.7) and many other countries. The countries above Switzerland are the Netherlands (8.7), Cyprus (7.7), Belgium (6.3), Ireland (4.3) as well as the unchallenged leader Luxembourg (1). The conclusion to be drawn from this descriptive analysis is that Switzerland is a highly integrated economy, particularly if we take into account not only trade in goods and services, but also consider international exchange of capital and labour. Integration into the European Union It is well known in Switzerland that the country’s merchandise trade is highly linked with European countries, in particular with Germany. The 2005 trade policy review by the WTO, for example, shows that 21 per cent of Swiss merchandise exports go to Germany and 32 per cent of Swiss imports originate in Germany.25 Table 6.4 provides an overview of the trade-related integration to the EU-25 countries of all the countries considered in this chapter. Thereby, the figures reflect exports and imports of goods and services into and from the EU25 countries as percentages of total exports. As it is quite difficult to find bilateral data for capital exchange and migration, only the countries’ position with respect to international trade in goods and services are presented here. Table 6.4 shows that 62.5 per cent of Swiss exports in goods and services went to the EU-25 in 1997. This ranked the country 12th regarding this measure of EU integration, above Austria (13), France (14), Iceland (15), the Czech Republic (16) and Germany (17). The country was, however, ranked behind Slovenia (11), Poland (10), Ireland (9), Denmark (8) and the Netherlands (7). In 2003, Switzerland fell back to 17th in the ranking as the share of EU exports fell to 61.5 per cent. Other countries, such as Austria, increased their shares – in this case from 61.7 per cent to 67.5 per cent which is most likely the effect of Austria’s EU membership in 1995. However, other EU members have reduced their export shares – for example Ireland from 65.1 per cent to 61.7 per cent. Thus, Switzerland was below Ireland (16), Latvia (15), Denmark (14), France (13) and Austria (12) in 2003, but above Slovenia (18), Slovakia (19), Cyprus

Swiss international economic relations 117 (20), Germany (21) and the United Kingdom with respect to the relative importance of the EU-25 as an export market. Interestingly, the countries with the highest share of exports to the EU-25 are the Netherlands (1), Luxembourg (2), Portugal (3) and Norway (4) and Hungary (5) in 2003. These numbers show that the relative importance of the EU as an export market is, of course, also highly influenced by geographical factors. Looking at the import side we find that the EU-25 is even more important for Switzerland as the country’s import share from the EU-25 was no less than 82 per cent in 1997 and 83.2 per cent in 2003. Here Switzerland ranked 3rd in 2003 after Luxembourg (1) and Portugal (2). The country is followed by Austria (4) with an import share from the EU-25 of 74.5 per cent, France (5), Denmark (6), Belgium (7), Norway (8) and Sweden (9). Interestingly, Austria and Sweden show similar characteristics regarding the relative importance of imports and exports from and to the EU-25 as Switzerland: they all rank higher regarding their share of imports though this is more extreme in the case of Switzerland. Overall, the figures suggest that the Swiss economy is highly integrated with those of the EU-25. Towards an analysis of relative openness and size Finally we need to evaluate our findings about the degree of integration or openness of Switzerland against the background of the size of the country. As already mentioned it is assumed that small countries tend to be more open or integrated into the world economy. The question arises whether Switzerland is still “open” if we take into account the fact that the country is also small. In other words, in relation to other small countries, does Switzerland show a higher or lower degree of openness? To some extent this was implicitly mentioned when comparing the rank of Switzerland with other countries. We were particularly eager to compare the ranking with other small countries such as Austria, Belgium or Sweden. Here we want to go one step further and explicitly to relate size and openness for our sample of countries. In Figure 6.1 each of the observed countries is located regarding its overall ranking with respect to the integration in the world economy (last column of Table 6.3) on the vertical axis and its ranking in size measured in terms of population (third column of Table 6.2). Based on the hypothesis that small countries tend to be more integrated we would expect Figure 6.1 to show a negative relationship between world integration and population. In other words, countries which have a relatively large population and thus rank highly in terms of size such as Japan (with rank 2 in Table 6.2) should show a relatively low degree of world integration and thus a low ranking (with Japan thus having an unweighted rank of 30.3 in Table 6.3). Figure 6.1 shows the result for all countries investigated in this chaper, except France, Greece, Korea, Mexico, Turkey and Estonia for which the overall ranking could not be calculated due to a lack of available data on migration. Figure 6.1 reveals two things. First, it appears that there is a negative

OECD members Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Korea, Republic of Luxembourg Mexico Netherlands New Zealand Norway Poland Portugal Slovakia

10.2 61.7 74.9 4.9 59.6 65.1 52.7 61.2 55.4 52.5 71.6 60.3 65.1 54.1 15.6 12.4 77.5 3.6 67.9 14.9 74.8 64.2 79.6 55.0

34 13 3 35 16 8 22 14 17 23 5 15 9 20 31 33 2 36 7 32 4 10 1 18

13.8 67.5 73.1 4.7 69.7 65.1 53.3 65.4 54.8 46.5 73.5 72.0 61.7 53.3 15.3 12.9 85.4 3.7 87.5 15.2 76.5 68.8 81.0 57.9

33 12 6 35 9 14 24 13 21 27 5 8 16 25 31 34 2 36 1 32 4 10 3 19

2003 Rank 24.4 67.9 71.2 9.9 51.6 71.1 56.8 59.5 53.2 63.8 62.7 59.4 53.9 60.0 13.4 13.1 88.8 9.0 52.0 19.2 68.9 63.8 74.0 50.0

1997

2003

1997

1997 Rank

Rank

Exports of goods and services into the EU-25 in % of Total Exports

Table 6.4 Integration in the European Union

30 8 5 35 24 6 19 16 21 13 14 17 20 15 33 34 1 36 23 31 7 12 3 26

1997 Rank 22.1 74.5 68.4 10.6 53.7 70.0 63.1 70.3 50.0 52.9 55.0 57.7 59.6 56.8 12.8 10.8 90.5 10.4 58.8 19.5 67.9 61.1 84.6 51.7

2003

30 4 7 35 22 6 13 5 27 23 21 18 15 19 33 34 1 36 16 31 8 14 2 25

2003 Rank

Imports of Goods and Services from the EU-25 in % of total imports

29 26 25 28 19 11

Additional EU-25 members Cyprus 30.9 Estonia 48.7 Latvia 48.8 Lithuania 32.5 Malta 54.4 Slovenia 63.6 56.6 72.3 61.8 43.2 33.6 58.4

68.4 54.0 61.5 52.6 54.1 20.8 20 7 15 28 29 18

11 23 17 26 22 30 47.5 59.3 53.1 44.3 71.4 67.3

65.1 65.1 82.0 51.1 47.6 18.1

Source: IMF (⫽International Monetary Fund), Direction of Trade Statistics Yearbook 2004, Washington, 2005.

6 21 12 27 24 30

69.4 53.5 62.5 46.6 50.5 20.5

Spain Sweden Switzerland Turkey UK USA 28 18 22 29 4 9

11 10 2 25 27 32 55.8 63.6 51.0 45.2 58.0 67.3

63.8 67.4 83.2 48.3 52.0 19.3 20 12 26 29 17 10

11 9 3 28 24 32

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30 Ranking world integration

ITA

PRT POL

USA

25

FIN AUS

DEU

20

SVK ESP

NZL NOR

GBR CAN

HUN

15

CZE

DNK

SWE

ISL

AUT

10

CHE

NLD BEL

5

IRL LUX

0 0

10

20

30

40

Ranking population size

Figure 6.1 Population size and world integration.

relationship between the ranking of size and that of integration or openness. Japan (JPN) and Luxembourg (LUX) are the two opposite extremes shown in Figure 6.1. All other countries are found somewhere around a negatively sloped trend line. Of course, this relationship is not perfect. There are countries like Finland (FIN), Portugal (PRT) or Iceland (ISL) on the right side as well as the Netherlands (NLD) and Belgium (BEL) on the left side that do not fit the relationship as well as the others do. There are many reasons for this such as, for example, a special geographic location (remoteness) or economic policies. Second, Switzerland (CHE) seems to show a relatively “normal” degree of integration, given the size of country. If it is compared to Sweden (SWE) or Austria (AUT), it shows a slightly higher degree of integration, but also a smaller size. We should note that Switzerland is, however, relatively more integrated than Denmark (DNK), a country with the same size of population. Figure 6.1 then suggests that Switzerland is hardly less open or less integrated than other countries if the difference in size is taken into account. We would not expect the country to show a higher degree of integration. If we take the ranking in GDP rather than population, the qualitative result in Figure 6.1 does not change; Switzerland still appears to be well or strongly integrated after correcting for size measured in terms of economic output. Figure 6.2 refrains from using rankings and instead shows countries’ exact positions with respect to total GDP in 2003 (as given in Table 6.1) and the global trade intensity in 2002 (from Table 6.2), measured as exports and imports of goods and services divided by GDP. The other advantage of Figure 6.2 is that countries’ differences in the two criteria are ordinal (and not cardinal as in the

Swiss international economic relations 121 300 LUX

Global trade intensity

250

200 IRL

EST

BEL

SVK

150

HUN CZE AUT

100 ISL NZL

50

SWE

DNK NOR

FIN PRT

POL

CHE TUR

GRC

0 0

50

100

150

200

250

300

350

GDP in bill. ($)

Figure 6.2 GDP and global trade intensity.

case of the ranking) and that various aspects of world integration are not aggregated in a rather crude way. The disadvantage is that the integration is restricted to only one aspect (i.e. international trade in goods and services). We can also note that Figure 6.2 is focused on the relatively smaller economies in order to prevent most of the countries being clustered on the left. Thus, large countries in terms of GDP like the United States, Japan, Germany, the United Kingdom, France, Italy, Canada and Spain have been eliminated. Figure 6.2 reveals the expected negative relationship between integration and size in terms of GDP. We note that, in contrast to Figure 6.1, a high degree of integration is now associated with a high value on the vertical axis as with Luxembourg. The same is true for size on horizontal axis measured in terms of total GDP. Note that Switzerland, together with Sweden, shows a relatively high degree of integration, given its high GDP. Austria has a higher trade intensity index, but also records a lower GDP. The same is true for Ireland (IRL). Thus, it is not surprising that these other small countries are more highly integrated. This is to be expected. Belgium, however, seems to be a special case; the same is probably true for Luxembourg. The fact that countries like Austria, Sweden or Ireland have increased their degree of integration by more than Switzerland during the last decades is no counter-argument. Rather Figure 6.2 shows that they do not seem to be relatively more integrated than Switzerland if we take into account the differences in the size of these economies. A further analysis would, of course, have to go beyond interpreting Figure 6.2 to including econometric analysis.

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Conclusions The key question in all this was whether Switzerland is a small and open economy. The analysis leads to the following conclusions. First, Switzerland may be a small country measured in terms of its land area or total population. The significance of the economy is, however, considerable if indicators such as total output, trade or stock of foreign direct investment are used as a basis for calculation. Thus, the term “smallness” seems to be appropriate to describe the country’s size in some directions, but is of limited relevance when determining the scale of the economy. This is also the case for other small countries examined throughout this chapter. Second, a number of widely used indicators of openness suggest that Switzerland is indeed quite an open economy, and one more highly ranked than the average of the OECD or EU-25 countries. The indicators also point to one area where Switzerland seems to show a considerably lower rank. This is the existence of non-tariff barriers to international trade in goods and services that may possibly be higher than in other countries. The assembled data and calculated indicators of trade intensity, capital exchange intensity and migration intensity suggest that the “revealed degree of integration” is actually quite high for Switzerland, ranking approximately 17, eight and four, respectively of the OECD countries and including the new EU members. Third, the country is highly integrated into the EU. Looking at shares in trade of goods and services with the EU-25 members, Switzerland is seventeenth with respect to exports and third for imports. Thus, especially on the import side, the country is more integrated than are many (small) members of the EU. Fourth, because trade theory suggests that small countries should have higher degrees of openness or integration than large countries we started to interrelate the size and openness of the countries under investigation. The short analysis of the correlation between the countries’ ranking in population size and in world integration shows that Switzerland remains well integrated even if the size of the country is taken into account which is to say if the degree of openness is corrected for the small basic size. This result remains also valid if GDP is considered, instead of ranking in population size, on the one hand, and trade intensity instead of the rank of overall integration, on the other hand. How can we relate this analysis to the Canadian case? Canada is a small open economy when considered from the perspective of trade intensity. At the same time, the analysis shows that this is always a question of gradualism. Canada is less integrated than Switzerland, but is also a larger economy. Furthermore, the United States shows a smaller degree of integration than Canada, but is also larger as we know. Countries like Japan or the United States may therefore actually follow an outward-oriented policy, but still appear rather closed economies if the degree of openness, as measured by trade intensities, is considered. If the large size is taken into account, however, they are nevertheless open economies. Therefore, smallness and openness are a matter of degree and it is only by comparing them in relative terms that we can decide whether countries are, in fact, relatively open or closed economies.

Swiss international economic relations 123 This chapter thus did an initial assessment of the Swiss case. More will have to wait on an econometric analysis or an investigation based on the so-called gravity model. Such an analysis can and should not refrain from integrating international exchange of capital and labour in order to fully assess the degree of openness for the Swiss economy. These are important aspects to consider as shown in this chapter. The deeper analysis has, however, to be left to future work. The significance of all this for Switzerland’s relations with the European Union is that not being a member of the European Union does not seem to have led to a significantly smaller degree of economic integration of Switzerland relative to that of EU members. The early internationalization of the economy, the membership of EFTA, the free-trade agreement with the EC as well as the Bilateral Agreements I and II seem to have been good substitutes in this respect. This assessment does not imply that Switzerland should refrain from reducing the protection of the agricultural sector or from eliminating some non-tariff barriers to trade. The degree of openness could thus still be increased as (special) examples such as Luxembourg or Belgium show. Given the findings in this chapter, I doubt, however, whether the relative low rate of economic growth in the 1990s can be related to a significant degree to an alleged lack of openness of the Swiss economy. What can be learned regarding possible future EU membership of Switzerland? Here it seems that the pay-off would mainly have to come from the political integration rather than just from economic gains because, as this chapter had suggested, the economic integration of Switzerland into the EU and the world economy is already high.

Notes 1 I would like to thank Ivo Huber and Ulf Lewrick for their help in assembling some of the data used in this chapter. 2 SMAPEC is a widely used Swiss term indicating a small open economy. 3 One could add indicators of the country’s visibility and impact on the arena of world politics. 4 WTO, International Trade Statistics 2004, Geneva, World Trade Organization, 2004. 5 World Bank, World Development Indicators Database. Data Query, Washington, World Bank, 2005. Also available at www.worldbank.org/data/dataquery.html. 6 S. Edwards, “Openness, Productivity and Growth: What Do We Really Know?”, The Economic Journal 108/447, 1988, 284. 7 The references in the quotation are to D. Greenaway and C. Nam, “Industrialization and Macroeconomic Performance in Developing Countries under Alternative Trade Strategies”, Kyklos 41/3, 1988, 419–35; R. Wade, “Is the Miracle Study Right?”, Washington, DC, Overseas Development Council, Working Paper, 1984. 8 The quotations are English translations of the text in S. Borner and F. Bodmer, Wohlstand ohne Wachstum. Eine Schweizer Illusion, Zürich, Orell Füssli, 2004, p. 122. 9 M. Enright and R. Weder, “Introduction: Switzerland in Perspective”, in Enright and Weder (eds), Studies in Swiss Competitive Advantage, Berne, Lang, 1995, especially p. 5. 10 Defined as exports as a proportion of the total output of such Swiss firms. 11 See Bundesrat, Bericht zur Aussenwirtschaftspolitik 2004 and Botschaften zu Wirtschaftsvereinbarunge, Berne, 12 January 2005, p. 1146.

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12 Op. cit., 385. Cf also World Economic Forum, The Global Competitiveness Report, New York, Oxford University Press, 1999, and The Heritage Foundation, Index of Economic Freedom, Washington, 2005, available at www.heritage.org/research/ features/index/countries.cfm. 13 Note that Switzerland ranked twelfth on the Index of Economic Freedom in 2005, a listing covering 110 countries; see The Heritage Foundation (2005). 14 “Average tariffs” are on imports of intermediate and capital goods. The “coverage of quotas” is based on the same goods and more precisely described as follows: “It is the own-import weighted non tariff frequency on capital goods and intermediates. Includes licensing, prohibitions, and quotas.” (J. Sachs and A. Warner), “Economic Reform and the Process of Global Integration”, Brookings Papers on Economic Activity, 1, 1995, p. 65. 15 The list of countries is divided into OECD members, additional EU-25 members, as well as other countries. This is because the following discussion focuses on the first two groups alone. 16 We should also take into account the fact that Switzerland is a very mountainous country which implies that two-thirds of the surface belongs to the Alps. Thus, only about one-third is usable for industrial production, whereas tourist services are produced to some extent in or by the Alps. 17 If we again take into account that a large part of the country is mountainous, the density relative to other countries is likely to increase. 18 Note that the Swiss GNP or Gross National Income (GNI) is typically higher than the GDP because of the country’s considerable net income of production factors used abroad. In 2003, GNI was 8 per cent above GDP. There is no (considerable) change in the rankings if GNI rather than GDP is taken into account in Table 6.1. Note, however, that Switzerland slightly slips down the rankings if the exchange rate and thus GDP is adjusted to purchasing power parity. In this case, Switzerland is eighteenth if the average World Bank values for 2000 to 2002 is used; cf World Bank, World Development Indicators Database. CD Rom, Washington, DC, 2004. 19 If we also looked at imports, we would find a similar picture there too. 20 WTO, p. ix and, especially, p. xvii. Cf WTO, Trade Policy Review. Switzerland and Liechtenstein 2004, Geneva, February 2005. 21 Ibid., p. xviii. 22 The question, of course, arises why the latter are not eliminated as they hardly create substantial rents, but require administrative work. 23 D. Dollar and A. Kraay, “Trade, Growth and Poverty”, The Economic Journal 114, 2004, 27. 24 Bundesrat, op. cit., p. 1123. 25 WTO, op. cit., p. 14.

Bibliography S. Borner and F. Bodmer, Wohlstand ohne Wachstum. Eine Schweizer Illusion, Zürich, Orell Füssli, 2004. Bundesrat, Bericht zur Aussenwirtschaftspolitik, Berne, 2004, together with Botschaften zu Wirtschaftsvereinbarungen, Berne, 12 January 2005. CIA, The World Factbook 2005. Available at www.cia.gov/cia/publications/factbook/. D. Dollar and A. Kraay, “Trade, Growth and Poverty”, The Economic Journal 114, 2004, 22–49. S. Edwards, “Openness, Productivity and Growth: What Do We Really Know?”, The Economic Journal 108/447, 1998, 383–98. M. Enright and R. Weder, “Introduction: Switzerland in Perspective”, in Enright and Weder (eds), Studies in Swiss Competitive Advantage, Berne, Lang, 1995, pp. 1–24.

Swiss international economic relations 125 European Commission, Bevölkerungsstatistik, Detaillierte Tabellen, Luxembourg, OPEC, 2004. D. Greenaway and C.H. Nam, “Industrialization and Macroeconomic Performance in Developing Countries under Alternative Trade Strategies”, Kyklos 41/3, 1988, 419–35. The Heritage Foundation, Index of Economic Freedom 2005, Washington. Available at www.heritage.org/research/features/index/countries.cfm. IMF, Statistics Yearbook, Washington, DC, Direction of Trade, 2005. OECD, Trends in International Migration, Paris, OECD, 2003. OECD, Demography and Population. International Migration Data, Paris, OECD, 2005 and www.oecd.org/document/36/0,2340,en_2825_494553_2515108_1_1_1_1,00.html. Penn World Table, Center for International Comparisons, University of Pennsylvania Databank, 2005. Available at: pwt.econ.upenn.edu/. J. Sachs and A. Warner, “Economic Reform and the Process of Global Integration”, Brookings Papers on Economic Activity 1, 1995, 1–118. UNCTAD, World Investment Report 2004, Country Fact Sheets. Unctad Database 2005. Available at www.unctad.org/Templates/Page.asp?intItemID⫽3198&lang⫽1. UNECE, GDP (in USD) by Country, Expenditure, Year and Measurement, UNECEDatabank 2005. Available at w3.unece.org/pxweb/database/STAT/2-ME/1-MECC/1MECC.asp. United Nations, International Migration Profiles by Country or Area, Washington, DC, 2002. Available at www.un.org/esa/population/publications/ittmig2002/locations. United Nations, Databank from the UN Statistics Division 2005, Washington, DC. Available at unstats.un.org/unsd/snaama/dnllist.asp. R. Wade, “Is the Miracle Study Right?”, Working Paper, Washington, DC, Overseas Development Council, 1994. World Bank, World Development Indicators Database. CD-Rom, Washington, DC, 2004. World Bank, World Development Indicators Database. Data Query, Washington, World Bank, 2005. Available at www.worldbank.org/data/dataquery.html. World Economic Forum, The Global Competitiveness Report, New York, Oxford University Press, 1999. WTO, International Trade Statistics 2004, Geneva, WTO, 2004. WTO, Trade Policy Review. Switzerland and Liechtenstein 2004, Geneva, WTO, February 2005.

7

Sectors, structures and suspicions Financial and other aspects of Swiss economic relations with the EU Clive H. Church, with Christina Severin and Bettina Hurni1

In general Switzerland, despite its apparently small size, possesses, as Rolf Weder shows, a strong and open economy. Economic research shows clearly that the country is neither closed nor protectionist, apart from agriculture with its high trade restrictions. And given its long-term growth record and its degree of integration into European and wider world economic circuits, EU membership is unlikely to bring huge changes. Conversely, all this would seem to make the country very attractive to the Union. However, economic issues affecting Swiss–EU relations go beyond this. On the one hand, superior overall economic performance is conventionally seen as both a major dimension of the Sonderfall and, hence, as a reason for not joining the Union. Equally, opponents of EU entry argue that the EU economic regime is inherently more burdensome than that of Switzerland. Conversely, some economists believe there is now something of a growth problem.2 Indeed, opinion in the EU, and sometimes among Swiss supporters of entry, can often be that the Swiss themselves are too cocooned and do not have a proper internal market. The fact that some 40 per cent of Swiss trade is with countries beyond the EU is also said to be another problem.3 To an extent such perceived difficulties arise from the particular nature of the Swiss economy. This may be small and open but it is also somewhat divided. Some authorities suggest that it is, at least, a dual economy with both large (and some smaller) outward-looking enterprises and other small, inwardly orientated and protected firms, often dealing in non-tradable goods and services. And it is their interests which underlie much of the resistance to European integration. Others believe that the situation is even more complicated than this. On the other hand, a number of sectors have special problems when it comes to relations with Europe. Agriculture, which is highly protected, is obviously one of these. So too is transport. Equally telecommunications and energy have occasionally caused problems with neighbouring countries. Perhaps even more significant than these is the banking, finance and insurance sector. This has a pivotal role both in relations with Europe and in the economy at large. Equally, it links to problems over monetary matters and taxation. However, currency is much less significant an issue than it is in the UK though taxation, albeit for different reasons, is equally sensitive. Thus, in a

Sectors, structures and suspicions 127 recent pronouncement, Christoph Blocher argued that joining the EU would mean doing away with the Swiss franc (CHF), raising VAT to 15 per cent and ending bank “secrecy”, along with direct democracy and independence.4 In other words, such financial interests are seen, rightly or wrongly, both as a facet of national identity and as a major reason for not drawing closer to the UBS bank. Bank “secrecy” has, in fact, now assumed totemic proportions. Finance also matters greatly to overall Swiss economic strength and development. In fact this is one of a number of areas where Switzerland has to be seen as a competitor as well as a partner of the EU. To put it in a nutshell, Swiss economic relations with the EU, like many other aspects of the relationship, are more complicated and diversified than is often realized. The country is both dependent on the EU and a rival to it. Equally there is no single Swiss economic interest when it comes to matters European. Indeed parts of the Swiss economy can have conflicting needs. And the equation of economic performance with national identity is a further complication. Appreciating this complexity is important. In trying to do this, the chapter starts by examining the general economic context and what it shows about comparative economic performance and Swiss economic structures. It then considers some of the sectors which can cause specific difficulties, giving most attention to financial matters. These begin with Swiss monetary and taxation policies together with the roles they play in its European relations. The focus then switches to the banking, finance and insurance sector as such. Throughout this Swiss views of their economy play a large part in defining economic problems in Swiss relations with the EU.

Questions of economic performance and policy Economic success has been seen as a major element of the Swiss “Sonderfall”. It has been proudly argued that the country has enjoyed greater prosperity, thanks to minimal unemployment and inflation, higher wages, lower interest and mortgage rates, a more stable currency and superior competitiveness. This was very much the case up to the 1980s. And it has remained in the minds of many, affecting their attitudes towards European integration. However, in recent years, economic conditions have become less encouraging. If the country has not, as some economists have recently suggested, been in a depression since the 1970s it is undeniable that Switzerland experienced a real downturn in the first half of the 1990s, a period increasingly seen as one of stagnation and relative loss of position.5 Firms, both large and small, found life very difficult at home and abroad in the 1990s. Domestic demand fell, as did foreign trade. This translated into a rising level of bankruptcies, together with concentration (notably in banking) and downsizing. Investment also declined markedly. Here manufacturing was especially hard hit, making the economy increasingly dependent on the financial sector. Even companies like Asea-Brown-Boveri suffered heavy losses.

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Hence unemployment rose, reaching a 50-year high of almost 6 per cent in 1996 and then stabilizing around 4 per cent. Even so, productivity growth was meagre. Equally inflation and interest rates also rose somewhat, helping to give the country probably the highest prices in Europe, some 30–40 per cent above the western European average. Competitiveness was also severely affected. So was the property market. As a result the GDP growth rate, already low, fell dramatically, as did the potential for growth. State expenditure spiralled upwards because of the costs of unemployment pay and other necessary welfare expenditure. In fact at this time, as Kohli shows, the Swiss public sector grew faster than that in other western countries. The budget was in almost continuous deficit so that indebtedness also rose somewhat as the state expanded to take the slack in the economy. Taxation also increased both in real terms and in its share of GDP. Nonetheless, cantons and communes experienced considerable fiscal difficulties. At the same time other European countries were beginning to expand. Their growth rates were generally higher than those in Switzerland. Rising Swiss interest rates also meant that the previous differential, which the country enjoyed, began to ebb. Hence, the country’s competitiveness and general standing began to falter. This appearance of decline meant that its economic performance seemed worse than the figures suggested. This may have been accentuated by the fact that the scale of Swiss foreign investments mean that GDP is a less accurate guide to economic performance than is gross national income.6 Towards the end of the decade, however, the situation in Switzerland somewhat improved, albeit briefly. Prosperity revived with an increased growth rate, an improving trade balance, rising consumer confidence and a return to surplus in government finances. Inflation and unemployment both fell, although the latter remained at around 2 per cent, well above pre-1990 rates. Much of this revival was fuelled by the IT bubble of the time. However, by about 2001, the economy was back into recession. It seems to have been harder hit than many OECD countries, experiencing more of a downturn, notably in the capital goods and financial sectors. Swiss management also came under pressure after 2000 with shareholders critical of the poor performance of big firms such as Credit Suisse, Feldschlösschen and Sulzer and SwissRe. ABB was also in trouble for overpaying its retiring executives so the OECD also publicly called Swiss corporate governance into question. And, even if things were to look up a couple of years later, some underlying difficulties remained even if these were rarely as acute as in most neighbouring countries. In other words the economic foundations remain sound but there is more realization that the country is not invulnerable. The reasons for this surprising evolution seems to lie partly in outside factors. Increasing global competition and the general European downturn were obvious examples. There has also been much argument about the effects of being outside the EEA on the economic performance. But purely internal problems and policies were equally, if not more, influential. Thus the restrictive hard franc policy

Sectors, structures and suspicions 129 of the National Bank in the mid 1990s was seen as having impeded growth, although in recent years it has cut interest rates aggressively. The rigidities of the Swiss economic system – its lack of competition, its tolerance of cartels and its federalist distortions – were also often singled out for criticism. The small scale of much Swiss business organization, as opposed to the outward-looking multinational enterprises, is similarly seen as a limiting factor. Public opinion, as evidenced by the rejection of liberalization of the electricity market, can also act in the same way. Official claims about the relative liberalism of the economy are not always convincing. Hence there has been a major policy debate about reforming the Swiss economy, going back to The Economist’s 1986 call for the country to wake up from its torpor. In the mid 1990s the publication of David de Pury’s so-called White Book proposed drastic reforms to social security in order to achieve this.7 In the later 1990s and early 2000s the OECD, normally very admiring of Swiss economic performance, began to canvass major economic liberalization, a strategy shared by the National Bank and many entrepreneurs.8 So far ideas of farreaching reform have not been widely accepted. Hence the government has only proceeded cautiously in its search for economic revitalization. And, all this has implications for the Swiss franc, for the levels of taxation and, of course, for banking. This changing comparative pattern is an essential context for reflection on Swiss economic relations with the EU. For some the Swiss system is still superior to that of the EU. For others, things have changed and, in some areas, the Union seems to have the better of it. Underlying much of this, in fact, is an argument about economic regulation. Both sides tend to think that their regulatory systems are superior. And this explains something of the difficulties encountered in bilateral negotiations and relations.

Swiss economic structures If the Swiss economy is strong this is, in part, a reflection of its structure.9 Some 57.6 per cent of the population is employed, the highest figure in Europe after Luxembourg, and unemployment is remarkably low at some 3.6 per cent, thanks to a flexible labour market. It is a strongly knowledge-based economy with a large degree of innovation, thanks to high levels of education, skills and R&D. This is true not just of machines but also of chemicals and bio-technology. GDP per head is amongst the highest in the world. And if prices are estimated to be some 40 per cent above the OECD average, interest rates are now very low – having bottomed out at 0.25 per cent in 2003. Moreover, despite the myths of cuckoo clocks – a German invention at that – and cheese, the economy is actually dominated by its service sector. Equally, it has a very variegated structure where size is concerned. These differences are often relevant both to trade and to relations with Europe. The service sector dominates the Swiss economy. It accounts for 68 per cent of GDP and 69.3 per cent of the labour force, employing 2.4 million people

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compared to 1.1 in manufacturing. Retailing is the largest single employer followed by banking and other financial services, hotels and restaurants and public administration. Tourism, health and transport are also significant components. Although most Swiss operations are primarily domestic, they can also look abroad. Nonetheless, services and investments play an important part in balancing Swiss trade, especially that with Europe which is usually in deficit. Tourism, which makes up 5 per cent of GDP, draws half of its revenues from foreign visitors, most of them from Europe. Manufacturing accounts for some 26 per cent of employment but about 30 per cent of GDP. Machinery and metals account for about a fifth of its strength while chemicals, tobacco, watch-making and textiles are the other significant elements. A very high percentage of the growing Swiss production is exported, notably in chemicals, engineering and watches. Thus 98 per cent of perfumes and textile machinery are sold abroad. Indeed, Switzerland exports more medicines and watches than any other country. If we look at the value added by branch in 2002, finance comes out top at some 68 billion CHF.10 This is followed at some distance by wholesale trade, health and social services, construction, retail trade and corporate services at between 20 and 25 billion. Machinery, telecommunications, food, pharmaceuticals and chemicals produce between five and 15 billion. Paper, textiles and cultural and education services bring up the rear. However, in terms of value, chemicals, at 4.5 billion CHF, are most important, followed by machinery and electronics at 3.2 billion, and instruments, watches and jewellery at 2.3 billion CHF. Agriculture, for all its large part in popular affections and expenditure, is actually quite small. This reflects the large portion of national territory which is unsuitable for farming. It now concerns no more than 4 per cent of the workforce and provides only 1.82 per cent of GDP. And only 1.5 per cent of its output is exported while the country imports 60 per cent of its food needs. A second characteristic of the Swiss economy is its division, notably in services and manufacturing, into quite distinct spheres. Thus, on the one hand it has a small number of large multinationals which may make up only 0.4 per cent of the total number of firms in the country, but which account for a quarter of the domestic workforce and contribute massively to the 1.4 million workers employed by Swiss firms inside the EU. They include big chemical firms like Novartis and Hoffman-La Roche, engineering firms like ABB and food manufacturers like Nestlé along with the two big banks. And, over the last ten years, these large firms have become larger thanks to mergers, such as those between ASEA and Brown-Boveri, the old Union Bank and the Swiss Bank Corporation and the more frequent marriages in the chemical sector. These operate throughout the world and not only in Switzerland which is often only a small market for them. In fact four of the world’s ten most international companies are Swiss based, which is more than Germany claims.11 However, it is the 300,000 or so medium and small firms which are responsible for most innovation and job creation. This is particularly so in the case of

Sectors, structures and suspicions 131 watch-making and surgical instruments which have seen notable growth in recent years. In fact, about 98 per cent of Swiss firms have fewer than 50 employees and only about 1.5 per cent have more than 250. Such firms account for almost three-quarters of the workforce and probably 90 per cent of the Swiss economic fabric. Such small and medium-size firms are more inclined to look to the home market, though many of them are also active exporters. This is true both of manufacturing and services, which are both outward looking and more divided between large and small firms. However, even in manufacturing 78 per cent of firms come into the under 250 employees category, especially in the increasingly fragmented construction sector which accounts for a quarter of all industrial workers. Agriculture is also often a small-scale operation, especially in the Alps. While there are an increasing number of large, mainly livestock, farms in the south of the country, the majority are much smaller than the north European average. The average is about 20 hectares. However, a working population of 60,000 supports some 400,000 people in total. Just over a half of all farms belong to owner occupiers, especially in the central Mittelland area. However, their numbers are falling with a third of farms having disappeared in the last 20 years, whether absorbed by others or used for other purposes. Despite the limited export potential of Swiss agriculture, the country still exports more, in per capita terms, than any other western country. Even in terms of the export of goods the country now trades at a surplus, something which was virtually unknown before 2000. Machinery, watches and chemicals are amongst the largest exporters. And they, like many other branches of the economy, direct their products particularly to the countries of the European Union. In fact Switzerland is very trade dependent and, as a result, is the Union’s second largest trading partner. Germany alone takes a fifth of exports – twice as much as go to the US – and supplied a third of imports in 2003 – nearly seven times as much as the US. In total, the pre-2004 EU absorbed more than 60 per cent of Swiss exports and supplied over 80 per cent of imports. This deficit is compensated by trade with Asia, the newly industrializing countries and the US. In all, manufacturing accounted for 4.3 billion CHF of the country’s 2004 balance-of-payments surplus of 65 billion, or some 15 per cent of turnover. Services as a whole provided 24.7 billion CHF with financial earnings having risen for the first time in some three years.12 In European terms, three related points are worth noting. To begin with, the health of the Swiss economy depends on that of the EU. Downturns in Switzerland often have their roots in problems in neighbouring countries. And this dependence on the EU means that the Swiss need to keep in touch with market and policy changes inside the EU if they are not to be left behind. Second, many of the larger firms have had to establish themselves inside the EU and therefore do not always take that much note of Swiss needs, behaving as normal EU firms. And, third, the different interests of varying sectors and types of firm make it difficult to arrive at a single acceptable policy on Europe.

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Specific sectoral problems Within this general structure particular segments of the economy have a particular resonance in the European context. Dupont and Sciarini, in a later chapter, show how this fact shaped the first bilateral negotiations.13 This resonance can arise either from the impact of the EU and Europeanization in general on the Swiss or from Swiss needs and desires to participate in the wider European market. In both cases, questions of Swiss identity are often significant. Most notably this is true of agriculture, which is obviously one of these, given its high level of protection and subsidy, levels which have been claimed as the highest in the world, and which stands in stark contrast to the virtual absence of subsidies in other parts of the economy. These subsidies involve price guarantees, grants and preferential credits. They make up three-quarters of rural income, twice what is provided in the EU. Indeed, it has been estimated that three times as much is invested in a cow as in a child in primary school.14 The reason for this is that agriculture is seen as essential to national survival. On the one hand, the state grew out of mainly rural communities and sustaining these, particularly in the dramatically beautiful but inhospitable forest and mountain areas, is economically important. These, after all, are the areas tourists are most likely to visit. And without alpine farming, rural depopulation is a major threat to national cohesion and environmental stability, thus seen as necessary to national survival. On the other, the experience of the two world wars and the landlocked nature of the country has shown that lack of food can become a problem. So supporting Swiss farming is an important form of social insurance. And it may be that this was one of the reasons which led the Swiss in November 2005 to support a moratorium on the use of GMOs. However, this goes against the slow-moving worldwide trend to liberalizing agricultural trade. This has already led the Swiss to undertake a major policy restructuring in the 1990s, shifting from subsidies to direct payments and facilitating non-agricultural activities in rural areas. Free trade and technical safeguards have also been encouraged by the bilateral deals with the EU. Nonetheless, agricultural production still distorts trade. However, the Swiss peasantry understandably enough supports the status quo and were amongst those who, in December 2005, protested against EU concessions at the Hong Kong Doha Round meeting, even though these were regarded as quite insufficient by the developing world. And, with a strong agrarian party behind them, farmers are a major factor in EU–Swiss relations, especially as the government is planning new legislation to enable the country to meet its WTO commitments while still improving performance.15 Transport also matters in this context. On land this is mainly because of Swiss environmental concerns about trans-Alpine transit. As Dupont and Sciarini also show, the impact of incessant lorry traffic over the mountains was seen as extremely dangerous, for forests, erosion and general amenity. This led to the 1991 agreement with the EU to construct new deep rail tunnels under the Alps to help get traffic off the roads and to the 1994 Alps Initiative, now written into the

Sectors, structures and suspicions 133 Constitution as Article 84. This makes transfer of traffic to rail mandatory. But, despite these deals, there remains much concern with transit and this can constrain Swiss negotiators, who cannot accept the full freedom of movement sought by EU operators. Hence in November 2005 the Swiss were suggesting to neighbouring Ministers of Transport the establishment of a transit exchange, somewhat on the lines of the emissions trading scheme. Conversely, the Swiss, and especially French speakers, are keen on full liaison with the French TGV network. Where air transport is concerned EU policies were a contributing factor to the collapse of Swissair. Since this did not enjoy the same rights of cabotage as EU operators, it embarked on a ruinous policy of buying weak but expensive airlines in other countries, notably in Belgium and France. These helped to ground it and then force it into administration. Since then such problems have also been an issue for its successor company, Swiss International Airlines. Eventually the company was forced to let Lufthansa take it over. More recently, the Swissair debacle has impacted on telecommunications policy. The government suddenly developed cold feet about the idea of Swisscom – the mainly publicly owned telecoms of the old PTT service – buying into other national systems, notably Eircom in Ireland. This led to a politically inspired leak about the ban on such acquisitions, a rule which puts Switzerland at odds with the rest of the EU. In fact the Swiss government controls a higher percentage of its telecoms provision than any other EU country. Progress on freeing up the “last mile” has also been slow. Energy too has occasionally caused problems with neighbouring countries since Switzerland is tied into their supply networks. Indeed it depends on them for much of its energy. But breakdowns in Switzerland have also been blamed for a recent blackout in northern Italy. So the government sought to autonomously adapt to EU standards of privatization. However, the electorate turned down the first attempt to liberalize electricity supply, something which will probably keep foreign suppliers out. Swiss thoughts of building new nuclear power stations could also prove controversial. All these things are further complications in Swiss dealings with Europe and the EU, adding specific interests and concerns to general policy stances. This is equally true where financial matters are involved. Currency questions The strength of the Swiss franc is clearly seen by some as an essential element of national identity and a foundation of the “Sonderfall”. In fact the strength and autonomy of the Swiss franc is the capstone of the banking and financial sector. The National Bank is nominally a limited company but neither its cantonal and other shareholders nor the Federal Government have any control over its policies, which are fiercely focused on maintaining price stability.16 Hence it is also a symbol of national independence. The facts that the franc has not been devalued since 1936, survived the Second World War as a convertible money and is

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managed by an effective and autonomous National Bank reinforce the strength of the currency. The distribution of some of its gold stocks and profits by the state has not affected this. Moreover, many Swiss feel that having a high-quality currency, and the low interest rates this usually encourages, is important in practical terms. These factors, equally clearly, also encourage outside interests to invest in Switzerland, enhancing the strength of the Swiss franc and making it a refuge currency. This, along with the National Bank’s monetary policy, can influence the exchange rate and make Swiss exports less competitive. The emergence of the Eurozone has complicated the management of the franc. So, although some of the nightmare scenarios once prophesied have not come to pass, currency questions remain a reason for Swiss caution about its EU links. The strength of the franc can be gathered by looking at its exchange rate against the pound sterling and the US dollar. In 1945 one pound would have bought 17 CHF but this soon fell to no more than ten by the 1960s. The crisis of the 1970s brought a further, and much sharper, fall to under four. The present rate is just below 2.5 to the pound. The dollar fared slightly better, being worth roughly 4 CHF until the 1970s but then falling to under 2 by the late 1980s, thus losing 55 per cent of its value as against nearly 90 per cent for the pound. Swiss interest rates have, since the mid-1950s, been no more than 50 per cent of those of the UK and 75 per cent of those in the US. More recently Swiss interest rates rose in 1999–2001 only to then be brought down virtually to zero to help limit the depression. At present they stand at 2.6 per cent compared to 2 per cent in the Eurozone and 4.5 per cent in the UK. All this was something which Swiss voters, understandably, wish to preserve. The National Bank also felt this way and, for several years into the 1990s, pursued a hard franc policy to help maintain the value of the currency. This it did but at some cost both to exports and to the general level of economic growth. Not till 1996 did it loosen its tight monetary policy, causing the franc to slip in value over the next three years. Then in 1999 it adopted a new policy aimed at preserving price stability, defined as maintaining an inflation rate of under 2 per cent while eschewing deflation. The value of the franc then fell, encouraged by the Bank, until 2001 when it resumed its upward rise. This prompted a cut in interest rates down to between zero and 0.75 per cent, something which helped to bolster domestic demand and limit the overall economy’s downward trend. Then, with the Bank still pursuing an active policy, interest rates began to rise again after 2003, ahead of those in the Eurozone. A further rise in December 2005 was also seen as the prelude to a further tightening. Many people felt that the introduction of the euro was a further complication especially as it left Switzerland as a franc island in a euro sea. On the one hand, drawing closer to the EU threatened to end the franc’s existence or, at least, to force the country to peg its currency to the euro. Equally it threatened the National Bank’s ability to set interest rates which suited the Swiss situation. Many think that entry would push Swiss rates up. On the other hand, there was concern about the spillover effects of the new currency which, it was feared,

Sectors, structures and suspicions 135 might, by destabilizing exchange rates and markets, undermine the franc, encourage high interest rates or create unbearable pressures through its safe haven role. In the event neither of these things happened. There has been no pressure to join the Eurozone and the future of the franc rarely figures now in Swiss eurosceptic discourse. Moreover, thanks to the anti-inflationary bent of the European Central Bank, exchange rates and monetary policy have been very stable and the inflow of hot money much less than once feared, something which is very useful to exporters. Nonetheless, questions of monetary policy still remain a factor in determining Swiss attitudes to membership along with other financial concerns such as the potential contribution to the budget and a switch from direct to indirect taxes, possibly with a rise in VAT to 15 per cent. Taxation In other words, taxation can also be a problem where Europe is concerned. Taxes matter in the European context because of differential levels, because of the way taxation is managed in Switzerland and because they impinge on other questions related to the Union. In other words, Switzerland is a relatively low tax country, and taxation is an essential element of federalism. Indeed, H.R. Merz, the present Finance Minister, has remarked that “for Switzerland, tax competition is not just a theoretical concept. It represents one of the constitutive elements of our system of state and self-understanding”.17 Equally taxation has been used as a defence against exchange of information with the EU, something which threatens bank secrecy. And all this has implications for Swiss thoughts of fiscal reform. Tax rates Switzerland likes to be thought of not only as a low-tax country but also one with a simple and well-administered tax system. Indeed, its VAT rate of 7.6 per cent is less than half that of Germany, which has the lowest VAT in the EU, and its car taxes are 4 per cent rather than the EU average of 12 per cent.18 On corporate taxes, international comparisons show Switzerland as having the lowest rates after Ireland at about 25 per cent compared to Ireland’s 12.5 per cent. Equally, the Swiss wealth tax is limited to 1 per cent although there is a steep withholding tax on savings. However, if capital is relatively leniently taxed, there is relatively steep progression in income tax, notably in urban cantons like Geneva. Nonetheless, overall personal taxes rarely account for more than 30 per cent of income. No doubt the level of taxation can actually be higher than this implies, especially if other levies such as pension insurance and waste disposal charges are included, as they are in other countries. Indeed this is a point with which the SVP rather agrees, since it is prone to argue against what it sees as the country’s excessive tax burden. And this has also been suggested as a cause of the country’s high level of prices.

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In fact the tax take as a share of GDP is roughly in line with that in France and Italy. Moreover, the Swiss are subject to the highest withholding tax in the world. Overall, the Swiss state takes 35.7 per cent of GDP compared to 37.4 per cent in the OECD and 41.6 per cent in the EU.19 However, it takes a higher percentage in direct taxes than many countries and less in indirect. And social charges are twice what they are in the UK. So the country is far from being a tax haven. Nonetheless, many Swiss feel that they pay less than tax payers in neighbouring countries, another fact which encourages foreigners to invest in Switzerland. Equally, the country’s relatively low tax rates are seen as fiscal and federal reasons for staying out of the Union. Significantly therefore Swiss government policy on economic regeneration looks not to tax cuts but to infrastructural projects, believing that the domestic market is too small for tax cuts to have much effect. Fiscality and federalism This low-tax assumption is despite the fact that the Swiss tax system is a complicated three-level affair, thanks to the country’s highly federalist political system. This means, as Dardanelli has shown, that tax legislation is cantonal as well as confederal. And it differs among the 26 cantons and half cantons.20 Indeed there is considerable fiscal competition among them as well as between cantons and confederation. Cantons like Schwyz, and especially Zug, have in fact prospered by cutting their tax rates and attracting residents, both individuals and companies, from elsewhere in the nation and beyond, for example Man and Xstrata. And this can sometimes concern the Union as happened in October 2005 when the Commission asked for information on the low corporate tax regimes in Zug and Schwyz in case these fell outside the 1972 Free Trade Agreement, something indignantly denied in Switzerland.21 The Confederation alone levies VAT and customs duties, along with indirect taxes on beer, distilled drinks, mineral oils and tobacco; it joins with cantons in levying stamp duties and car taxes. In terms of direct taxes it alone imposes a military service exemption tax along with levies on gambling and savings deposits. Conversely it levies income, wealth and corporate taxes along with the cantons and communes. The latter get about half of their revenues from this source. Cantons can also impose other direct taxes such as those on households, property and inheritance. In terms of indirect taxes the Confederation can tax cars, entertainment and lotteries amongst other things. Communes also draw on taxes on dogs and charges for utilities along with direct taxes. This profusion is a reflection of the fact that cantons, like the Confederation, are, legally speaking, sovereign bodies and enjoy the fiscal rights of sovereignty. Indeed, while the Confederation only enjoys those fiscal powers granted it in the constitution (and often subject to time limits) the cantons have unrestricted fiscal powers. Indeed, they have been credited with playing a role in supporting national anti-cyclical fiscal policy.22 And communes are recognized constitutionally as

Sectors, structures and suspicions 137 having tax rights. Fiscal autonomy is therefore seen as a key Swiss characteristic and one which spares the country excessive tax burdens. Because many tax rates are set by cantons and communes, fiscal autonomy also supports Swiss federalism, underwriting decentralization and emphasizing national independence. This is presently being queried by the EU over the very low rates charged by cantons like Zug and Schwyz, rates which have, from January 2006, been controversially undercut by Obwald with its 6.6 per cent business tax rate.23 Indeed, the claim is sometimes made that the country has 3,000 tax regimes, something which makes it hard for the Swiss to understand demands for harmonization. Moreover, fiscal policy is very clearly constitutionally defined and, cantonally speaking, is therefore subject to popular ratification. Hence it is a political and not just a technical matter. So any changes to taxation have implications for direct democracy, federalism and sovereignty. Europe and taxation This, like being close to the EU, geographically and functionally, means that there is a not inconsiderable fiscal element in Swiss relations with the Union and not just because of cantonal variations. In fact EU tax rates and policies can impact on Switzerland, usually indirectly. Equally, pressures for tax harmonization can threaten Swiss tax autonomy. Or, as happened briefly in 2004 when Germany imposed customs duties on Swiss re-exports, there can be direct effects. In all this the Swiss are concerned to maintain the attractiveness of their tax regime and thus have to watch EU tax policies carefully. The same goes for the OECD with whom the country recently had a long stand-off over its low tax regime for foreign administrative, service and holding companies. More importantly, since 1989 the EU has been looking for ways of ending tax evasion which had seen much money flowing out of Germany and other member states to less demanding places like Switzerland. At first the EU looked to a withholding tax solution but, from 2000, it switched to seeking an exchange of information, a move owing much to Gordon Brown’s horror of possible tax harmonization. As is shown elsewhere in this volume, negotiating a compromise was not easy. Information exchange would only work if it included such important non-EU financial centres as Switzerland. However, the EU’s preferred method was seen in Switzerland as threatening bank secrecy, and the Swiss helped to move the EU to a position where it, Austria, Belgium and Luxembourg could avoid this by imposing a withholding tax on foreign savings in their banks, that is a tax on interest payments to accounts held at a Swiss bank by EU residents, as was already levied on Swiss investors.24 This involved difficult negotiations, including much controversy in 2002, when Commissioner Bolkestein accused the Swiss of cheating in their stance on taxes.25 Nonetheless, a deal was done on 6 March 2003, allowing the Council of Ministers to pass a directive on 3 June 2003 together with the parallel agreement with Switzerland. The latter commits the Swiss to both levying taxes at specified levels and then, in an unwonted concession, agreeing to forward 75 per cent of

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the withholding tax to the fiscal authorities of those states whose citizens are investing in Swiss interest-bearing accounts. The Swiss will, in line with their existing practice, levy 15 per cent for the first three years of application, then 20 per cent for the next three years, followed in 2011 by 35 per cent in line with domestic Swiss practice. The agreement also allows for voluntary disclosure of information, review and legal cooperation on tax fraud cases. The resulting acts came into effect on 1 July 2005 with Swiss instructions on application being issued in April 2005. Unsurprisingly, all this caused a good deal of controversy, ensuring that fiscal questions remain a major factor in Swiss–EU relations.26 In turn this controversial centrality very much affected the Swiss financial sector. It also has implications for Swiss tax reform, something urged on them by the OECD and EconomieSuisse, the equivalent of the CBI. They see simplifying the system, reducing the level of tax pressure and reshaping the system to encourage women back to work as a means of encouraging economic revival. They also suggest a switch from direct taxation to indirect. And, as we see below, Finance Minister Merz has talked of greatly simplifying the present complex system of VAT liability, something which might allow a lower general rate to be levied. Whatever changes are made will have European implications, not just in tax but in the wider context of Swiss financial arrangements.

The financial sector The sector, sometimes referred to as “la place financière Suisse” (or, in German, the “FinanzplatzSchweiz”), is both complicated and crucial for Swiss–EU relations. It is crucial not only because of its size and its importance to the overall economy, but also because it is sometimes conceived of as a rival to the City of London and other EU financial centres, at least where wealth management is concerned. This means that money laundering can be liable to criticism along with the handling of the Nazi gold affair, both of which can, however unfairly, affect EU stances towards Switzerland. All this is linked to the question of what is conventionally known as “banking secrecy”. This is a concept much misconstrued both abroad and by its passionate supporters on the Swiss right and better rendered as “privacy”. In other words, as other chapters also make clear, financial matters often touch on national identity because there are important political and psychological dimensions involved. So, despite this centrality to Swiss selfperceptions, the financial bases of the Sonderfall have come under pressure in recent years. Swiss financial structures The finance and banking sector has immense weight as we have already seen. Indeed, its competitive advantage and its overall strength make Switzerland one of the top ten financial centres in the world. Hence it is responsible for huge volumes of assets and investments, over a quarter of world cross-border assets being managed from Switzerland, a higher figure than that enjoyed by any other

Sectors, structures and suspicions 139 country.27 In 2004 total Swiss foreign assets were estimated at 2,244 billion CHF and liabilities at 1,713, leaving a healthy credit balance of 531 billion CHF, or 119 per cent of GDP.28 Other estimates are that over 50 per cent of private capital is managed in Switzerland while a goodly share of the total flow of international finance goes through its hands.29 Overall, as of June 2005, the country controlled some 4,000 billion CHF deposited in custody accounts. Its international investments, which originate from sources other than the banks, are also on a huge scale, especially in Europe.30 The UK attracts most, with some four billion CHF, followed by the US and Canada with 3.61 billion CHF, Asia with 0.9 billion, half of which is in Japan. And its added value is about double that of the same sector in Germany, France or the United States, as it is highly productive. Domestically, despite recent consolidation, downsizing and cuts between 2000 and 2004, the sector is still the fourth largest in the economy, and is still twice as large as it was only ten years ago. It remains highly productive since its 5.3 per cent of the labour force produce 14 per cent of net national output, a rate triple the national average. As a result it has become an even more important domestic player. It still employs some 200,000 people, often on salaries a third above the national average.31 Equally, it plays a major role in training and IT development. And it often runs on a different cycle from the rest of the country. Its strength is used to provide the economy with advanced credit facilities, information, investment and money management. Equally they provide advanced payments systems for the country. Its profits play an important part, as already noted, in underwriting the country’s balance of payments. Banks are also often intimately involved in the operations of other sections of the economy. In fact the Credit Suisse owns one of the larger insurance firms, “Winterthur Insurance”. And the sector provides the state with up to 15 billion CHF or about 14 per cent of its tax revenue. Swiss banks alone produce an output of 43 billion CHF or 9 per cent of GDP. They also employ 5.3 per cent of the labour force. Insurance is responsible for 23 billion CHF and 4.8 per cent of GDP together with 1.4 per cent of the labour force. The rest of the sector – asset managers, securities and materials traders and other para-banking services – accounts for 0.3 per cent of GDP and 0.6 per cent of the labour force. Structurally, the domestic banking sector consists of two big banks,32 15 private banks, 24 cantonal banks, 53 investment banks and 83 regional cum savings banks, along with the Raiffeisen Group, making 190 in all. There are also 123 foreign banks (and 25 branches of foreign banks) operating in the country together with about 100 foreign branches of Swiss banks outside the country. Taken together the banks account for over half the total employment in the financial sector. The two major banks are UBS – which is one of the ten biggest firms in Europe – and the Credit Suisse Group. Between them they account for some two-thirds of all bank staff and turnover. But most Swiss banks are polyvalent enterprises. Indeed the Swiss have their own euro payments system in EuroSic.

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The cantonal banks vary greatly in size, along with the size of the cantons. Unsurprisingly the Zurich Cantonal Bank is the largest. Regional banks are diverse in nature but are mainly engaged in deposit taking and mortgage lending within their own area. Asset management is undertaken by almost all banks, though some are almost exclusively focused on wealth management. This is very much the case with private banks, half of whom are based in Geneva, where they started with the arrival of the Huguenots after the Revocation of the Edict of Nantes. They are a small but respected minority in the banking sector. At present, they also manage private savings’ and pension funds on a large scale since the country is a world leader in the field. The Raiffeisen-Banken group, on the other hand, is a single network of over 400 rural cooperatives specializing in mortgage, business and agricultural lending. The majority of the parent companies of branches of foreign banks in Switzerland are based in the EEA. Beyond this the country also has two major insurance companies in Zurich and Swiss RE. The former is a general insurer while the latter, having recently taken over General Electric’s business, is now the largest re-insurer in the world. Overall half the insurance provision is in accident and damage and an eighth in life. Insurance companies are also involved in mortgage lending although banks do far more. In fact some insurance companies own banks and vice versa. There are also a large number of trading houses, dealing in basic agricultural goods, cotton and oil. International complications Given all this, it is one of the aims of Swiss diplomacy, both in Europe and beyond, to maintain the position of the “place financière Suisse” and the “brand” of Swiss quality banking. Not surprisingly there is a special Economic and Financial Service in the Ministry of Foreign Affairs to support the aim. This reflects the fact that, traditionally, Swiss diplomacy has often been highly economic in focus. It also reflects the fact that the Swiss financial sector does not operate in a vacuum but is a major centre, often in competition with the City, Frankfurt and Luxembourg, not to mention in Singapore and other emerging markets.33 Indeed, in December 2003 the Chairman of the Swiss Bankers’ Association argued in the Financial Times that UK interests, backed by elements in the European Commission and the OECD, were deliberately trying to boost the City at the expense of Switzerland, notably through the Savings Tax Directive.34 Other Swiss believe that other European financial centres are envious of their country’s prosperity and are therefore inclined to bring unfair pressures on the Swiss financial sector. Hence the British view was that the claim was mainly intended for domestic consumption and did not reflect the real situation. However, rightly or wrongly, Swiss banking has sometimes been seen by outsiders as under-regulated and weak in some areas, such as money laundering and the handling of Nazi assets. Both of these are related to banking secrecy. Con-

Sectors, structures and suspicions 141 versely, Swiss banks are wont to complain that – partly because of this – they are now actually more tightly regulated than many of their competitors. And the Federal Banking Commission [FBC] is now likely to be merged into a broader Financial Markets Authority with enhanced powers.35 New legislation, applying to all financial intermediaries who accept third-party assets, was introduced in 1998. It has now been extended and tightened by a Federal Banking Commission Ordinance. Beyond this there is a network of self-regulating rules imposed by the Swiss Bankers Association (SBA), which guarantee transparency in banking, including the obligation on bankers to check the identity of their clients. Moreover, the Swiss financial community tends to feel that its record in dealing with dirty money from foreign dictators, like Abacha, Marcos and Montesinos, is actually better than that of the UK. Nonetheless, doubts about Swiss banking are still common as Ganser and Kreis have already noted. And the country’s image has not been helped by the furore unleashed in the mid-1990s over the banks’ handling of dormant accounts which were suspected to have come from Jews who died in the Shoah.36 This eventually led to Swiss banks collectively agreeing to set aside funds to repay heirs of dormant accounts with the help of an investigating Committee under former Federal Reserve Bank Chairman Paul Volcker. However, the affair expanded into a broader critique of Switzerland’s economic and financial role in the Second World War, something which led the government to set up an international historical commission of enquiry under Jean-François Bergier in 1996. The next year it created a Holocaust Fund and made a public acknowledgement of the country’s shortcomings during the war. It would have also created a Solidarity Fund, using the proceeds of National Bank gold sales, as a token of its support for reducing hardship both domestically and abroad. However, this was rejected at a popular votation partly because the majority of the Swiss electorate believed that the country was being blackmailed over something which they either believed was entirely blameless and justified or was a misguided use of money.37 Although the EU was not formally involved in this – although some of its members states, like the UK, were – it tended to suffer guilt by association as right-wing forces reacted fiercely against the outside world and the threats this posed to Swiss integrity and independence. There is, however, another side to all of this. Thus, because the big two are international operators, they are listed on more than one exchange. This can cause difficulties. So can the absence of a single European financial “space” although Swiss banks can wish there was one.38 Because they are looking for a larger international foothold they need fuller access to other major financial centres, in particular to those of the EU, since they find the present system of dual supervision complicated to implement. Banks can also, as already noted, feel that they are subject to stamp duties and other governmental controls which handicap them in competition with centres like Luxembourg.39 This can give the sector a slightly different take on European integration than public opinion may realize.

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“Banking secrecy” Money laundering and dormant accounts both raised the controversial question of what is often called banking secrecy – “le secret bancaire/Bankgeheimnis”.40 Many Swiss would argue that it is better described as “financial privacy”. In any case this is often seen as something absolute, based on wholly anonymous accounts and invented by banks to help themselves. In fact it is something relative, essentially a matter of client confidentiality. Hence banking secrecy is a personal right of bank clients even if some people see it as one of the foundations of Swiss banking success. And, indeed, the Swiss Banking Association is firmly committed to maintaining it, as is the government which saw the bilateral talks on Schengen and Dublin as a way of guaranteeing it. Its nature is not precisely defined in legislation. Although the idea probably goes back to Huguenot times when Genevan bankers wished to conceal their French co-religionists’ investments from the dragoonades, the practice only really took off in the 1930s, again motivated by the desire to protect Jewish investors from prying Nazi eyes.41 A similar reticence towards the Stalinist state may also have played a role. So while the banking law of the early 1930s did not mention it, and bankers were not pressing for it, Parliament felt it necessary to write the concept into the Banking Act in 1934. Drawing on the constitutional commitment to privacy it made it a criminal offence for any individual working for a bank not to keep secrets whether negligently or deliberately. The punishment for this was six months in gaol or a fine of 50,000 CHF. However, the obligation is on individuals and not on financial institutions as such. Article 273 of the Penal Code also bans the transfer of information outside the country. Hence “privacy” does not depend on accounts known only by numbers. Swiss law requires that the beneficial owner of all accounts must be known to the bank, even if the account is known only by a number or a password. The “know your customer” rule clearly applies. Hence Swiss authorities insist that it does not compromise the fight against crime, fraud and terrorism. Nor is secrecy absolute. On the one hand, the client can authorize a bank to pass information on to the authorities. On the other, the bank is required to provide information to the authorities in criminal cases such as tax fraud, money laundering, corruption, arms or narcotics trade and terrorism. And the Swiss see themselves as prompt in cooperating in such cases. However, the offences must be ones which are counted as crimes in Switzerland, which is not the case with tax evasion. Confidentiality can also be lifted in civil cases under certain conditions such as inheritance, divorce or bankruptcy. However, the Federal Tribunal has, on occasions, blocked cooperation with the US Securities and Exchange Commission because it does not comply with Swiss confidentiality rules.42 Whatever the realities of “bank secrecy”, there is no doubt but that it has caused difficulties with the European Union. And, partly because of this, it has been fiercely defended by Swiss populists reflecting the fact that some 76 per cent of the population regularly voice their support of bank confidentiality.43

Sectors, structures and suspicions 143 Equally, it was fiercely defended by Swiss diplomats when it came to negotiations on the Savings Tax Directive. Like the OECD, the Prodi Commission sometimes objected to it because it was an obstacle to allowing the EU and its states to tax savings. Furthermore, in January 2005 Chirac proposed to the World Economic Forum that there should be an international levy on states which practise “banking secrecy” in order to make up for income lost through the tax evasion this permitted. While this was welcomed by some on the Swiss left, who had unsuccessfully sought to end the practice in 1984 and 1998, it was rejected by both bankers and government. The latter made it very clear to Gordon Brown in November 2005 that banking secrecy was not negotiable.44 Even this was not enough for the SVP which, since the beginning of the new century, has been waging a fierce campaign in defence of “banking secrecy”.45 Indeed it claims to be the party which has prevented the abandonment of the practice. For the SVP and its allies the practice is, to begin with, part of the individual’s right to privacy. Second, it is a way of resisting left-wing pressures designed to increase the power and scope of the state. And, lastly, it is necessary to help protect a sector which is so large and vital to the economy and which is under such pressure from other European financial centres, not to mention the US. The SVP, more than somewhat exaggeratedly, sees secrecy as the cornerstone of Swiss prosperity and the thing which gives the country its competitive edge. Conversely, it dismisses ideas that it covers up crime and diverts money from the treasury. In order to hold the line, in 2003–4 the party began raising the question of writing the principle into the Confederal Constitution in order to give it more security and salience. They introduced motions, both nationally and in at least six cantons, calling for a new Article 13 (3) to be added to the constitution. This would read that “Confidentiality protecting bank clients is guaranteed”. The authorities rejected the idea as ill-advised and impracticable and, so far, it has not gone any further. However, such views attract wide support inside Switzerland. Polls suggest that between 60 per cent and 75 per cent are in favour. And the SVP claims that the issue weighed heavily on at least one recent referendum result. It also argues that, happily for them, fears for bank secrecy have made the banking sector turn away from supporting EU entry. In fact banks have been less vocal. Nonetheless, small banks are most concerned by threats to banking secrecy, such as might follow on EU entry.46 And the SBA is clearly worried that the government was proving too willing to listen to foreign requests for lifting bank secrecy or freezing doubtful accounts. This may be because such actions, along with the new regulatory regime, may be choking off investment in Switzerland. Banking and Swiss national identity Despite this, banking secrecy, like some other aspects of Swiss finance, is, for many Swiss, as much a matter of identity as of mere economics. Because banking has, for many centuries, been a very characteristic Swiss enterprise and

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because the country, lacking raw materials, seeks salvation in services, many Swiss have become accustomed to think of banking as a very Swiss activity and to accept it as one of the dynamos of the contemporary economy. Hence when it is criticized, whether by the EU or the World Jewish Congress, there is a tendency to rally round the banking sector. Like neutrality, banking secrecy has, in the minds of many Swiss, moved from being a technical tool, to a badge of what it means to be Swiss. Resisting pressure for change in the financial sector is therefore fiercely resisted. And this is likely to underscore continuing resistance to EU entry or closer alignment. At the same time the sector will have to adapt to more competitive times in which other centres will be seeking to attract Swiss customers and Swiss banks will increasingly have to move abroad to prosper. At the same time further restructuring may well become necessary. This could well impose a strain on a suspicious conservative public opinion, as will changes in agriculture and economic management styles. So too could the country’s own involvement in the European economy. Given the role that the economy plays in Swiss self-image and the complicated nature of its own structures, such sectoral problems should not be overlooked as factors in Swiss relations with the EU. And such things will constrain policy-making on Europe and encourage further outside interest.

Notes 1 The advice and support of Stefan Hoffman, Head of Economic Research at the Swiss Bankers’ Association in Basel, is also gratefully acknowledged, as are the suggestions of Rolf Weder. 2 This is a point made in the SECO report on Economic Growth of May 2002, and by a number of other commentators such as Wittman and the International Monetary Fund. Cf U. Kohli, “Switzerland’s Growth Challenge”, Paper prepared for presentation at the OSEC Business Network Switzerland Podium, Zurich, 7 December 2005. 3 A. Swoboda, “Swiss Banking After 1992”, in J. Danthine (ed.), European Banking in the 1990s, Oxford, Blackwell, 1993, p. 363. 4 Interview in Le Temps on line, 15 September 2005. 5 T. Keyhoe and K. Ruhl, in Review of Economic Dynamics 8, 2005. 6 Kohli, op. cit. Cf also S. Borner and F. Bodmer, Wohlstand ohne Wachstum. Eine Schweizer Illusion, Zurich, Orell Füssli, 2004. 7 D. de Pury and H. Hauser, Mut zum Aufbruch, Zurich, Orell Füssli, 1995. Cf also Church, Politics and Government of Switzerland, Basingstoke, Palgrave, 2003, pp. 189–96. 8 OECD Economic Surveys: Switzerland, Volume 2003/Supplement 2, Paris, OECD, January 2004. Cf also Avenir Suisse’s November 2005 report on Österreich und Deutschland weisen höheres Reformtempo auf als die Schweiz. This calls for more reforms, notably in pensions and both sickness and invalidity benefits. 9 This section draws on Church, op. cit., pp. 30–2. Cf also E. Scheidegger, “The Swiss Economy”, in C.H. Kalin (ed.), Switzerland. A Business & Investment Handbook, Zurich, Orell Füssli/Wiley, 2006, pp. 36–46. 10 Swiss Sectoral Trends 2003, Zurich, UBS, 2004. 11 The Times, 14 November 2005, 49, gives Novartis, Nestlé, Roche and UBS as the four. 12 Swiss National Bank, Switzerland’s International Investment Position in 2004, 25 September 2005.

Sectors, structures and suspicions 145 13 Questions of competition, labour law, public procurement and trade also figure. Beyond this the following section draws, with permission, on Christin Severin’s contribution on the Swiss economy to Europa’s Western Europe 2006 (in press). 14 Silvio Borner, quoted in an interview on Swissinfo on 29 November 2004, available on www.swissinfo.org/. 15 Cf the Federal Council’s 2011 Policy proposals, available at www.blw.admin.ch/ dossiers/01142/i/index.html?lang⫽fr&PHPSESSID⫽83f113e18d194095077a9157b7 f6f66e. 16 SBA, The World of Swiss Banking, Basle, SBA, 2005. 17 Quoted in the NZZ Online on 23 October 2005, available at www.nzz.ch/2005/ 10/23/eng/artice6181516.html. Cf also the details in B. Dafflon and K. Toth, “Fiscal Federalism in Switzerland etc.”, World Bank Research Working Paper 3655, July 2005, pp. 47, 67 and 75–8. Kälin, op. cit., includes chapters on all aspects of Swiss taxation. 18 www.standortschweiz.ch/seco/internet/en/taxes/index.html?PHPSESSID⫽b70c1764c 38a6795273e1432dced3ba7. 19 SBA, Switzerland and its Financial Centre, Basle, SBA, 2004. 20 Dafflon and Toth, op. cit., 38–40 and 74. The complexity of federal taxation has recently been criticized by Professor Garelli of Lausanne (on NZZonline of 8 December 2005). A month later the press saw it as one reason why the US firm Amgen chose to install itself in Ireland rather than Switzerland. Cf also the overview in www.taxation.ch/index.cfm/fuseaction/show/path1.htm. 21 EU concerns may reflect member state unease about firms like Colgate relocating to Switzerland where business taxes can be as low as 7 per cent compared to the EU average of 20 per cent. The Swiss government firmly rejected such complaints in March 2006. 22 G. Kirchgässner, “Sustainable Fiscal Policy”, Swiss Political Science Review 11/4, 2005, esp. 29–35. 23 This has also worried both the left and even some other cantons who feel that such degressive taxation is contrary to their understandings and is likely both to prove destabilizing and, in the view of Zurich, to promote free riding on its services. However, Finance Minister Merz has been supportive. NZZonline, 20 January 2006. The EU is still considering the matter but retaliatory measures are possible. 24 SBA, The World of Swiss Banking, 2005. 25 F. Bolkestein, “I Cannot Stand Switzerland Cheating on Tax”, Financial Times, 7 October 2002, 31. 26 However, it is not clear that a great deal of money will accrue to the EU from this since Swiss banks have been constructing funds which will not be subject to the liability. The EU may therefore want to revisit the question. 27 It should be noted that this is not the same as all private wealth. In fact cross-border assets are a tiny percentage of the total assets of High Net Worth Individuals since so little US and Japanese investment is cross border. And Switzerland is only responsible for about 5 per cent of total world wealth. 28 SNB, op. cit. 29 SBA, Banking Barometer 2005, Basle, SBA, 2005. 30 SNB, op. cit. 31 SBA, Switzerland and its Financial Centre, Basle, 2004. 32 Sometimes the Zurich Cantonal Bank has also been included as a large bank. Cf SBA, Swiss Banking – a Programme for the Future, 2003 and SBA, Banking Barometer 2005, Basle, 2005. 33 Further pressure has materialized through Italian and (less effectively) German tax amnesties which have recaptured some funds out of Switzerland. Swiss action on some Russian holdings may also discourage investment in Switzerland. On the other hand banks like the UBS are now both opening branches in places like Birmingham

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35 36 37 38 39 40 41 42 43 44 45 46

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to tap the wealthy in other countries and carrying out some of their operations in places like the Channel Isles. Financial Times, Special Report on Switzerland, 10 December 2003. Cf a letter in the issue of 16 December 2003. As an example of conventional distrust of Swiss banks see C. Cavendish, “Our aid must get to the poor and not end up in Swiss bank accounts”, in The Times, 6 January 2005, 19. Federal Department of Finance, Common Direction of Regulatory Reforms to Boost Switzerland as a Financial Centre, Berne, 2005. This was, as Ganser and Kreis show, investigated by the Bergier Report of 2002. This is available in four languages and supported by some 30 other studies. This led to a long drawn out debate on what to do with the proceeds of gold sales as is shown by Duckenfield, “The Partisan Politics of Gold”, West European Politics 29/1, 2006, 113–33. SBA, Swiss Banking – a Programme for the Future, Basle, 2003. The country also takes part in the Euro Payments Area, Target 2, the Lamfalussy process and the FSAP. However, it prefers competition to a single European financial rule book. S. Hoffman (ed.), The Swiss Banking Sector, Basle, SBA, 2006, pp. 42–3. SBA, Money Laundering, Basle, 2003. H. Bollmann, “Switzerland”, in D. Campbell (ed.), International Banking Secrecy, London, Sweet & Maxwell, 1992, pp. 661–99. SBA, Money Laundering, 2004. MIS Trend Survey reported in SBA, Switzerland and its Financial Centre, Basle, 2004. Le Temps Online, “La Suisse rappelle à Londres que le sécret bancaire n’est pas négociable”, 22 November 2005. Cf also www.efd.admin.ch/e/dok/medienmitteilungen/?lang⫽ebfid⫽593a of 17 November 2005. T. Fuchs, “Dépot d’une initiative cantonale visant à ancrer dans la Constitution fédérale le sécret protegéant les clients des banques” – an SVP press release available at www.svp.ch/index/html?page_id⫽65381⫽3. J.M. Greither and T. Müller, “Decomposing the economic costs and benefits of access to the EU”, Cahiers du department d’econometrie, 2000.0–2, University of Geneva, March 2000.

Bibliography P. Bachetta and W. Wasserfallen (eds), Economic Policy in Switzerland, Basingstoke, Palgrave, 1997. H. Bauer and J. Blackman, Swiss Banking: An Analytical History, Basingstoke, Palgrave, 1998. B. Beck, “Switzerland: A Special Case”, Economist (Special Supplement), 12 February 2004. J.-F. Bergier et al., Independent Commission of Experts Switzerland – Second World War: Switzerland, National Socialism, and the Second World War. Final Report, Zurich, Pendo Editions, 2002. F. Bolkestein, “I Cannot Stand Switzerland Cheating on Tax”, Financial Times, 7 October 2002, 31. H. Bollmann, “Switzerland”, in D. Campbell (ed.), International Banking Secrecy, London, Sweet & Maxwell, 1992, pp. 661–99. C.H. Church, The Politics and Government of Switzerland, Basingstoke, Palgrave, 2003. B. Dafflon and K. Toth, “Fiscal Federalism in Switzerland etc.”, World Bank Research Working Paper 3655, July 2005.

Sectors, structures and suspicions 147 M. Duckenfield, “The Partisan Politics of Gold in Switzerland”, West European Politics 29/1, 2006, 113–33. Federal Department of Finance, Swiss Guidelines for Financial Market Policy. Objectives, General Principles, Policy Approaches. Bern, August 2003. Available at www.efd.admin.ch/e/dok/grundlagenpapiere/finanzplatz/leitlinien.pdf. ——, Common Direction of Regulatory Reforms to Boost Switzerland as a Financial Centre 2005, available at www.finweb.admin.ch/e/index.htm. Financial Times, Special Report on Switzerland, 10 December 2003. T. Fuchs, “Dépot d’une initiative cantonale visant à ancrer dans la Constitution fédérale le sécret protegéant les clients des banques” – an SVP press release available at www.svp.ch/index/html?page_id⫽65381⫽3. J.M. Greither and T. Müller, “Decomposing the Economic Costs and Benefits of Access to the EU”, Cahiers du department d’econometrie, 2000.0–2, University of Geneva, March 2000. S. Hoffman (ed.), The Swiss Banking Sector: A Handbook, Basle, Swiss Banking Association, 2006. B. Hurni, “Switzerland: Economy”, Western Europe 2002, London, Europa, 2002, pp. 602–5. C.H. Kälin (ed.), Switzerland. A Business & Investment Handbook, Zurich, Orell Füssli/Wiley, 2006. G. Kirchgässner, “Sustainable Fiscal Policy in a Federal State: The Swiss Example”, Swiss Political Science Review 11/4, 2005, 19–46. U. Kohli, “Switzerland’s Growth Challenge”, Paper prepared for presentation at the OSEC Business Network Switzerland Podium, Zurich, 7 December 2005 (available at www.snb.ch/d/aktuelles/index.html). OECD Economic Surveys: Switzerland, Volume 2003/Supplement 2, Paris, OECD, January 2004. D. de Pury and H. Hauser, Mut zum Aufbruch, Zurich, Orell Füssli, 1995. E. Scheidegger, “The Swiss Economy”, in Kalin op. cit., 36–46. Swiss Bankers’ Association, Basle, Money Laundering, 2003, www.swissbanking.ch/en/ home/dossier-geldwaescherei.htm. ——, Swiss Banking – a Programme for the Future, 2003, shop.sba.ch/126_e.pdf. ——, The Swiss Banking Sector, 2004, shop.sba.ch/111_e.pdf. ——, Switzerland and its Financial Centre, 2004, shop.sba.ch/40524_e.pdf. ——, The World of Swiss Banking, 2005, shop.sba.ch/1035_e.pdf. ——, Annual Report, 2005, www.swissbanking.org/en/jb_04_05_d.pdf. ——, Banking Barometer 2005. The state of the industry at September 2005, shop.sba.ch/ 57_e.pdf. Swiss National Bank, Switzerland’s International Investment Position in 2004, 25 September 2005, available at www.snb.ch/e/publikationen/zahlung/zahlung.html. Swiss Sectoral Trends 2003, Zurich, UBS, 2004. A. Swoboda, “Swiss Banking After 1992”, in J. Danthine (ed.), European Banking in the 1990s, 2nd edn., Oxford, Blackwell, 1993. Le Temps, Online “La Suisse rappelle à Londres que le sécret bancaire n’est pas négociable”, 22 November 2005.

8

The (contentious) human face of Europeanization Free movement and immigration Philippe Koch and Sandra Lavenex

The opening of Swiss borders to the free movement of persons from the European Union (EU) has often been and, with EU enlargement, is once again probably the most contentious issue in Switzerland’s relations with the Union. Three times this question has been decisive for the fate of Switzerland’s path to closer relations with the Union: in the rejection of the Treaty on the European Economic Area in 1992, in the cumbersome negotiation of the first bilateral treaties of 1999, and, most recently, in the popular referendum against the enlargement of freedom of movement to the new EU member states. The explosiveness of the issue in the direct democratic arena stems from an unfortunate amalgam of two strong popular sentiments: euroscepticism and xenophobia. This mix has been responsible not only for unwieldy and diplomatically sometimes delicate negotiations with its European partners, as described both by Dupont and Sciarini and by Afonso and Maggetti later in this volume, but also for a set of domestic, socalled companion, measures designed to prevent perceived strains on the Swiss labour market. The symbolism implied by the abolition of controls at the internal borders, provided for in the Schengen Agreement, has led to similar controversies in public discourse on the second round of bilateral negotiations. At the same time, however, the reinforcement of the EU’s external borders and cooperation in asylum matters have been promoted as the only means to stem undesired immigration flows and to fight abuse of the law on asylum. As a result, the controversies over freedom of movement and cooperation in the field of internal security have become emblematic of Switzerland’s closure and isolationism towards the EU and foreigners in general. So, the first question to be addressed here must be: are the Swiss more xenophobic than other European peoples, and how is this linked to public opinion on the European Union? The second section of the chapter then discusses the complex and sometimes contradictory logics and emotions shaping Switzerland’s approach to freedom of movement and migration, focusing on popular votations and public discourse. The content of the agreement on the free movement of persons is examined in the third section, followed by consideration of the new bilateral agreement on association with the Schengen and Dublin Conventions. The last two sections discuss the implications of these new agreements

The human face of Europeanization 149 for Swiss immigration policy and labour market regulation respectively. Yet, we would argue that, whether or not these agreements were accepted at popular votations, they have profound effects which show the inherent tension between liberalization and national re-regulation in the process of European integration, even in a state without full membership.

Are the Swiss xeno- and Europhobic? For the outside spectator, the strong opposition in Switzerland to the “human” dimension of the single market, that is to say to the freedom to choose freely one’s country of residence, may be read as a sign of a particularly closed national mindset. Indeed, this was both one of the main reasons why voters rejected the Treaty on the European Economic Area in 1992 and the main issue of contention in the negotiation of the first round of bilateral agreements. Among European Union member states, in contrast, freedom of movement could be realized and gradually widened without major controversies, apart from the long transition periods applied first to southern and now to eastern enlargement. Hence it is useful to look at some general comparative data on the presence of foreigners and public opinion in Switzerland and EU member states. As Table 8.1 shows, Switzerland has by far the largest percentage of foreign residents in Europe, after that of the “microstate” of Luxembourg. This is partly due to restrictive European naturalization practices, whereas Switzerland has always had an active foreign recruitment policy and has conducted large guest worker programmes with southern EU countries, notably Italy, Portugal and Spain. Today, roughly 56 per cent of foreign residents in Switzerland are EU/EFTA citizens and only 12 per cent from outside this wider Europe (see Figure 8.1). Of course, freedom of movement – and its extension to the new member states – will reinforce this pattern, while legal entry to the Swiss labour market for non-EU/EFTA nationals is becoming ever more difficult as we show below. This large presence of foreigners appears even more striking if we consider it as a percentage of the active labour force. According to the Swiss workforce census, in 2004 the percentage of permanent foreign residents on the labour market was 20.6 per cent (817,000 workers out of a total of 3,959 million). In addition, Switzerland altogether employs about 25,000 cross-border commuters, persons on short-term permits and asylum seekers. Here, the percentage of EU/EFTA nationals is even higher with a total of 62 per cent of the foreign workforce. Another interesting development is that, while the number of workers from Southern Europe has been in steady decline, the fastest growing group of foreign workers in Switzerland today are Germans, who already constitute about 10.3 per cent of the foreign workforce.1 Does the fact that there are already so many non-nationals living in Switzerland translate into a particularly xenophobic public opinion? Popular votations, such as the recent rejection of easier citizenship for second- and third-generation immigrants in 2004 or the recurrent popular initiatives for a limitation and reduction of the number of foreigners living in Switzerland, may suggest such

Austria % of total population Belgium % of total population Czech Republic % of total population Denmark % of total population Finland % of total population France % of total population Germany % of total population Greece % of total population Hungary % of total population Ireland % of total population Italy % of total population Luxembourg % of total population Netherlands % of total population Norway % of total population

713.5 8.9 922.3 9.1 103.7 1.0 196.7 3.8 62.0 1.2 .. .. 6,990.5 8.6 .. .. 137.9 1.3 91.1 2.7 922.7 1.6 132.5 32.6 757.1 5.0 164 3.8

1994 723.5 9.0 909.8 9.0 158.6 1.5 222.7 4.2 68.6 1.3 .. .. 7,173.9 8.8 .. .. 139.9 1.4 96.1 2.7 991.4 1.7 138.1 33.4 725.4 4.7 160.8 3.7

1995

Table 8.1 Stocks of foreign population in selected countries

728.2 9.0 911.9 9.0 198.6 1.9 237.7 4.7 73.8 1.4 .. .. 7,314.0 8.9 .. .. 142.5 1.4 118.0 3.2 1,095.6 2.0 142.8 34.1 679.9 4.4 157.5 3.6

1996 732.7 9.1 903.2 8.9 209.8 2.0 249.6 4.7 80.6 1.6 .. .. 7,365.8 9.0 .. .. 143.8 1.4 114.4 3.1 1,240.7 2.1 147.7 34.9 678.1 4.3 158.0 3.6

1997 737.3 9.1 892 8.7 219.8 2.1 256.3 4.8 85.1 1.6 .. .. 7,319.5 8.9 .. .. .. .. 111.0 3.0 1,250.2 2.1 152.9 35.6 662.4 4.2 165.0 3.7

1998 748.2 9.2 897.1 8.8 228.9 2.2 259.4 4.9 87.7 1.7 3,263.2 5.6 7,343.6 8.9 .. .. 127.0 1.2 117.8 3.2 1,252.0 2.2 159.4 36.0 651.5 4.1 178.7 4.0

1999 757.9 9.3 861.7 8.4 201.0 1.9 258.6 4.8 91.1 1.8 .. .. 7,296.8 8.9 .. .. 110.0 1.1 126.5 3.3 1,388.2 2.4 164.7 37.3 667.8 4.2 184.3 4.1

2000 764.3 9.4 846.7 8.2 210.8 2.0 266.7 5.0 98.6 1.9 .. .. 7,318.6 8.9 762.2 7.0 116.4 1.1 151.4 3.9 1,362.6 2.4 166.7 37.5 690.4 4.3 185.9 4.1

2001

157.1 1.6 16.9 0.3 461.4 1.2 537.4 6.1 1,300.1 18.6 2,032.0 3.6

168.3 1.7 21.9 0.4 499.8 1.3 531.8 5.2 1,330.6 18.9 1,948.0 3.4

172.9 1.7 24.1 0.5 539.0 1.4 526.6 6.0 1,337.6 18.9 1,934.0 3.4

175.3 1.8 24.8 0.5 609.8 1.6 522.0 6.0 1,340.8 19.0 2,066.0 3.6

177.8 1.8 27.4 0.5 719.6 1.8 499.9 5.6 1,347.9 19.0 2,207.0 3.8

190.9 1.9 29.5 0.5 801.3 2.0 487.2 5.5 1,368.7 19.2 2,208.0 3.8

208.0 2.1 28.3 0.5 895.7 2.2 477.3 5.4 1,384.4 19.3 2,342.0 4.0

223.6 2.2 29.4 0.5 1,109.1 2.7 476.0 5.3 1,419.1 19.7 2,587.0 4.4

Note Data are from population registers or from registers of foreigners except for France and Greece (Census), Italy, Portugal and Spain (residence permits), Poland (estimates), Ireland and the United Kingdom (Labour Force Survey). The data refer to the population on 31 December of the years indicated unless otherwise stated.

Source: OECD International Migration Data, online at www.oecd.org/document/36/0,2340,en_2649_37415_2515108_1_1_1_37415,00.html (last visited 5.5.2005).

Portugal % of total population Slovak Republic % of total population Spain % of total population Sweden % of total population Switzerland % of total population United Kingdom % of total population

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2.2% Rest of Europe 5.4% Turkey 4.1% Macedonia 3.2% Bosnia and Herzegovina

56.2% EU countries

3.0% Croatia

13.7% Serbia and Montenegro 0.2% EFTA countries

Figure 8.1 Proportion of foreigners (in per cent) by nationality as at December 2002 (source: Federal Office of Immigration, Integration and Emigration (IMES), online at www.migration.ch).

sentiments. The success of the xenophobic Swiss People’s Party [SVP] is also an indicator. Yet, similar trends are also visible in other European countries.2 Most thematic surveys conducted on public opinion in the EU or Switzerland do not allow for a direct comparison because Switzerland is not usually included alongside member states. We do, however, have comparable data from Eurobarometer 53 of 2000 which was conducted in parallel in Switzerland. According to this survey, the Swiss are no more xenophobic than their EU neighbours. On the contrary, Swiss respondents were significantly more foreigner-friendly than the EU average. Asked, for instance, whether they felt disturbed by the presence of foreigners, 8 per cent of the Swiss respondents answered “yes”, and 92 per cent “no”. In the 15 EU member states, the average percentage of approvals was 16 per cent. Similar results were given when the Swiss were asked whether they felt that the presence of other races or religions was disturbing. Swiss respondents were also more welcoming, as Table 8.2 shows, towards the admission of foreign workers than the EU average, no matter whether these came from Islamic countries or Eastern Europe. These figures suggest on the one hand that Swiss voters’ opposition to freedom of movement is not the result of greater xenophobic sentiments than in neighbouring EU countries. On the contrary, this data suggests rather “friendly” attitudes – yet, it should be said that here we only used the comparative data from Eurostat, while other surveys conducted in Switzerland reveal a slightly more critical public opinion.3 What can be said, however, is that if voters in other European countries were given the opportunity to give their voice in direct democratic votes on immigration, we should expect not a great degree of difference with the Swiss case.

The human face of Europeanization 153 Table 8.2 Attitudes towards the admission of foreign workers from Islamic and Eastern European countries Origin of foreign workers

Admit without restrictions Admit with restrictions Don’t admit

Islamic countries

■

Eastern Europe

CH

EU-15

CH

EU-15

23 73 4

19 63 16

25 75 3

22 64 14

Source: Eurobarometer survey 2000, Nr. 53; for Switzerland: Sidos, Eurobarometer in der Schweiz 2000, EB 53, see nesstar.sidos.ch/webview/index.jsp.

Yet this can change when the question of immigration gets linked with support for European integration. Indeed, Eurobarometer 58 of 2002 shows that, when asked about their image of the EU, 28 per cent of the Swiss respondents answer “rather” or “very negative”, while the EU-15 average is 14 per cent. Even so 40 per cent of Swiss respondents admit to having a “rather” or “very” positive image of the EU, which corresponds to the EU average of 50 per cent. A generally positive opinion of the EU should not, however, be confused with a positive desire for Switzerland to become a member of the Union. In recent years, as many other chapters here show, opposition to potential accession has increased, which can be read as a sign of acceptance of the system of bilateralism. Asked in winter 2004 whether they would vote for or against EU accession if this issue was to be voted upon, 50 per cent of the respondents answered “no”, 39 per cent “yes”, and 11 per cent were undecided.4 Generally speaking it is difficult to extrapolate actual voting behaviour from public opinion surveys. In public discourse, opposition to European integration and the question of immigration have often become linked in a critical manner, lending itself to emotional debate and ambivalent, sometimes incoherent positions on the bilateral agreements.

Ambivalence in public discourse Opposition to free movement started on the right, went over to the left, and is now shared by both extremes. Opposition to signing up to the restrictive EU asylum and immigration acquis came originally from the left, but has recently moved rightwards, leaving only a few humanitarian sceptics behind. As the following short review of public discourse shows, three broad controversies have become intermingled which document the general tension between sovereignty and integration in an age of globalization. In addition to the already mentioned general debates on foreigners and integration, a third, more economic, one now complicates the equation. This centres on the gains and losses from market integration. The three different themes have been combined in different manners, leading to sometimes strange alliances – with not always very consistent positions.

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The clearest proponents of the bilateral treaties and, as part of these, freedom of movement, have been business organizations, especially from the exportoriented sectors of the Swiss economy. Employers’ organizations started as early as 1995 to campaign in favour of the bilateral treaties. And this was to become “one of the most expensive and most sophisticated political campaigns in Swiss history”.5 Whereas some parts of the less competitive inward-oriented sectors were more sceptical about the benefits of market opening, employers in general have, overall, been supportive of approximation to EU norms, including in questions of workers’ mobility. This is also the case today with regard to the extension of the Agreement to the new member states.6 Opposition has come from different and changing directions. The EEA agreement was mainly rejected by the right while, during the negotiation of the first round of bilateral agreements, the right turned out in favour – and the critics were found on the left amongst both unions and the Social Democratic Party [SPS]. This changed again with the contemporary debates on the extension of the agreement. Critical voices are now equally divided between the two sides of the left–right cleavage. In 1992, the left, including the Swiss Federation of Trade Unions, unanimously supported accession to the EEA, which was in line with their traditional support for drawing closer to the EU. In subsequent years, however, shifts in relative influence of different sectors within the Federation, and a climate of tightening industrial relations, led to a change in the unions’ attitude towards European integration. The EU was increasingly viewed as a neo-liberal project which would favour employers and make workers worse off.7 Unions in the construction sector became especially influential, fearing an erosion of the social partnership, in particular with regard to labour law. These fears were nourished by the developments in Germany, where freedom of movement of workers and services had led to a deregulation of the labour market in the construction sector and fierce competition from suppliers in less affluent EU and, with the association agreements, neighbouring countries.8 The campaign leading to the referendum on the 1999 bilateral agreements was thus an opportunity for the unions to press for so-called companion measures (flankierende Massnahmen) which would re-regulate the labour market and widen labour rights – an opportunity which would probably have not existed without the treaty on freedom of movement.9 Indeed, this alliance of the left with traditional opponents of European integration increased the threat of a popular “no” to the agreements, and added thus significant leverage to the claims of the unions. This was to remain the case for the subsequent debates preparing the extension of free movement, where the unions (together with the inward-oriented industry) were able to negotiate yet a stricter set of companion measures (see below). The least consistent behaviour has been on the far right, with the exception of the so-called “Aktion für eine unabhängige Schweiz” [AUNS], whose opposition has been constant. Whereas Christoph Blocher’s SVP party actively drove

The human face of Europeanization 155 public opinion against the EEA treaty, its position on the 1999 agreements was very ambivalent. On the one hand, Blocher made a public announcement that he would vote against the treaties in Parliament, on the other hand, he blocked the SVP and the AUNS (which he chaired) from officially supporting the referendum challenge to the agreements.10 Indeed, it was the SVP which, after the “no” to the EEA, had called for bilateral agreements so as to reap the economic benefits from closer relations while forestalling accession. In 2005, the party again turned against the extension of freedom of movement, arguing first against the achievements of the unions in negotiating companion measures, and second citing the lack of experience with the potential dangers from the existing bilateral agreement.11 However, internally, the SVP is divided as never before on these issues: the rejection of extended freedom of movement, and hence of the favourable position taken by employers, contradicts its efforts to establish itself as an economically liberal national conservative party. The SVP also took a position against acceptance of the Schengen and Dublin Agreements, which were part of the second round of bilateral agreements. Both agreements were promoted by centrist parties as a means of benefiting from European internal security cooperation and reducing the number of irregular immigrants and bogus asylum seekers in Switzerland. Although these goals are shared by the right, the reason for its opposition was mainly the perceived cuts in sovereignty resulting from a formal association, and the symbolism involved in the lifting of border controls on persons, as implied by the Schengen Agreement. Although they were originally also opposed to these agreements, most left-wing parties, and especially the SPS, later changed their minds. Their concern was, however, a different one, namely unhappiness about the restrictive and securitarian character of these agreements. These concerns were silenced thanks to the polemics of the right, and the Social Democrats decided to support the agreements, mainly because of its general support for European integration. These ambivalences in public discourse show the existence of different, sometimes conflicting priorities associated with these bilateral agreements, in which the general attitude towards European integration, issues of immigration, labour market regulation and economic liberalization have become mixed. The perception of Europe as either a danger or a blessing depends crucially on the domestic interests and opportunities of the participating actors. It is therefore not surprising that, under the “threat” of direct democracy, these agreements have been negotiated with caution, and contain a series of delicate compromises and safeguards.

Agreement on the Free Movement of Persons Agreement on freedom of movement was achieved through the use of several transition periods and the inclusion of various emergency brakes. Figure 8.2 summarizes these different stages in the implementation of the agreement. The agreement and the related domestic ordinance came into force on 1 June 2002 and define three successive stages of opening. In the first, five-year, stage

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New member states

EU–15

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 A B

C

D

C

Figure 8.2 Implementation of the Agreement on the Free Movement of Persons (source: Integrationsbüro, online at: www.europa.admin.ch/pub/best/e/eu_erw.pdf).

(B) access to the Swiss labour market is limited by certain restrictions: The quotas for long-term (five years) and short-term (up to one year) residence permits persist.12 Furthermore, during the first two years (A), priority is given to indigenous workers and the wage and work conditions of foreigners were subject to antecedent checks. After two years the companion measures became effective (see below). In the second stage (2007–14) the free movement of persons will be introduced on a trial basis (C). The quotas cease to apply and work permits will be issued automatically. But, should the influx of EU workers exceed the average of the three preceding years by more than 10 per cent, Switzerland will be free to re-introduce quotas unilaterally. After seven years the EU and Switzerland must make a final decision about the continuation of the agreement. In Switzerland this decision will be subject to an optional votation. If the continuation were to be rejected by a popular vote, the EU could suspend all seven bilateral treaties agreed on in 1999. Assuming this does not happen in the third stage, the unrestricted freedom of movement will come into effect in 2014. Special conditions apply to providers of services, whether posted workers or self-employed, to employment for less than four months and to EU citizens already employed in Switzerland. After two years the market for the provision of services for less than 90 days will be deregulated. What remains is an obligation to inform the responsible authority. For employment for less than four months a permit is required during the first five years, but this would not be added to the quotas. EU citizens already working in Switzerland in 2002 are entitled to renew their permit and will be treated equally with Swiss employees. With the enlargement of the EU on 1 May 2004 the existing bilateral treaties between the EU and Switzerland were automatically extended to the new member states. The agreement on the freedom of movement is an exception, as amendments have to be negotiated anew with the EU. The protocol agreed during these negotiations envisages a step-by-step opening of the Swiss labour market for employees of the new member states (except for Malta and Cyprus).

The human face of Europeanization 157 Up to 2011 (D) the issue of work-permits can be subject to the following restrictions: priority for Swiss nationals, special quotas (annual increase of the numbers), control of wage and employment conditions. In case of severe pressures on the Swiss labour market the restrictions may be extended until 2014. Generally, the provision of services for up to 90 days will also be eased, except for four economic sectors: construction, gardening, security services and cleaning. In these sectors, as for employment for less than four months, in addition to the above-mentioned restrictions, the qualification level of the worker will be relevant for the issue of a work permit. The extension of the agreement on free movement of persons was subject to an optional referendum challenge which was successfully resisted, together with the revision of the companion measures, in late September 2005. Before turning to the impact of freedom of movement on Swiss public policy, the next section sets out the Agreement on cooperation on asylum and immigration (Schengen/Dublin). The domestic implications of these agreements will be discussed in the last two sections with regard to two hallmarks of state sovereignty, immigration policy and labour market regulation.

Cooperation on asylum and immigration In sharp contrast to freedom of movement, where the EU had to press Switzerland to accept the opening of its labour market, access to the Schengen and Dublin Conventions has, since their inception, been a priority item on the agenda of the Swiss government. If participation had been possible, Switzerland would have been one of the first countries to implement the asylum component of the Agreements. Although not a member, the corresponding legislative changes were adopted in Switzerland as early as 1990, the very year in which the Conventions were signed. One of the reasons why it took 15 years for Switzerland to join may have been that, initially, Swiss negotiators only sought liaison with the system of unique responsibility for the examination of asylum claims (Dublin Convention) and eventually also the developing common visa policy. They insisted, however, that they would not agree to a lifting of controls at their national borders as laid down in the Schengen Agreement. It was only in the context of the tough negotiations on this agreement and the linked debates on the national banking secret that this position was eventually reconsidered.13 The advantages to be derived from participation in the asylum and immigration component of the Agreements for Switzerland are obvious. Surrounded by EU member states, Switzerland would be able to send back any asylum seeker who enters the country from one of these neighbours, provided that he or she does not either possess a Swiss visa or have close family members in Switzerland – and provided that the travel route can be reconstructed. This is because, in the absence of a visa or family ties, the Dublin Convention states that the first EU country which an asylum seeker enters shall be responsible for the examination of his or her claim, thus putting a disproportionate burden on the countries

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at the external borders of the EU. According to an official fact-sheet explaining the costs and benefits of this association, the benefits from this system are estimated at 80 million CHF a year.14 In addition, participation in the EU’s visa policy will discharge potential tourists and business people from the need to seek an extra visa for Switzerland, thus yielding important benefits for tourism and the economy.15

Effects on Swiss immigration policy Apart from potentially reducing significantly the number or asylum claims examined in Switzerland, the Schengen and Dublin Conventions are not expected to have major effects on Swiss immigration and asylum law. As earlier analyses have shown, Swiss asylum law already exhibits a high degree of compatibility with developments in the EU, and has sometimes even preceded the adoption of corresponding rules at Union level.16 This cannot be said, however, for economic migration and the Agreement on the Free Movement of Persons. Together with increasing international codification of foreigners’ rights, this Agreement has led to a fundamental reorganization of Swiss immigration law. This change concerns the processes by which immigration policy is made, the rights conferred on immigrants, and the question of who qualifies as an immigrant under the aliens’ law. In a nutshell, the liberalization of intra-EU/EFTA mobility has replaced a neo-corporatist system of immigrant allocation with a market-based solution, at least for the citizens of these countries. For many years, Swiss immigration policy was a prototype of a corporatist regime which served the organized interests of the less competitive, domestic-oriented and labour-intensive sections of the economy. In the 1950s and 1960s, immigration made a crucial contribution to the re-building of the national economy. After the economic recession of the 1970s, seasonal workers gradually moved into non-competitive sectors, providing a buffer against market pressures and structural change.17 Responding to the needs of non-competitive businesses, especially in agriculture, construction and tourism, immigration has thus complemented state intervention. It has also played a role in the maintenance and deepening of the structural cleavage between the highly competitive and export-oriented segments of the Swiss economy on the one hand, and the domestic-oriented, protected segments on the other.18 The same holds for the government’s regional policy, as cantons with structurally weak regions threatened by emigration have been systematically favoured in the definition of cantonal immigrant quotas by the central government. The traditional reliance of these protected sectors on public subsidies and public procurement implied a strong organization of their interest groups and the existence of close links with public authorities and parliaments at different levels of government (local, cantonal, federal). The predominantly unskilled guest-workers and saisonniers (seasonal workers) were thus seen as a flexible workforce who could be adapted to conjunctural need through the determination

The human face of Europeanization 159 of annual intakes (“Globalplafonierung”). The saisonnier status granted the public authorities indeed nearly full discretion over entry and stay: it provided for a limited residence permit of nine months, with the families being allowed to follow only after three consecutive years of seasonal work in Switzerland. By breaking the old system of immigration quotas, abolishing the discriminatory saisonnier status and, more generally, giving EU workers equal rights with Swiss citizens on the labour market, such as the right to change employers or the canton of residence, the Bilateral Agreement put an end to the use of immigration as a conjunctural buffer. In addition, the organized interests and the cantons have lost an important possibility of influencing the economic development of their respective sector or region. Yet, although some of these changes were extended to non-EU/EFTA nationals for reasons of non-discrimination, such as the right to professional and geographic mobility, the system of annual quotas foreseen in the new draft aliens’ law is likely to replicate some of the old dynamics with regard to the “remaining” immigrants, the so-called “thirdcountry nationals”.19

Effects on the Swiss labour market With the loss of discretion on the admission of European workers and, as already noted, effective lobbying by the unions, political intervention and control has shifted from immigration to labour market policy, leading to a reregulation of wages and labour conditions. The starting point for re-regulation was fears of the potential effects on the liberal Swiss labour market regime of the considerable wage and price differences between Switzerland and EU countries. The former was free of any legal minimum wage levels. Fears of wage and social welfare dumping were thus taken seriously by the government and by 1999 companion measures, notably the posted worker law, had been passed by Parliament. On 1 June 2004 simultaneously with the abolition of certain labour market restrictions (see above), the measures came into force. Four months later, after having made first experience and fearing even a worsening of the situation with the enlargement of the EU, the unions demanded a strengthening of the measures. In December 2004 Parliament accepted the revision of the companion measures as well as the protocol concerning the extension of the agreement on the free movement of persons. The legislation introduces measures on three levels:20 •

•

The possibility of checking employment contracts ex post and selectively: in every canton, as well as on the federal level; tripartite commissions composed of representatives from the unions, employers’ associations, and the administration were established, which are responsible for the observation of the labour market. Additionally a sufficient number of labour inspectors must be employed. The promotion of minimum wage regulations per branch and region: existing collective labour agreements [CLA] can be imposed more easily on all

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P. Koch and S. Lavenex companies in the sector. In branches in which no CLA exists, the federal or cantonal executives can introduce model employment contracts setting minimal wage levels. The inclusion of posted workers: workers, who are posted from an EUbased company to Switzerland, are subject to Swiss regulations (ordinances, collective labour agreements of a mandatory nature, model employment contracts) concerning minimum working conditions and wages. Additionally, foreign operators who are staying more than 90 days in Switzerland have to pay certain non-wage labour costs (education, child benefit, vacancy, etc.), if they are included in a sectoral CLA.

These companion measures, mainly a result of pre-parliamentary negotiations between the social partners – as Dupont and Sciarini show – should prevent wage and social welfare dumping. This should prevent wage levels and working conditions deteriorating as a result of the opening up of the labour market. In sectors with a high degree of organization, i.e. with established collective labour agreements, foreign employees and posted workers are bound to the minimum wage level specified in the CLA. Yet, in Switzerland, only 35 per cent of all employees are part of such a collective employment contract.21 In the sectors without a CLA, the companion measures allow for the state administration to impose minimum wages through model employment contracts in the case of repeated abusive wage dumping. However, the execution of such measures is rather unlikely. On the one hand it is difficult to define the level for undercutting wages and to detect repeated and abusive behaviour. On the other hand the regulation of a minimum wage level by the State is contrary to the traditional liberal design of the Swiss labour market, which politicians often praise as a major factor behind Switzerland’s economic success.22 Furthermore, the effects of free movement and the conditions for labour competition vary greatly across economic sectors. A three-year research project comparing the legal, institutional and economic parameters of labour mobility in six countries23 and three sectors24 showed that, notwithstanding similar economic incentives, the traditional degree of labour regulation in a sector (either through state intervention or social partnerships) greatly influences the choice of employers in foreign recruitment as well as the calculation of the potential benefits from foreign labour.25 The Swiss health sector, for instance, has long been “europeanized” in the sense that it is heavily reliant on a European workforce, whose intake was facilitated by close contacts between public hospitals and the cantonal administration. As stated in a series of interviews with personnel administrators in public and private hospitals, because wages are generally linked to public salaries, the opening of the European labour market was not seen to yield major changes in this sector.26 Equally limited are the effects in the opposite case of weakly regulated sectors such as information and communication technology. The sector is hardly institutionalized in the sense of having effective employers or (even less) employee organizations. Maybe in relation to this, our analysis found that regulators in all countries accord employers a

The human face of Europeanization 161 greater degree of leeway than in other sectors, often turning a blind eye to cases of overstay or doubtful working conditions.27 In this study, the construction sector was the most affected by the introduction of free movement, not only because of its heavy reliance on physical labour, but also because of the importance and fragility of regulation by social partnership in an increasingly competitive environment. As mentioned before, the comprehensive companion measures negotiated in the context of the bilateral agreement were motivated by the aim to avoid developments such as those found in Germany, where freedom of movement has gone along with the gradual dissolution of social partnerships and with wage and social dumping.28 In Switzerland, with the creation of tripartite commissions and closer cooperation with the state in labour market controls, the social partners have accepted a greater role for the public administration in this sector. First experiences with the companion measures indicate indeed that private regulation alone may not suffice to prevent employers from reaping the benefits from cheap foreign labour. In the first six months after entry into force of the companion measures (June to November 2004), labour market research found that 14 per cent of all employees polled in the construction sector were on irregular contracts.29 Another sign of a potential weakening of the social partnership in this sector were the limping negotiations on a new labour contract between the social partners started in January 2005.30 Companies’ support for such an agreement has been eroding. To sum up, it is too early to judge how far the State will really step in as a guardian of minimum wages. This would, in any case, depart from the traditionally liberal organization of the Swiss labour market.

Conclusions With the agreements on freedom of movement and immigration, Swiss–EU relations have transcended the predominantly economic sphere. European integration has received a human face, which shows how much Switzerland is a part of Europe. Whereas data on the presence of foreigners suggests that this was already the case before the conclusion of the agreements, the renouncing of political immigration control symbolizes the decline of Westphalian notions of sovereignty. As we have already argued, the introduction of freedom of movement has brought major changes for Swiss immigration policy and labour market regulation. It has put an end to a neo-corporatist tradition of economic intervention through the intake of foreign workers, has induced a potentially stronger regulation of the labour market, and has led to a reorganization of corporatist relations, e.g. in the construction sector. Much like within the EU itself, where the decision to fully realize freedom of movement including the abolition of internal border controls spurred cooperation at the external borders, Switzerland’s loss of sovereignty has been compensated through entry into the Schengen and Dublin Conventions against irregular immigration and asylum abuse. As a consequence, Switzerland is de facto becoming a full member in the EU’s migration regime,

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even if not formally participating in the broader context of EU asylum or immigration legislation. The clearest indication of this is the new Aliens’ Law, which no longer applies to EU/EFTA citizens and, thanks to which, the meaning of the term “aliens” has been altered to cover what have become “third country nationals”. It therefore comes as no surprise that these themes have been the most controversial in public discourse and bilateral negotiations. Nevertheless, from a politician’s point of view, the European solution of internal liberalism and external protectionism may be a welcome way to mitigate the tension between an unabated economic demand and supply of foreign labour on the one side, and popular fears and xenophobia on the other. In relation to the EU, these agreements symbolize the “human face” of Europeanization, and may add an important social dimension to the hitherto mainly economic perspective on European integration.

Notes 1 Bundesamt für Statistik, Schweizerische Arbeitskräfteerhebung, Neuchâtel, BFS, 2004. 2 G. Lahav, Immigration and Politics in the New Europe. Reinventing Borders, Cambridge, Cambridge University Press, 2004. 3 See, for example, GfS, Migration, Mai 2000/Mai 2001, Berne, GfS Bern, 2001. 4 GfS, Die Stärkung des bilateralen Weges. Hauptergebnisse aus dem neuesten Bericht zum Europa-Barometer Schweiz, Winter 2004, Berne, GfS, 2004. 5 T. Oberer, “Die innenpolitische Genehmigung der bilateralen Verträge Schweiz-EU: Wende oder Ausnahme bei Aussenpolitischen Vorlagen? Analyse der Argumente und Strategien im Genehmigungsverfahren und in der Referendums-kampagne”, Reihe: Basler Schriften zur europäischen Integration, Heft 52/5, 2001, 23, own translation. 6 See the President of the Swiss Employers Association (Schweizer Arbeitgeberverband): P. Hasler, “Besser Kontrolle statt materielle Ausweitung”, Neue Zürcher Zeitung, 23 November 2004, 15. 7 A. Fischer, “Die Schweizer Gewerkschaften und die Europäisierung helvetischer Politik”, Österreichische Zeitschrift für Politikwissenschaft 32/3, 2003, 309 et seq. 8 U. Hunger, “Globalisierung auf dem Bau”, Leviathan, 29/1, 2001, 70–82. 9 Fischer, loc. cit. 10 Oberer, op. cit., pp. 18–20. 11 SVP, Vernehmlassungsantwort, Ausdehnung des Abkommens über die Freizügigkeit vom 21 Juni 1999 auf die neuen EU-Mitgliedstaaten, 20 September 2004. 12 During the first stage of five years the annual quota for long-term permits is 15,000 and 115,500 for short-term permits. 13 Integrationsbüro 2000, Schweiz-EU. Neue Bilaterale Verhandlungen, 16 November 2002; G. Brochmann and S. Lavenex, “Neither in nor out. The impact of EU asylum and immigration policies on Norway and Switzerland”, in S. Lavenex and E. Uçarer (eds), Migration and the Externalities of European Integration, Lanham, Lexington Books, 2002, pp. 68 et seq.; as well as the chapters by Sciarini and Dupont, and Afonso and Maggetti. 14 Integrationsbüro 2005, Fact Sheet. Cooperation in the fields of justice, police, asylum and migration (Schengen/Dublin). 15 This chapter does not deal with the aspects of police and judicial cooperation included in the Schengen Agreement. On this again see Afonso and Maggetti later in this volume.

The human face of Europeanization 163 16 K. Hailbronner, Kompatibilität des Schweizer Asylverfahrens mit Harmonisierungsbestrebungen im Asylrecht der Europäischen Union, Zürich, Schulthess, 2000; Brochmann and Lavenex, op. cit. 17 G. Dhima, Politische Ökonomie der schweizerischen Ausländerregelung. Eine empirische Untersuchung über die schweizerische Migrationspolitik und Vorschläge für ihre künftige Gestaltung, Chur/Zürich, Verlag Rüegger AG, 2001, p. 56. 18 G. Sheldon, “Foreign Labor Employment in Switzerland: Less Is Not More”, Swiss Political Science Review 7/1, 2001, 104–12. 19 A. Wimmer, “Ein helvetischer Kompromiss: Kommentar zum Entwurf eines neuen Ausländergesetzes”, Swiss Political Science Review 7/1, 2001, 97–104. 20 Obviously these measures would have to apply equally to Swiss and Community citizens in respect of the principle of non-discrimination, whether domiciled in Switzerland or in an EU member state. 21 Bundesamt für Statistik, Statistisches Jahrbuch der Schweiz 2004, Zürich, Verlag NZZ, 2004, p. 213. 22 K. Armingeon, “Wirtschafts- und Finanzpolitik in der Schweiz”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbuch der Schweizer Politik, Zürich, Verlag NZZ, 1999, p. 751; H. Baumann, “EU und Sozialdumping in der Schweiz”, Widerspruch 37, 1999, 78–9. 23 The countries analysed were Switzerland, Germany, Italy, Portugal, the Netherlands and UK. 24 The sectors covered included the construction, ICT and health sectors. 25 A. Geddes, P. Koch, E. Kraft and S. Lavenex, “The Impact of Organised Interests on Migration Processes from a Cross-national and Cross-sectoral Perspective”, in M. Bommes, K. Hoesch, U. Hunger and H. Kolb (eds), Organisational Recruitment and Patterns of Migration, IMIS-Beiträge 25, Special Issue, 2004, 231–78. 26 M. Adel, W. Blauw, J. Dobson, K. Hoesch and J. Salt, “Recruitment and the Migration of Foreign Workers in Health and Social Care”, in M. Bommes, K. Hoesch, U. Hunger and H. Kolb (eds), Organisational Recruitment and Patterns of Migration, IMIS-Beiträge 25, 2004, Special Issue, 201–30. 27 H. Kolb, S. Murteira, J. Peixoto and C. Sabino, “Recruitment and Migration in the Information and Communications Technology Sector”, in M. Bommes, K. Hoesch, U. Hunger and H. Kolb (eds), Organisational Recruitment and Patterns of Migration, IMIS-Beiträge 25, Special Issue, 2004, 147–78. 28 U. Hunger, Der “rheinische” Kapitalismus in der Defensive, Baden-Baden, Nomos Verlagsgesellschaft, 2000. 29 According to the State Secretariat for Economic Affairs [Seco], controls focused mainly on posted workers. The percentage of irregularities in other sectors (apart from tourism) was much lower, with only 6 per cent of irregular contracts. See Staatssekretariat für Wirtschaft, Bericht über die Umsetzung der Flankierenden Massnahmen zur Freizügigkeit im Personenverkehr in der Zeitspann, 1 June 2004–31 December 2004, Berne, Seco, 2005, p. 24. 30 Though the opponents achieved a settlement by the end of May 2005, this was not a sign of unity but a (successful) attempt to reduce the uncertainty of their members concerning the consequences of the extension of the agreement on freedom of movement and thus a reaction of the (assumed) eroding support for the agreement by their members.

Bibliography M. Adel, W. Blauw, J. Dobson, K. Hoesch and J. Salt, “Recruitment and the Migration of Foreign Workers in Health and Social Care”, in M. Bommes, K. Hoesch, U. Hunger and H. Kolb (eds), Organisational Recruitment and Patterns of Migration, IMISBeiträge 25, 2004, Special Issue, 201–30.

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K. Armingeon, “Wirtschafts- und Finanzpolitik in der Schweiz”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbuch der Schweizer Politik, Zürich, Verlag NZZ, 1999, pp. 725–66. H. Baumann, “EU und Sozialdumping in der Schweiz”, Widerspruch 37, 1999, 69–80. G. Brochmann and S. Lavenex, “Neither in nor out. The impact of EU asylum and immigration policies on Norway and Switzerland”, in S. Lavenex and E. Uçarer (eds), Migration and the Externalities of European Integration, Lanham, Lexington Books, 2002, pp. 55–73. Bundesamt für Statistik, Statistisches Jahrbuch der Schweiz 2004, Zürich, Verlag NZZ, 2004. Bundesamt für Statistik, Schweizerische Arbeitskräfteerhebung, Neuchâtel, BFS, 2004. G. Dhima, Politische Ökonomie der schweizerischen Ausländerregelung. Eine empirische Untersuchung über die schweizerische Migrationspolitik und Vorschläge für ihre künftige Gestaltung, Chur/Zürich, Verlag Rüegger AG, 2001. A. Fischer, “Die Schweizer Gewerkschaften und die Europäisierung helvetischer Politik”, Österreichische Zeitschrift für Politikwissenschaft 32/3, 2003, 303–20. A. Geddes, P. Koch, E. Kraft and S. Lavenex, “The Impact of Organised Interests on Migration Processes from a Cross-national and Cross-sectoral Perspective”, in M. Bommes, K. Hoesch, U. Hunger and H. Kolb (eds), Organisational Recruitment and Patterns of Migration, IMIS-Beiträge 25, Special Issue, 2004, 231–78. GfS, Migration, Mai 2000/Mai 2001, Berne, GfS Bern, 2001. GfS, Die Stärkung des bilateralen Weges. Hauptergebnisse aus dem neuesten Bericht zum Europa-Barometer Schweiz, Winter 2004, Berne, GfS, 2004. K. Hailbronner, Kompatibilität des Schweizer Asylverfahrens mit Harmonisierungsbestrebungen im Asylrecht der Europäischen Union, Zürich, Schulthess, 2000. P. Hasler, “Besser Kontrolle statt materielle Ausweitung”, Neue Zürcher Zeitung, 23 November 2004, 15. U. Hunger, Der “rheinische” Kapitalismus in der Defensive, Baden-Baden, Nomos Verlagsgesellschaft, 2000. U. Hunger, “Globalisierung auf dem Bau”, Leviathan 29/1, 2001, 70–82. Integrationsbüro 2000, Schweiz-EU. Neue Bilaterale Verhandlungen, 16 November 2002. Integrationsbüro 2005, Fact Sheet. Cooperation in the fields of justice, police, asylum and migration (Schengen/Dublin), online at www.europa.admin.ch/nbv/expl/factsheets/e/ schengen.pdf (last accessed 5.5.2005). H. Kolb, S. Murteira, J. Peixoto and C. Sabino, “Recruitment and Migration in the Information and Communications Technology Sector”, in M. Bommes, K. Hoesch, U. Hunger and H. Kolb (eds), Organisational Recruitment and Patterns of Migration, IMIS-Beiträge 25, Special Issue, 2004, 147–78. G. Lahav, Immigration and Politics in the New Europe. Reinventing Borders, Cambridge, Cambridge University Press, 2004. T. Oberer, “Die innenpolitische Genehmigung der bilateralen Verträge Schweiz-EU: Wende oder Ausnahme bei Aussenpolitischen Vorlagen? Analyse der Argumente und Strategien im Genehmigungsverfahren und in der Referendums-kampagne”, Reihe: Basler Schriften zur europäischen Integration, Heft 52/5, 2001. G. Sheldon, “Foreign Labor Employment in Switzerland: Less Is Not More”, Swiss Political Science Review 7/1, 2001, 104–12. Staatssekretariat für Wirtschaft [Seco], Bericht über die Umsetzung der Flankierenden Massnahmen zur Freizügigkeit im Personenverkehr in der Zeitspann, 1 June 2004–31 December 2004, Berne, Seco, 2005 (www.seco.admin.ch).

The human face of Europeanization 165 SVP, Vernehmlassungsantwort, Ausdehnung des Abkommens über die Freizügigkeit vom 21. Juni 1999 auf die neuen EU-Mitgliedstaaten, 20 September 2004. A. Wimmer, “Ein helvetischer Kompromiss: Kommentar zum Entwurf eines neuen Ausländergesetzes”, Swiss Political Science Review 7/1, 2001, 97–104.

Data sources EUROBAROMETER, Public Opinion in the EU 2000, No. 53. EUROBAROMETER, Public Opinion in the EU 2002, No. 58. International Social Survey Program 2003: National Identity, Switzerland (see nesstar. sidos.ch/webview/index.jsp). OECD International Migration Data, online at www.oecd.org/document/36/0,2340,en_ 2649_37415_2515108_1_1_1_37415,00.html (last visited 5.5.2005). Sidos, Eurobarometer in der Schweiz 2000 & 2002 (see nesstar.sidos.ch/webview/ index.jsp).

Part III

The EU and international contexts

9

The wider setting of Swiss foreign policy Laurent Goetschel

During the last 50 years, international relations have become much more complex.1 While states used to enjoy a quasi monopoly as actors, complemented by just a handful of relevant international organizations, things have become diffuse. Besides a plenitude of powerful international organizations, other NGOs plus sub-national and regional actors have come on to the scene. Private economic actors are also increasingly present while expert knowledge, stemming from entities such as the World Bank or the OECD’s Development Assistance Committee, is influencing international agenda setting. Thus, when talking about the wider setting of a country’s foreign policy, we have to be aware of these changing international framework conditions. On the other hand, we can assume that a country’s general foreign policy parameters do not change so quickly. And such key values and institutional settings tend to determine a country’s foreign policy orientation.2 This has to be borne in mind when reflecting on Switzerland’s integration policy. Switzerland is, of course, part of Europe. Indeed, as previous chapters have made clear, it is economically more integrated with the EU than are many of the EU’s own member states. But Switzerland is not involved in the institutional integration process which has now being going on for a good 50 years. Instead, Switzerland has opted for a policy based on bilateral agreements. The only negotiated multilateral arrangement so far considered was the European Economic Area (EEA) agreement, which was rejected at a popular votation in December 1992. As a result, in foreign policy terms Switzerland often seems to have to work hard for very little reward. Hence, a piecemeal approach is being adopted, sector by sector, in order to prevent the country suffering economic discrimination. Politically, however, no rapprochement is feasible through this route. How can this behaviour be explained? It seems somewhat peculiar, especially from a sovereignty oriented foreign policy perspective. And what are its consequences? In trying to answer the first question, I will first show how Switzerland is a classic example of what political science sees as the problems of small states, factors which have constrained its recent foreign policy. Then I will look at some of the key features and values which have shaped the evolution of the country’s relations with the outside world and which inform its political system.

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As to the second question, I will point to some unintended consequences of the bilateral integration policy which result from these values, which in turn actually endangers some of those key values which the policy is supposed to safeguard. One of these is the way that the stances adopted over Europe have constrained the country’s wider foreign policy. In fact, the country’s foreign policy might, as a whole, benefit from closer links to the EU, since it does not presently secure the country those things which it, and political theory, want for a small state.

Smallness and power In traditional political thought, as reflected by Jean-Jacques Rousseau or Charles de Montesquieu, the qualification of a state as “small” in the context of foreign and security policy meant that such a state was perceived as no danger to neighbouring states.3 Small states were seen as fragile vessels drifting in the rough seas of international relations. Internally they may have been well suited to democratic regimes but externally they were helpless and constantly threatened with extinction. While the concept of small states has always been a relative term (since qualifying a state as small only makes sense in relation to large states), the consequences of being large or small, however, were not always purely relative. The categorization of states according to their territorial extension or the size of their population used to be of crucial importance. What today are called strategic depth and military manpower were then essential factors which decided whether states survived or not. Small states were not just smaller than others in a relative sense because the consequences of this relative quality could be absolute. In other words, the significance of smallness depends on the notion of power and on the nature of the international system. Power has been described as one of the most fundamental concepts in political science, the political process being essentially the shaping, distribution and exercise of power.4 But of what does power consist? In a positive sense, power may be defined as the capacity of an individual, or group of individuals, to modify the conduct of other individuals or groups in the manner which they desire. In a negative sense, it is the ability to prevent others from affecting one’s own behaviour. The first form of power may be called influence, the second form autonomy. Looking at things in terms of power, smallness can thus be characterized as having the effect of producing a deficit in both influence and autonomy.5 Small states have relatively little influence on their international environment, and their autonomy in respect to this environment is relatively small. The traditional dilemma of small states is how to manage the contradiction between influence and autonomy. Small states would like to increase their influence, as well as their autonomy, or at least to preserve the latter. However, if small states do succeed in enhancing their influence through institutional means, they may also risk suffering a loss of autonomy. Possible examples of this loss are that they may not be entitled to participate in decision making as equal part-

The wider setting of Swiss foreign policy 171 ners, that the core values of their national foreign and security policy may be questioned, or that they might be forced to participate in international actions which do not fit their interests. The extent of the contradiction between influence and autonomy varies with the degree of divergence between the foreign-policy objectives of a specific small state and those of the states with which it might enter on an institutional agreement, or third-party states. The extent of contradiction also varies with the degree of divergence between the traditional foreign policy behaviour of the small state and the corresponding behaviour of third-party states. The larger these divergences, the more a small state might want to influence the foreign policy of third-party states. However, at the same time it might resent even more the impairment of its autonomy through the institutional constraints that this attempt to secure influence might require. Beside the basic division between influence and autonomy, different material dimensions of power have to be distinguished. Power is contextual. The transfer of power resources from one issue area to another is linked to transfer costs. A state may thus be “big” and “small” at the same time.6 A common indicator of power used to be control over the military and economic instruments of constraint. However, the growing complexity of the international environment has also affected power resources. Traditional strengths have lost importance while new resources have emerged and gained in significance. And there are situations in which quantitative power attributes are no longer essential. Small states may therefore attempt to compensate for their traditional quantitative weakness by emphasizing “qualitative” virtues such as mediation, bridgebuilding or other non-coercive means.7 Power may now result from processes and structures, for example bargaining procedures. Such power is called “bargaining power” or “bargaining strength”.8 These power dimensions may, of course, also be influenced by quantitative power indicators such as military or economic resources. However, such resources will not automatically be transformed into power to determine outcomes. “Bargaining skill” and other factors linked to the structure of the negotiation process may well play a decisive role in the result. There is rarely a one-to-one relationship between power, measured by any type of resource, and power measured by its effects on outcomes. Political bargaining is the usual means of translating potential into effects, but a lot is often lost in the translation.9 As this would suggest, Switzerland’s foreign policy has historically been very much marked by its perceived sense of smallness. When the Swiss Confederation was formed in 1848, this new republican polity was surrounded by rival monarchies which dominated Europe’s politics. While multilingual and multicultural, Switzerland was – both demographically and territorially – a small state. From an industrial perspective, it had no natural resources worth mentioning, other than salt and water. Thus, from the founding of the Swiss Confederation to the end of the Cold War, the country’s foreign relations rested on two pillars: neutrality and foreign trade policy, reflecting the fundamental facts of life with which Switzerland had to cope.

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At the end of the Cold War Switzerland was one of the few states which were not members of the UN. Unlike other neutral states, such as Sweden or Austria, Switzerland had for a long time maintained the view that participating in an organization of collective security, such as the UN, was not compatible with the restrictions imposed by its neutrality policy. After the government had finally changed its view in the 1980s, accession was clearly rejected in a referendum held in 1986.10 Nonetheless, after the end of the Cold War, the official assumption became that UN embargo measures were compatible with neutrality, as was exemplified by full Swiss participation in UN economic sanctions against Iraq and Kuwait in 1990. In 2002, Swiss accession to the UN was finally approved in a popular votation. As Switzerland had been very cautious in its approach to a collective security organization like the UN, it kept even more distance between itself and a full military alliance like NATO. Membership in such a collective defence organization remained incompatible with neutrality. In the second half of the 1960s, Switzerland had joined two other organizations, the Council of Europe and the General Agreement on Tariffs and Trade. Although both organizations had been created in the 1940s it took Switzerland considerable time to overcome neutrality considerations in case of the first while economic reasons prevented it from an earlier accession to the GATT. Agriculture was a major reason for the delay since it was expressly included in the liberalization process. Farm products had also largely been excluded from the EFTA treaty and the 1972 free-trade agreement with the EC. Within the framework of the successor to GATT, the World Trade Organization, Switzerland staunchly supported the strengthening of arbitration, deeming it helpful to reducing arbitrary rulings in world-trade law, particularly when it affected small nations. In the field of international economic cooperation, Switzerland also joined the Bretton-Woods Institutions – the International Monetary Fund and the World Bank – after a successful popular referendum in 1992. Among the many reasons which motivated this step was the fact that Switzerland had encountered too many difficulties when trying to preserve its long-term financial interests through a strictly bilateral approach. It also seized the opportunity offered by the changing times, as it entered the two institutions at the same time as several former socialist countries which gave rise to a Swiss-led voting rights group. This assured Swiss representation on both boards of executive directors.11 The Conference on Security and Cooperation in Europe [CSCE], later renamed as an “Organization” [OSCE], was the only forum in which all European states, east and west, had participated during the Cold War. Its decisions were taken by consensus, and had no legally binding effects. Thus it was no threat to neutrality. Switzerland therefore participated actively and successfully in this collective endeavour from the early 1970s. Swiss development policy has long operated on a technocratic basis typical of neutral states, maintaining that development aid functions best without political meddling, and needs only technical know-how and sufficient money. Thus the Swiss avoided political discussions with recipient countries on sensitive topics such as human rights or good governance. Only after the end of the Cold War

The wider setting of Swiss foreign policy 173 was Switzerland ready to integrate these and other “political” elements into its development cooperation programme. The same was true for peace promotion activities where Switzerland followed a passive approach based on the concept of its “good offices”. These activities attempted to bring parties in conflict closer together and, without exerting any political influence or pressure, strove instead to assume protective power mandates, provide conference space or offer arbitration assistance.12 Since the end of the Cold War, Switzerland has continuously expanded the scope of its peace promotion and peace-building policy.13 In all this the Swiss case, to sum up, shows that the term “small state” really characterizes a state’s relationship with its environment. Its position is characterized by a deficit in influence and in autonomy. The foreign and security policy chosen by the small state is therefore supposed to minimize, or to compensate for, its power deficit. The possibilities of small states actually being able to compensate for their quantitative handicap depend, on one hand, on the relative importance of the different power dimensions such as the external valorization of their so-called “qualitative virtues” and, on the other hand, on the internal acceptability of different policy strategies. In fact, since the Second World War, Switzerland has consistently followed a foreign policy which gave autonomy priority over influence. This counted especially in areas which could – in whatever way – be linked to neutrality as Ganser and Kreis have already suggested. In the economic field, there was a strong belief in bilateralism and free trade, the latter except for protected sectors like agriculture. Since the end of the Cold War, a clear reorientation towards multilateralism has occurred and has in part also been approved in popular referendums. However, as will be seen later in consideration of integration policy, many elements of the autonomy-driven focus remain. The Swiss case also shows that what would be ideal for small states would be an international environment enhancing their external reach while, at the same time, also maintaining their autonomy. Such an environment would value highly the “qualitative” virtues of small states, such as policy tools and strategies not based on coercion, and it would have a positive psychological impact on these states as well as on their environment where the role of small states in world affairs is concerned. It would also improve the general resources which these states have at their disposal to conduct their external relations. Moreover, the autonomy of small states would not be impaired. They would be treated as equals in important decisions and would at least be able to participate in less important decisions. They would be thus able to maintain the core values of their foreign and security policy. And what is most important in historical terms is that they would not be forced to take part in activities they found incompatible with their interests. Unfortunately, in this respect, the European integration process confronted small states with a new and very real challenge. This was because it seemed to match the ideal scenario. Thus its decision-making procedures and its fields of activity presented a new kind of international cooperation. Equally the

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institutional setting offered small states plenty of opportunities to apply their “qualitative” virtues. Moreover, the EC’s activities did not concentrate on traditional military commitments which, in the past, had required small states to make their most difficult choices. Yet, despite these apparent advantages, European small states have adopted quite different stances towards the integration process. Some joined early on, some later, and one – Switzerland – decided to abstain from any multilateral entanglement. Why? The reason seems to be that small states define their interests in regard to European integration in different ways. This means the optimal ratio between influence and autonomy varies from one state to another. In the case of Switzerland, autonomy had a clear priority over influence. This is largely due, I would argue, to a combination of foreign policy decision making with core elements of the Swiss political system, which is to say, direct democracy, neutrality and federalism.

Decision making and core values As Trechsel has shown, it is obvious that direct democracy plays a central role in Switzerland’s political decision-making system.14 When a votation on a foreign policy decision is pending, advocates as well as opponents play it up as a life or death matter. Take, for example, the vote on EEA entry in 1992. During the campaign, a few opponents denounced the federal government as traitors. However, the times when foreign policy actually attracts the focus of public attention are few and far between. They are, in fact, an exception in the process of foreign-policy decision making. Most “business as usual” foreign policy has only a limited effect on public thinking.15 Conversely, the structure of Swiss political institutions does explain why foreign-policy decisions can, from time to time, lead to internal political “bloodletting”. Referenda on international treaties and other statutory referenda play a central role here. Hence, great significance is attached in the Swiss decisionmaking system to the pre-parliamentary consultative procedure. This is to increase the chances of avoiding referendum challenges. Thus the consultative procedure gives those affected the opportunity to comment on proposals. It also creates something of a public forum.16 Yet, because the executive branch can act on its own, foreign-policy decision-making processes flow less transparently than those affecting domestic policy. The Swiss Federal Council has no authorized prime minister, a fact that certainly does not encourage the country to play an active foreign policy role. Instead, it contributes to policy making by playing a reactive role to changes in the international setting rather than by acting with foresight. This is partly because the Federal Council has difficulty in moving rapidly to a consensus. The four parties in the Swiss government represent the broadest range of political variations possible, given the exclusion of the smaller groupings on the fringes of left and right. Furthermore, the tools of direct democracy impact on the Federal Council’s

The wider setting of Swiss foreign policy 175 ability to shape foreign policy even more than does multi-party government. Research has shown that referenda on international treaties focus federal councillors’ attention mainly on the domestic arena.17 Optional referenda on federal laws affecting foreign policy probably do so too. The Swiss practice of finalizing foreign-policy decisions after checking the electorate’s pulse is hardly unique. No government in a parliamentary and presidential system can repeatedly make unpopular decisions and expect to win the next election. These governments have only four- or five-year terms in which to pursue their policies before they have to face re-election. In contrast, the Swiss Federal Council, which does not have to face popular election (being an ongoing body) must, nevertheless, because of direct democracy, hear and respond to a wide range of interests, especially since referendum democracy has always been conservative, in the sense that it prefers to stick with the status quo. This situation is not helped by the fact that neither Parliament nor political parties, nor even the media, play an outstandingly constructive role in foreignpolicy decision-making processes. In a formal sense, Parliament of course plays an important role in foreign policy through its budgetary power, and because it has the responsibility for approving treaties which will affect national law. But members of Parliament have tended to regard foreign policy as a rather exotic political area over which they can exert little influence, reasoning that the Federal Council and its administrative agencies enjoy too great an advantage in terms of information. Nonetheless, fringe parties have long tried to manipulate Parliament into acting as a megaphone for their own views. The mainstream right has also frequently used cost as an argument against Switzerland increasing its international commitment. However, generally speaking political parties contribute relatively little to the formation of foreign policy. They lack financial resources and sometimes have difficulty finding a unified line on controversial foreign policy issues. Thus voting recommendations from parties at the cantonal level quite frequently diverge from those of the national parties.18 While some prominent party representatives do use foreign policy issues to try and raise their personal profile, parties as such tend to take a firm position only if it promises to bring them success in the domestic policy debate on power distribution. Where the media is concerned, foreign policy has been described as an orphan of its coverage. A survey of journalists reporting on current affairs thus concluded that foreign policy rated low in comparison with other Swiss policy areas.19 However, the media does give short-term attention to campaigns ahead of foreign policy votations. The high degree of conflict within elite political circles which these votations involve makes coverage more attractive as it leads to very intense, polarized and eye-catching debates. Neutrality, combined with direct democracy, creates a further obstacle to a consistent and active Swiss foreign policy.20 Each new Swiss engagement used to be screened with respect to its compatibility with neutrality, as Ganser and Kreis have already noted. Conservative political groups were successful in referendum campaigns by advocating the preservation of neutrality as a powerful

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argument for opposing all steps to “open up” Switzerland, be they attempts either to join international organizations or to take part in military peace support operations. Admittedly the comprehensive view of neutrality, which prevailed during most of the Cold War period, has progressively been reviewed since the conflict ended. Hence, in 2002, Switzerland joined the United Nations. And it is now required to apply binding Security Council resolutions. Nonetheless, as has already become clear, neutrality remains an important factor of Swiss foreign policy and political identity in general. Its “raison d’être” had a realistic background. It linked up to a perception of the international environment as being anarchical and prone to frequent warfare by states trying to optimize their own interests and security by military means. Historically this relates to neutrality’s origins in seventeenth-century Europe, when Switzerland, surrounded by potentially belligerent much larger states, reserved its right to “renounce war”. As early as 1947 the Federal Council had listed its essential policy principles on Switzerland’s accession to the Organization for European Economic Cooperation. These were: 1 2 3

no change in neutrality policy; preservation of autonomy in economic policy making; and maintenance of national autonomy in trade policy.

Linked to this was a fundamental rejection of the idea of surrendering rights to sovereignty since this could affect the credibility of neutrality. In particular this meant that Switzerland was not prepared either to subject itself to majority decision making or to enter a customs union.21 From that point on, the Swiss government distinguished in practice between technical or economic organizations, which were basically compatible with its conception of neutrality, and political or even military organizations, where participation was out of the question. Because of neutrality, the European integration process posed a special challenge to Switzerland, since it was not primarily the substance of cooperation that prevented entry but the declared finality of the process and the supranational form taken by cooperation inside the Community. Hence, when the Federal Council justified the Swiss spectator role in the case of the EEC it did not do so by invoking technical and political criteria. Instead its 1960 message on Swiss participation in EFTA stated frankly that the EEC envisioned the setting up a European super-state. Thus the independence of the Swiss people stood in the way of entry.22 Equally, because of direct democracy and federalism, Switzerland was never prepared to give up its domestic-policy distinctiveness in favour of taking part in the integration process. Thus even in the negotiations for the EEA, the Federal Council made it clear that success in negotiating required Switzerland being guaranteed this unique aspect of domestic politics.23 This was not linked to a view that nothing in these regulations and structures could be altered. Rather it reflected a concern that Swiss referendum democracy should not be compro-

The wider setting of Swiss foreign policy 177 mised. In other words the foundations of Switzerland’s national political identity should not be shaken. Even in its most recent foreign-policy report the Federal Council again held that one condition for opening negotiations on entry would be to review its effects on the Swiss political system.24 Many studies have already been carried out on the likely impact on direct democracy of entering the EU.25 The most important points concern limitations on the referendum when related to the enforcement of European law. It is indisputable that EU entry would lead to an exchange of national autonomy for increased participation and influence at the European level. To some extent it would be an exchange of sovereignty through bargaining away legal authority in return for influence over others’ policies.26 In contrast to the executive, legislative and judicial branches, which would all be able to compensate in varying ways for loss of their national authority by gaining a “surplus” at the European level, Switzerland’s actual sovereign, the electorate, would be left emptyhanded. This would remain so as long as no corresponding direct-democratic compensation mechanisms exist at the European level. However, entry would not cause the existing forms of legitimizing democracy in Switzerland to collapse although the material scope of its application would be restricted according to the preconditions of Community law. In the case that Switzerland was to enter the EU, the cantons too would have to give up authority at the European level. Representatives of the cantons accept, on the one hand, the overriding position of European law as a consequence of EU entry. Yet, on the other hand, they lay even more stress on the need for internal institutional reforms. On this it is worth noting that the cantons’ goal is to offset the decision-making flexibility they would lose.27 Several new studies have concluded that a practice-oriented structure of cantonal involvement would be needed to offset the partial loss of the cantons’ autonomous ability to shape the decisions which have resulted from the growing importance of international agreements. The federal government, which is responsible for monitoring the implementation of international agreements, also depends on the cantons’ readiness to carry them out. So the model of a federalism exclusively defined by strong self-determination can no longer continue to operate within the previous framework. It must now be supplemented by adequate options for cantonal participation in the federal government’s foreignpolicy decision-making process, something which Dardanelli has shown is not impossible. The premise here is a readiness for dialogue between the federal government and the cantons as well as between the cantons themselves. In the meantime, the combination of the Swiss foreign-policy decisionmaking mechanisms and their – partly linked – political core values has excluded any EU accession strategy. Instead it favoured the expansion of the socalled bilateral way. This policy was inaugurated in the early 1970s, when – after the failure to establish a large free-trade zone and the entry into force of the EEC’s customs union – Switzerland and the other then EFTA countries, Austria, Denmark, Great Britain, Norway, Portugal and Sweden, felt the need to conclude bilateral free-trade agreements for industrial goods with the EEC.

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Effects of bilateralism Clinging to the concept of bilateralism has hidden Switzerland’s material and qualitative change of relationships within the integration process. The changes inherent in bilateralism – its growing breadth of coverage, its increasing intensity of regulation and its new kinds of monitoring – have increased the gap between the substance of the actual agreements and the ability of Switzerland to co-determine either their content or the way they are controlled. Never before had so many different areas been negotiated jointly and in parallel. The reason for this was the principle of “appropriate parallelism” introduced by the EU during the first bilateral negotiation round following the EEA “no” between 1994 and 1999, a point further developed by Dupont and Sciarini. It meant that the various sectoral agreements were regarded as a single, all in one, package and could therefore only take effect together and at the same time. Switzerland clung to this principle for the second round of bilateral negotiations which, as Afonso and Maggetti show, lasted until 2004. The second important difference concerns the depth of regulations. Switzerland basically adopts regulations comparable to EU standards in the policy sectors involved. The agreement’s content delves deeply into the inner-state “everyday law” of the federal government and cantons. In the air transport agreement, for example, Switzerland adopted the core content of European rules governing freedom and competition for air transport. The accord corresponds to a partial integration agreement with uniform agencies for applying and developing law. Regarding monitoring, the third important difference, the EU – particularly the Commission and European Courts – determines enforcement for law on competition. Swiss officials are merely consulted.

Autonomous adaption and a lack of influence In addition to those issues which have been subjects of bilateral negotiations,28 Switzerland continues to introduce norms “compatible” with EC law in other areas. An EC reflex is linked to this “autonomous implementation” (Nachvollzug) in ongoing Swiss legislation. Accordingly, in more than ten years, no new law has been passed without its content having been compared to related EC regulations, at least if there have been any points of overlap. There is still no empirical data available on the impact on content and on the precise quantity of this “voluntary” adaptation to EC standards. But it is clear that the impact is ongoing. Yet this Europeanization goes almost unnoticed by the public as Church also notes later in this volume. Parallel to these developments within the scope of the EU community pillar, Switzerland systematically reflects on the relation between Swiss foreign- and security-policy stances and those of the EU’s second pillar – the CFSP and the Common Security and Defence Policy [CSDP]. Switzerland’s Department of Foreign Affairs has developed a political “EU reflex” that is no less marked than that found within the domestic legislative process. This is largely due to an

The wider setting of Swiss foreign policy 179 ongoing de facto revision and adaption of Swiss foreign and security policy. Neutrality has lost much of its practical relevance in shaping Swiss foreign policy, even if it has been maintained by the government and is still described as important. Reducing neutrality to the core of its content under international law and Switzerland’s consequent systematic enforcement of UN sanctions since the beginning of the 1990s – as described by Ganser and Kreis – has made its foreign policy basically compatible with the Union’s CFSP. Moreover, if foreign-policy reasons preventing EU entry have been reduced, it should be noted that foreign-policy incentives to take part in the CFSP have also increased. EU foreign-policy goals are nearly the same as those of Switzerland. On relevant multilateral issues the Swiss position is usually comparable to, and harmonized with, that of the EU. These range from measures on arms export controls to imposing economic and political sanctions. The importance of the EU for Switzerland may increase more – especially in the sector of civil peace building – because the Union is continuously strengthening its related capacities. And Switzerland has also itself expressed a marked interest in these issues even if, given its institutional outsider role, it waives the option of taking an active part in defining its interests and policies within the European framework. A retrospective look shows that the EU’s interests are, for most of the time, identical with those of Switzerland. Yet this parallelism should not be confused with the influence that it could exert on the decision-making process as a member.29 An increasing democratic deficit Parallel to the lack of influence and the merely virtual character of partnership within recent bilateral negotiations, the growing relevance of the agreements’ content also underlines the democratic deficit of this type of integration policy. The population is involved neither in the choice of negotiation topics nor in the actual process of negotiation. Only if a referendum is called at the end of talks may it have a role. This is due to the fact that implementation of integration policy occurs – institutionally speaking – as a regular part of foreign policy, in which, as we have already seen, government and administration play by far the most important roles. However, the consequences of integration policy reach far into the field of daily life, probably very much further than does the rest of foreign relations as a whole. Those deficiencies would not be resolved through Swiss participation either in the EEA or in a customs union with the EU. On the contrary: both these options would in fact probably worsen the existing situation by further increasing Switzerland’s dependency on decisions from “Brussels” without improving the possibilities of democratic participation in the decision-making process. A more systematic democratic participation in integration policy would only be possible were Switzerland to join the EU. In case of such an accession, powerful parliamentary commissions for European affairs could be established which would then enhance the impact of

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parliamentarians. They might then influence Swiss integration policy not only in a reactive way, as is the case within bilateralism, but also in a pro-active one. Additionally, Swiss representatives would be sitting in the European Parliament, and the cantons would find additional ways to have a voice, be it by acting within the Committee of the Regions or through using their possibility of direct participation in governmental delegation within the Union’s Council of Ministers in policy fields where cantons have major authority, such as health or education issues.

Conclusions Bilateralism has allowed Switzerland to achieve an impressive “density” in its relations with the EU. Once the second series of bilateral agreements are implemented, Switzerland will have harmonized or, at least, adapted its legislation in respect to that of the EU in crucial domains, such as free movement of persons or asylum policy. But bilateralism has clear limits. Leaving aside the negotiation efforts, one has to recognize the considerable lack of impact that Switzerland has both on the content and on the monitoring of the agreements. This is not meant to downplay the considerable successes achieved by Swiss negotiators such as the transition modalities in the field of free movement of persons, exceptions regarding taxation on interest payments (bank secrecy) – as detailed by Church and his collaborators elsewhere in this volume – or time lapses for adoption of new norms within “dynamic” agreements such as the Schengen/Dublin system. However, looking at the overall picture, it has to be admitted that most of the agreements’ content is based on the “acquis”. Moreover, any definitive refusal by Switzerland to take over future EU legislation in the fields of dynamic agreements might have disastrous implications for the country. Additionally, bilateral agreements never affect the “political” EU, meaning that Switzerland will never manage to be included in the Union’s real decision-making process even within the policy fields covered by bilateral agreements. Foreign- and security-policy issues also remain outside the scope of bilateralism. Finally, this way of conducting integration policy has serious democratic deficits at the parliamentary level as compared to EU membership. Thus, preservation of direct democratic rights may not be the only item to consider when evaluating the effects of membership in respect to the country’s institutional political traditions. By staying outside, Switzerland may, legally speaking, have a “water-tight” veto right regarding the application of EU legislation on its territory. But, from a political or more realist perspective, this is often not the case, since – as we have seen – it is in its own interest to adapt “autonomously” relevant EU legislation. Moreover, staying outside gives it hardly any possibility of influencing the respective decision-making processes. Not even where bilateral agreements establish an institutionalized link between Swiss and EU legislation does Switzerland have the possibility of taking part in the political decision-making process.

The wider setting of Swiss foreign policy 181 However, continuing bilateralism obviously forms the lowest common denominator on which domestic political forces can, for the moment, agree. In contrast to the genuine ongoing rapprochement between Switzerland and the EU, official policy rhetoric for internal consumption has increasingly distanced itself from the goal of EU entry. Switzerland’s entry application was submitted to Brussels in May 1992 but actually “put on ice” after the electorate rejected the EEA treaty in December of that same year. The 1993 foreign-policy report declared entry to be still a strategic goal of Swiss integration policy.30 Since then, however, the goal of entry has only been mentioned on rare occasions. It was noted in the 2000 foreign-policy report that a decision on opening entry negotiations would occur at latest during the course of the following legislative period (i.e. between 2003 and 2007).31 But, for the time being, it seems highly unlikely that such a decision will be taken, as other chapters make clear. Aside from the domestic-policy discussions on the individual issues being negotiated, Swiss ties to the EU have, to a large extent, become depoliticized. Integration policy occurs as “daily business” with implementation taking place, and being reworked, within the framework of existing agreements to which “autonomous implementation” of law and policies described are added. Largely lacking is a meta discourse on integration dedicated to the overriding goals of this policy and to a vision of developing European integration. Preventing discrimination against Switzerland represents the only binding programmatic link within integration policy’s component parts. The only exceptions to this lack of wider horizons are the pro- and anti-European movements which constantly announce the same “truths” to the limited circle of their own political audiences. Because of this, Swiss relations with the EU are better described as “policy” than as “politics” or even “polity”. They are less concerned with discussions involving ideas, fundamental interests and issues than it is with administering technical sub-sectors. Finally come the arguments about costs. In the years after the “No” to the EEA, several sectoral surveys highlighted the economic impact of Switzerland remaining on the sidelines. However, they were hardly able to demonstrate any notably negative results, as Weder has already implied. Without doubt, remaining on the EEA sidelines did produce a few added hurdles such as those in public procurement or product testing. But, apart from in a few economic sectors, being outside the EEA has had no quantitatively significant results which prove economic drawbacks.32 By contrast, the costs of entry were relatively easy to quantify. The government’s 1999 integration report, supported by figures from 1997, was able to conclude that the annual cost of Switzerland entering the EU would amount to 4 billion CHF in outlays. This was contrasted to about 1 billion CHF in potential income from the Union. Thus the country’s net yearly payments to the EU would amount to 3 billion CHF.33 Paying this could, of course, be seen as the price to be paid in order to re-establish the country’s sovereignty. The reason for this statement lies in the fact that current integration policy not only hampers Switzerland’s influence on the “third-party” EU, but also affects

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the country’s autonomy in respect to many fields covered by European integration. Referring back to “smallness” and its effects on foreign policy, we can see that Switzerland might well be in a position to reduce both its influence and its autonomy deficit by joining the EU. Additionally, core values like direct democracy and federalism are negatively affected by the increasing scope of issues dealt with in the bilateral international negotiation framework between Switzerland and the EU. Obviously Switzerland’s participation in European policy fields such as “services” or “social policy” would lead to intense national debates on the objectives to follow in these fields. But these debates will come anyway. Holding them as part of foreign-policy decision making might contribute to rationalizing, and thereby improving, foreign policy decision making itself. Thus, working hard on the “European” side would strengthen Swiss foreign policy in a wider geographic setting. First, it would exempt Switzerland from its constant drive for “own” and “specific” positions on a variety of international issues, this in order to distinguish itself from EU positions. Being able to “swim” with the EU on a great number of issues would free energies and resources enabling the country to adopt better rooted own stances on selected questions. Depending on its “qualitative virtues”, Switzerland might be able to secure support from the EU as a whole or from selected partner countries. Second, the information basis of Swiss foreign policy would be improved by better involvement in respective CFSP meetings, be it with the EU institutions in Brussels or among EU member states as part of coordination activities at the UN or other international organizations. Third, a more active involvement of Swiss political and societal actors in EU policy making might strengthen the democratic basis of foreign-policy decision making. This would in turn contribute to a higher legitimacy and societal anchorage of foreign policy as a whole. In other words, the greater autonomy Swiss foreign policy enjoys under the regime of “bilateralism” may well be a myth, as the country neither has the resources nor the political capacity to really make a difference on its own.

Notes 1 I would like to thank the editor for very valuable comments on the first draft of this contribution. 2 See Gabriel Almond, The American People and Foreign Policy, Westport, Conn., Greenwood, 1977; and T. Risse-Kappen, “Public Opinion, Domestic Structure, and Foreign Policy in Liberal Democracies”, World Politics 43/4, 1991, 479–512. 3 This chapter draws on Laurent Goetschel, “The Foreign and Security Policy Interests of Small States in Today’s Europe”, in L. Goetschel (ed.), Small States Inside and Outside the European Union: Interests and Policies, Boston/Dordrecht/London, Kluwer Academic Publishers, 1998, pp. 13–31. 4 H. Lasswell, Power and Personality, New York, W.W. Norton, 1962, p. 16. 5 H. Wiberg, “The Security of Small Nations: Challenges and Defences”, Journal of Peace Research 4, 1987, 339; and O. Höll, “Introduction: Towards a Broadening of the Small States Perspective”, in O. Höll (ed.), Small States in Europe and Dependence, Laxenburg, Wilhelm Braumüller, 1983, p. 23.

The wider setting of Swiss foreign policy 183 6 M. Hirsch, “Influence Without Power: Small States in European Politics”, The World Today 32, 1976, p. 113. 7 R. Rothstein, Alliances and Small Powers, New York, Columbia University Press, 1968, p. 26; and G. Liska, International Equilibrium, Cambridge, Mass., Harvard University Press, 1957, pp. 25 et seq. 8 T. Schelling, The Strategy of Conflict, Cambridge, Mass., Harvard University Press, 1980, p. 22. 9 R. Keohane and J. Nye, Power and Interdependence. World Politics in Transition, Boston/Toronto, Little Brown, 1989, p. 11. 10 D. Pfirter, “Verhältnis Schweiz-UNO: Wie weiter nach dem 16. März 1986?”, Schweizerisches Jahrbuch für Politische Wissenschaft 28, 1988, 73–90. 11 S. Schmidtchen, Die Beziehung der Schweiz zu den Bretton-Woods-Institutionen: Annäherung-Integration-Behauptung, Berne, NFP 42/Synthesis 45, 2000. 12 R. Probst, “Good Offices” in the Light of Swiss International Practice and Experience, Dordrecht, Nijhoff, 1988. 13 Botschaft des Bundesrates über einen Rahmenkredit für Massnahmen zur zivilen Konfliktbearbeitung und Menschenrechtsförderung vom 23. Oktober 2002, Berne, Federal Council, 2002. 14 This chapter also draws on Chapter 4 of L. Goetschel, M. Bernath and D. Schwarz, Swiss Foreign Policy: Foundations and Possibilities, London, Routledge, 2005. 15 U. Klöti, C. Hirschi and U. Serdült, Verkannte Aussenpolitik: Entscheidungsprozesse in der Schweiz, Zürich/Chur, Rüegger, 2004. 16 For more details on this see Wolf Linder, Schweizerische Demokratie: Institutionen – Prozesse – Perspektiven, Berne, Haupt, 1999, pp. 295–324. 17 D. Ruloff, T. Bernauer, S. Bruno, P. Moser and A. Schnur, Globaler Wandel und schweizerische Aussenpolitik: Informationsbeschaffung und Entscheidungsfindung, Berne, NFP 42/Synthesis 17, 1999, p. 27. 18 M. Brändle, “Die finanziellen Mittel der Parteien”, in A. Ladner and M. Brändle (eds), Die Schweizer Parteien im Wandel. Von Mitgliederparteien zu professionalisierten Wählerorganisationen?, Zurich, Seismo, 2001, pp. 149–92; and L. Goetschel, Zwischen Effizienz und Akzeptanz. Die Information der Schweizer Behörden im Hinblick auf die Volksabstimmung über den EWR-Vertrag vom 6. Dezember 1992, Berne, Haupt, 1994. 19 B. Nyffeler, Schweizerische Aussenpolitik und Journalismus: Eine Befragung politischer Journalist/innen tagesaktueller Medien, Berne, NFP 42 Working Paper 10, 1999. 20 The subsequent discussion closely follows Laurent Goetschel, “Switzerland and European Integration: Change Through Distance”, European Foreign Affairs Review 8/3, 2003, 313–30. 21 M. Zbinden, “Von der Neutralität zur direkten Demokratie: Die Entwicklung der schweizerischen Integrationspolitik”, in T. Cottier and A. Kopse (eds), Der Beitritt der Schweiz zur Europäischen Union. Brennpunkte und Auswirkungen, Zurich, Schulthess Polygraphischer Verlag, 1998, pp. 218–19. See also Trechsel in this volume. 22 Federal Council message to the Federal Assembly on Switzerland’s involvement in the European Free Trade Association of 5 February 1960 (1960) I BBl, pp. 888–9. 23 Informationsbericht des Bundesrates über die Stellung der Schweiz im europäischen Integrationsprozess, Berne, EDMZ, 1990, p. 70. 24 Aussenpolitischer Bericht 2000. Präsenz und Kooperation: Interessenwahrung in einer zusammenwachsenden Welt, Berne, EDMZ, 2000, pp. 318–19. 25 No substantial changes of perspectives have occurred in recent years. See D. Thürer, “Verfassungsfragen rund um einen möglichen Beitritt der Schweiz zur Europäischen Union”‚ Swiss Review of International and European Law 15/1, 2005, 21–51. 26 R. Keohane, “Hobbe’s Dilemma and Institutional Change in World Politics:

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Sovereignty in International Society”, in H.H. Holm and G. Sørensen (eds), Whose World Order? Uneven Globalization and the End of the Cold War, Boulder, Col., Westview Press, 1995, p. 177. T. Pfisterer, “Der schweizerische Föderalismus vor der Herausforderung eines möglichen Beitritts der Schweiz zur Europäischen Union”, in Konferenz der Kantonsregierungen (ed.), Die Kantone vor der Herausforderung eines EU-Beitritts. Bericht der Arbeitsgruppe “Europa-Reformen der Kantone”, Zurich, Schulthess Polygraphischer Verlag, 2001, pp. 287–338. As later chapters show, the two bilateral “packages” concluded since 1992 cover the areas of free movement of persons, technical barriers to trade, public procurement markets, agriculture, civil aviation, overland transport, research (bilaterals I), and cooperation in the fields of justice, police, asylum and migration, taxation of savings, fight against fraud, processed agricultural products, environment, statistics, media, education, occupational training, youth and pensions (bilaterals II). L. Goetschel, Power and Identity: Small States and the Common Foreign and Security Policy of the EU, Berne, NRP 42/Synthesis 33, 2000. Bericht über die Aussenpolitik der Schweiz in den 90er Jahren, Berne, EDMZ, 1993, p. 47. Foreign Policy Report 2000, Berne, EDMZ, 2000, p. 319. The textile and machinery industries are an exception. Schweiz – Europäische Union. Integrationsbericht 1999, Berne, EDMZ, 1999, pp. 248–59.

Bibliography G. Almond, The American People and Foreign Policy, Westport, Conn., Greenwood, 1977. Aussenpolitischer Bericht 2000. Präsenz und Kooperation: Interessenwahrung in einer zusammenwachsenden Welt, Berne, EDMZ, 2000. Bericht über die Aussenpolitik der Schweiz in den 90er Jahren, Berne, EDMZ, 1993. Botschaft des Bundesrates über einen Rahmenkredit für Massnahmen zur zivilen Konfliktbearbeitung und Menschenrechtsförderung vom 23. Oktober 2002, Berne, Federal Council, 2002. M. Brändle, “Die finanziellen Mittel der Parteien”, in A. Ladner and M. Brändle (eds), Die Schweizer Parteien im Wandel. Von Mitgliederparteien zu professionalisierten Wählerorganisationen?, Zurich, Seismo, 2001, pp. 149–92. Federal Council message to the Federal Assembly on Switzerland’s involvement in the European Free Trade Association of 5 February 1960 (1960) I BBl. pp. 841–1104. L. Goetschel, Zwischen Effizienz und Akzeptanz. Die Information der Schweizer Behörden im Hinblick auf die Volksabstimmung über den EWR-Vertrag vom 6. Dezember 1992, Berne, Haupt, 1994. L. Goetschel, “The Foreign and Security Policy Interests of Small States in Today’s Europe”, in L. Goetschel (ed.), Small States Inside and Outside the European Union: Interests and Policies, Boston/Dordrecht/London, Kluwer Academic Publishers, 1998, pp. 13–31. L. Goetschel, Power and Identity: Small States and the Common Foreign and Security Policy of the EU, Berne, National Research Programme 42/Synthesis 33, 2000. L. Goetschel, “Switzerland and European Integration: Change Through Distance”, European Foreign Affairs Review 8/3, 2003, 313–30. L. Goetschel, M. Bernath and D. Schwarz, Swiss Foreign Policy: Foundations and Possibilities, London and New York, Routledge, 2005.

The wider setting of Swiss foreign policy 185 M. Hirsch, “Influence Without Power: Small States in European Politics”, The World Today 32, 1976, 113. O. Höll, “Introduction: Towards a Broadening of the Small States Perspective”, in O. Höll (ed.), Small States in Europe and Dependence, Laxenburg, Wilhelm Braumüller, 1983, pp. 13–31. Informationsbericht des Bundesrates über die Stellung der Schweiz im europäischen Integrationsprozess, Berne, EDMZ, 1990. R. Keohane, “Hobbe’s Dilemma and Institutional Change in World Politics: Sovereignty in International Society”, in H.H. Holm and G. Sørensen (eds), Whose World Order? Uneven Globalization and the End of the Cold War, Boulder, Col., Westview Press, 1995, pp. 165–229. R. Keohane and J. Nye, Power and Interdependence. World Politics in Transition, Boston/Toronto, Little Brown, 1989. U. Klöti, C. Hirschi and U. Serdült, Verkannte Aussenpolitik: Entscheidungsprozesse in der Schweiz, Zürich/Chur, Rüegger, 2004. H. Lasswell, Power and Personality, New York, W.W. Norton, 1962. W. Linder, Schweizerische Demokratie: Institutionen – Prozesse – Perspektiven, Berne, Haupt, 1999. G. Liska, International Equilibrium, Cambridge, Mass., Harvard University Press, 1957. B. Nyffeler, Schweizerische Aussenpolitik und Journalismus: Eine Befragung politischer Journalist/innen tagesaktueller Medien, Berne, NFP 42 Working Paper 10, 1999. D. Pfirter, “Verhältnis Schweiz-UNO: Wie weiter nach dem 16. März 1986?”, Schweizerisches Jahrbuch für Politische Wissenschaft 28, 1988, 73–90. T. Pfisterer, “Der schweizerische Föderalismus vor der Herausforderung eines möglichen Beitritts der Schweiz zur Europäischen Union”, in Konferenz der Kantonsregierungen (ed.), Die Kantone vor der Herausforderung eines EU-Beitritts. Bericht der Arbeitsgruppe “Europa-Reformen der Kantone”, Zurich, Schulthess Polygraphischer Verlag, 2001, pp. 287–338. R. Probst, “Good Offices” in the Light of Swiss International Practice and Experience, Dordrecht, Nijhoff, 1988. T. Risse-Kappen, “Public Opinion, Domestic Structure, and Foreign Policy in Liberal Democracies”, World Politics 43/4, 1991, 479–512. R. Rothstein, Alliances and Small Powers, New York, Columbia University Press, 1968. D. Ruloff et al., Globaler Wandel und schweizerische Aussenpolitik: Informationsbeschaffung und Entscheidungsfindung, Berne, NFP 42/Synthesis 17, 1999. T. Schelling, The Strategy of Conflict, Cambridge, Mass., Harvard University Press, 1980. Schweiz – Europäische Union. Integrationsbericht 1999, Berne, EDMZ, 1999. D. Thürer, “Verfassungsfragen rund um einen möglichen Beitritt der Schweiz zur Europäischen Union”, Swiss Review of International and European Law 15/1, 2005, 21–51. H. Wiberg, “The Security of Small Nations: Challenges and Defences”, Journal of Peace Research 4, 1987, 339–63. M. Zbinden, “Von der Neutralität zur direkten Demokratie: Die Entwicklung der schweizerischen Integrationspolitik”, in T. Cottier and A. Kopse (eds), Der Beitritt der Schweiz zur Europäischen Union. Brennpunkte und Auswirkungen, Zurich, Schulthess Polygraphischer Verlag, 1998, pp. 218–19.

10 Continuities within change The background of Swiss relations with Europe Clive H. Church

Conventionally historical chapters come at the start of a book, to give some idea of where things are coming from. But, in the Swiss case, recent experiences are more significant and constitutive than this. Indeed, as many chapters here imply, they play a large part in shaping contemporary political responses to the European Union. So there is a good deal of what analysts call “path dependency”. In other words, much contemporary Swiss policy and public thinking on Europe is conditioned by understandings of the way the country has developed over the last 70 years. The successful resistance to Nazi pressure, the creation of ultra-economic prosperity – the basis of the so-called “Sonderfall” – and the ability to avoid binding external ties have had a profound effect both on government policy and public opinion. Such experiences have evolved into permanent identifying values which have been able to mobilize a substantial minority of the population behind them. However, because these values were seen in largely political terms, this did not prevent technical accommodations brought about by Europeanization. At the same time past events have made elites inclined both to criticize European institutions and to over-estimate the country’s strength and attractiveness to other nations and organizations. This too has been internalized by public opinion especially as governmental communication policy has often been complacent, limited and unconvincing. So, when Europe changed in the 1980s, popular beliefs did not. Nor did Europeanization, which continued to develop despite Swiss unease. This was to make policy adaption very hard, producing a number of bruising encounters which, in turn, have marked participants in the debate on Europe and changed the political balance. This showed up very clearly not just in the evolution of the bilateral agreements but also in that of general attitudes to the European Union. Relations with Europe have, of course, never existed in a vacuum. In fact what political scientists call the role concepts generated in general foreign policy have played a large part in the European question.1 So too have domestic politics, with the European question drawing on linguistic, party and populist divisions. Equally, the way in which the Union has deployed its own policy towards Switzerland has been an important factor. There have been distinct phases in the country’s relations with Europe since

Continuities within change 187 1945. In the immediate post war there was great reticence and uncertainty about involvement with European integration. Attempts to overcome this often failed. Not until the early 1970s was a satisfactory new relationship achieved. From then until about 1985 the country enjoyed its happiest period: developing free trade and prosperity, extending technical relationships and avoiding domestic conflict. And, Swiss policy has, as other contributors to this volume show, remained largely reactive, responding both to EU initiatives and to appreciations of what public opinion would tolerate. This has encouraged path dependency first where the war was concerned and later when a stable new relationship was established in the 1970s. Thereafter things began to alter as outside changes persuaded the government that policy reversals were necessary, only to find these resisted by much domestic opinion. This led to a difficult transition period ended by the dramatic popular rejection of entry to the EEA. Indeed the effects of the past were magnified by the 6 December vote. So there was a path-dependent aftermath beyond the two sets of bilateral negotiations.

Post 1945 uncertainties Swiss involvement in Europe did not start in 1945. The country developed at the heart of Europe and in parallel to its key developments, from the wars of the fifteenth century, through the Reformation to the French Revolution and nineteenth-century liberal nationalism. It was also caught up in the industrial revolution and the growth of socialism and mass tourism. So, despite neutrality and the absence of structural relationships other than the Latin Monetary Union, ideas of “not being part of Europe” would have been meaningless. However, because the country was much affected by the First World War which both exposed it to outside pressures and encouraged linguistic and social divisions at home, things began to change. It took part in the League of Nations and created its own European Movement. However, the rise of Fascism and Nazism and the strains this helped to place on neutrality caused a policy shift in the late 1930s. Switzerland then withdrew from the League and began to look to its own resources. After 1940 the country again found itself isolated in Europe and, at times, threatened with invasion. Although it was better prepared, militarily and economically than in 1914, things remained very difficult. And its attempt to maintain neutrality, which included economic and other dealings with the Axis, did not always strike outsiders as wholly convincing even if they helped to ensure the country was never overrun. In fact, by the end of the war there was a hostile current in allied opinion. All this left Switzerland very proud of its achievements but also aware that its place in Europe and the world was under threat. As a result of these wartime experiences, both internal and external, the country stayed largely aloof from initial attempts to integrate Europe until the 1950s and 1960s. And many Swiss believed that this was right and proper.

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Early reticences The combination of allied displeasure with Swiss behaviour in the war and Swiss insistence on maintaining neutrality meant that the country could not join the UN. It was equally reserved about European cooperation, making a clear distinction between technical or economic organizations and politico-military ones. The latter were seen not just as unacceptable but as a threat.2 This was despite the enthusiasm of some Swiss for integration.3 Thus Churchill received a hero’s reception in Zurich in 1946 and his speech encouraged Swiss and other federalists to meet at Hertenstein near Lucerne and issue a 12-point programme calling for a federal European Community to oversee peace and reconstruction. While such Swiss went on to play a large part in the 1948 Hague Congress, where Denis de Rougemont of Geneva led the federalist opposition to Churchill’s inter-governmentalism, the Federal Council did not share their enthusiasm. There was even some initial suspicion that the proposed OEEC was a Cold War vehicle. It was only when the OEEC statutes accepted Swiss suggestions about non-interference with sovereignty and trade policy that the government in April 1948 was willing to join. Given its realization that Swiss well-being depended on economic prosperity in Europe the government was also willing to sign up to the European Payments Union in 1950. But concerns over agriculture delayed its entry to GATT and it regarded the nascent Council of Europe as an embryonic European state. Hence it intimated that it did not want an invitation.4 For the rest, it stuck to pragmatic deals to assist the Swiss economy, finding it possible to reconcile its new stress on solidarity with demands for special treatment. Swiss fears were renewed with the emergence of the European Coal and Steel Community in 1952 even though the country was not a producer of either. Like the government, business, as represented by the “Vorort”, was extremely hostile to this, seeing it as a threat to existing bilateral deals and a potential cause of discrimination.5 So it unsuccessfully tried to use its economic strength to restrain the new Community. And it looked coolly on the few domestic voices urging more multilateral involvement, preferring in such uncertain times to keep to neutrality-based detachment rebuffing both outside invitations and domestic enthusiasm. First experiments In the mid-1950s the gathering pace of European integration forced a partial reevaluation of the lessons of the Second World War on government even though prevailing public reticence made it hard for the country to respond very positively to further experiments at European integration. Nonetheless, neutrality was given a more universalist interpretation and the country entered into an increasing number of international relationships. With the European policy question being raised in Parliament, the Swiss began to adopt a more multilateral and structured approach to integration. Thus the government began to consider deals

Continuities within change 189 with essentially western bodies even though it would have preferred wider ranging arrangements. Economic policy also began to move beyond simply seeking the abolition of restrictions. Despite having signed up to CERN in 1953 the country soon found itself faced with a real challenge as the negotiations which led to the signing of the Treaties of Rome got under way. For the Swiss the idea of a partly political community based on only a few states, and involving a customs union, was a profoundly worrying development. This was not only because of neutrality, important as Ganser and Kreis show this was. For not merely did the idea of a new community seem to threaten Swiss interests but it could produce widespread trade discrimination. Hence it was opposed as early as 1956 and the authorities were highly critical, seeing it as a would-be super-state spawned by the Cold War and threatening an unsettling division of Europe. Overall it offended the underlying Swiss view of Europe being essentially a network of free nation states. For the Vorort, the EEC promised to be protectionist and dirigiste, not to say socialistic. It also threatened to obscure the dividing line between trade and political matters.6 So the government tried to harmonize the new proposals with the OEEC through a wider system of tariff cuts. It then strongly supported the idea of a Large Free Trade Area which emerged in late 1957 from the Maudling talks. As Dupont and Sciarini say, this was a period of mutual restraint in which the Swiss sought a multilateral solution to the question of European relations, rather than the existing isolation or assimilation into the EEC.7 And they were bitterly disappointed by both the British failure to push these and the eventual French veto in November 1958. Because the EEC was clearly going to be a reality, and one which the country could not, and would not, join, some other means of defence became necessary. There was great fear of being left outside the new tariff walls in Europe. This led the Swiss in January 1958 to suggest to the British that there could be a small free-trade area. Negotiations took place between December 1958 and June 1959 when a Convention was initialled at Saltsjöbaden in Sweden. This was then signed in Stockholm on 4 January 1960, with the Association coming into effect four months later. It was widely supported by business. Indeed Dupont and Sciarini say that the government chose it because, while it was economically less attractive than entry, it raised far fewer domestic hackles. For the Swiss authorities EFTA was a step towards a new entente with the EEC as well as a means of achieving free trade without customs harmonization. Unfortunately this did not immediately prove to be the case. To begin with, while the EEC did, in May 1960, offer negotiations on tariff cuts, these did not get anywhere. Then, in July 1961 the United Kingdom, the hub of EFTA trade, announced that it was opening membership negotiations, a decision followed by Norway and Denmark. This led the other three neutrals, Austria, Sweden and Switzerland, to respond to an earlier invitation from the EEC by floating the idea of a bilateral association type deal under Article 238 in December 1961. This was despite the fact that the government had rejected association in March 1960.

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However, the Community would only agree to an exchange of information and when, in September 1962, the government presented its conditions for association, nothing came of it. The Swiss sought guarantees for direct democracy, federalism and neutrality; freedom of action in adoption of future EC regulations, plus an Association Council and an arbitration body. The Community did not warm to this and, generally speaking, domestic opinion was not very welcoming either. Thus the Vorort was only partly supportive, concealing its reservations by playing up the threat to Swiss institutions. In any case the idea was vetoed by the French. The simultaneous failure of an Austrian application thereafter removed the idea of association from the agenda, leaving Switzerland to rely on EFTA as its main vehicle for dealing with the EEC and European trade. The creation of a new relationship EFTA did serve particularly well as a means of handling small state relations with the EU, particularly once the British lost interest in it. However, it was not enough. It had to be supplemented, on the one hand, by wider international trade negotiations such as the Dillon and Kennedy Rounds. These brought about substantial cuts in tariffs and aided relations with the EC. Over the next few years this led to agreements on watches, cheese and textiles, thus encouraging the processes of Europeanization. On the other hand, the country moved to a policy of more active engagement in European cooperation.8 To an extent this was made possible by the creation in autumn of 1961 of a new Integration Bureau, answering to the Foreign and Economics Ministries, which monitored Switzerland’s place in Europe. At the same time the country got its first academic centre of European Studies in the Geneva IUEE, again inspired by de Rougemont. It also reflected a new interest in Parliament in European involvement. This helped to produce Swiss entry into ESRO in 1962, acceptance of the European Convention on Human Rights the same year and then, in May 1963, entry into the Council of Europe itself, whose Consultative Assembly proved very useful. In 1966 the Swiss also finally signed up to GATT. Conversely, when the British made their second application in 1967, Switzerland did not follow the other EFTA countries in also requesting admission. And the insistence by the EC that tariff reductions should be seen as a step towards entry prevented progress on this front. However, the Swiss did support interim arrangements in the case of successful negotiations. It also accepted invitations to discuss matters of common interest with the EEC, along with other EFTA states. Things changed after de Gaulle stepped down and the Hague Conference committed the EC to a more dynamic and outward-looking stance. Faced with this there was much debate and uncertainty in Switzerland but the government decided it could not merely “wait and see” but had to exploit the opportunity opened up by the entry of the UK, EFTA’s largest member. With association

Continuities within change 191 and membership still excluded and the determination to maintain Swiss interests equally entrenched, a sui generis deal seemed the best possibility.9 In any case, Berne put out feelers and formal contact was made in November 1970 with the Swiss looking not only for an economic deal but to other arrangements with the possibility of evolution. Negotiations began in December 1971 and a deal was signed on 22 July 1972. It laid down a staged reduction of tariffs on manufactured goods over a five-year period. There were also rules on competition and safeguards, together with a clause allowing the agreement to be extended into other areas. However, to Swiss relief, agriculture was excluded. Given that this did not threaten Swiss sovereignty and institutions, it was widely supported inside the country, which welcomed the ending of a form of exclusion from the European Market. However, when it came before the people for ratification in early December 1972, it was still attacked by the left and the far right on grounds of immigration and independence. Despite this, it was approved by 72.5 per cent of those voting, and came into effect soon after. Their support was to seem well justified. This shows that wartime experience was being left behind. But, at the same time, the way was opening up for a new determining view of relations with Europe.

The golden years This was to come from the lessons of the free-trade era. For the next 15 years, the 1972 Agreement provided a sound and successful basis for Swiss relations with the EC. Thanks to it the country gained economically. It was also able to institutionalize what turned out to be increasingly close cooperation but without being forced to join or to abandon its pragmatic, piecemeal, and essentially economic, European policy. And this took place against a very supportive domestic political background. All this reinforced the doubts about political integration produced by the war, and allowed Europeanization to continue unchecked. Economically, the fact that Switzerland was in a single European market for manufactured goods helped to double its trade with the Community states. Some 72 per cent of its imports came from the Community and this received 56 per cent of its exports. EU trade became increasingly important, far eclipsing trade with the other EFTA states, and allowing Switzerland to become a major investor in the Community. Tourism, banking and technology all benefited from the connection. This was one of the factors that enabled the country to continue its Sonderfall by riding out the 1970s depression fairly successfully.10 Moreover, thanks to the evolutive clause Switzerland was able to engage in a whole series of technical agreements which created new opportunities for Swiss firms. By the late 1980s there were some 130 of these including deals on coal and steel, environment, information on nuclear waste, watches, textiles, motor insurance and patents. Moreover, the Swiss signed up to the European Conference of Ministers of Transport and to other bodies and programmes like COST. Conventions with the other EFTA states were also signed. All this not merely tied Switzerland more closely to the Single Market but

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again encouraged Europeanization.11 The share of its investments directed to the Community went up from 26 per cent to 71 per cent in the decade while its commercial exchanges also grew. At the same time EC rules and programmes made an increasing impact on Swiss life, both private and public. The many bilateral deals signed since the 1970s reinforced this trend and made close relations with the Community increasingly important. Europeanization in Switzerland involved not only sharing in common European problems but also the socialization of the elite, acceptance of EU rules, adapting structures and harmonizing legislation. Yet little of this was seen as presenting any real threat to Swiss sovereignty or economic interests. This was due not only to the nature of the 1972 agreements and the fact that, not only was EFTA consensual, but most dealings with the Community were more bilateral and not multilateral thus posing no threat to neutrality. Indeed it was the possibility of UN entry which began to concern the Swiss far right at this stage. Nor did it have any implications for relations between the country’s linguistic groups. It also rested on the fact that, for most of the period, the Community was taken up with its own internal problems, notably those arising from the depression. The EC’s consequent inactivity and the lack of significant applications for membership aided this stability, although when Portugal left EFTA it continued to receive development aid from its former partners. This led the Swiss to be concerned about stabilizing the Community, for instance in the monetary field, since its internal contradictions could make it hard to deal with. Hence, though accepting the EU as a legitimate economic partner, it remained somewhat patronizing about the Community and its problems. Moreover, thanks to the consolidation of EC relations over the years, the government came to see itself as enjoying “quasi membership”. This was based on its technical and economic involvement. Thus it was pointed out that Switzerland was probably the EC’s largest economic partner. In fact this rather over-estimated the strength of the Swiss position. Moreover, this deepening engagement was not made fully clear to the electorate. So, as Petitpierre argues, the latter still believed that the 1972 agreement had produced the best of all possible helveto-centric worlds.12 All this helped to reinforce the somewhat onesided idea of a “Sonderfall”. None of this happened all at once. Thus the free-trade area was only brought fully into being, as far as Switzerland was concerned, over the first five years after 1972. Not till then did all customs duties and quotas disappear leaving only those relating to Finnish entry to the agreement. It then shared in EFTA’s work on reducing technical barriers to trade. From then until 1983 there followed a period of consolidation during which attention switched to technical agreements, often second-generation ones. Once the last remaining customs duties went, EFTA and its members began to look for new ways of linking into the EC and its activities. Thus, in September 1983 the Federal Council made it clear that it wanted to move to more intensive cooperation, albeit with arbitration and, ideally, a share in decision making. This did not mean membership because, as the government

Continuities within change 193 told Parliament in January 1984, the political conditions of 1972 remained unchanged.13 Indeed, until 1988 the government continued to insist that EC entry was incompatible with the nature of the Confederation. Nonetheless, on 9 April 1984 there was a joint declaration on developing joint endeavours through the creation of what was called a dynamic and homogeneous “European Economic Space”, the nature of which was not defined though one assumption was that it would rest on equal rights.14 A follow-up programme embracing 15 fields was then agreed including public procurement and technical barriers. Matters such as rules of origin, nontariff distortions and services were also on the Swiss agenda. The hope was for a parallel development of EC–EFTA links with the completion of the Single Market. The Swiss also wanted more technological cooperation, such as that provided by EUREKA. In this they wanted the Community to take more notice of its smaller neighbours. The process did produce some fruits, notably the 1988 Single Administrative Document, for goods crossing borders, and the Lugano Convention on judicial cooperation. And, after the difficulties of the post-war years, such successes, along with the continuation of the Sonderfall, made a great impression on public opinion. The policies were largely unchallenged and the government did little to explain the problems arising from the fact that while EFTA had achieved its aims of stopping trade discrimination and marginalization, it had not succeeded in stopping integration moving from the economic to the political. This switch was bound to affect Switzerland given its increasing, but often overlooked, Europeanization.15

New directions and difficulties If the period following the 1972 agreement was good for Switzerland, the same cannot be said for the ensuing years, beginning in the late 1980s. Thanks, first to developments in European integration and then to wider geopolitical change, they were to be a time of acute policy problems and political division over the European issue. The success of the Golden Years encouraged old ways of thinking and made adjustment to new realities hard. So, while, at the start there were hopes of finding a new and more wide-ranging relationship with the EC, these were dashed by the defeat of EEA entry in 1992. The country was then forced back on to a bilateral track as the next two chapters show, but even this was contested, viscerally, confrontationally and through the media, with the focus shifting from technical to identity concerns. Faced with this, the government found it increasingly hard to cope. Transitional crises Initially, at the very time that the government was saying that there was no alteration in the post 1972 situation, and hence no need for policy change, the ground started to move beneath its feet. On the one hand, the European Community

194 Clive H. Church began to change rapidly and in a way which left Switzerland with few policy options. On the other, the break-up of the Soviet Empire changed the environment in which Swiss neutrality had operated. This opened an uneasy period of transition as the country struggled to agree new roles for itself.16 The problem which it had to face where the European Community was concerned was that the latter was expanding in three ways. Its membership was growing, as was its policy scope – notably with the Single Market and the Maastricht innovations – and its intensity of integration with moves to Qualified Majority Voting. In other words it became much more dynamic and confident, putting the so-called sclerosis of the past behind it. Hence the promises of the Luxembourg follow-up did not materialize and the EFTA states came to constitute something of a forgotten frontier as the Community forged ahead.17 Indeed, from 1987 on it made it clear that, much as it wished to see homogeneity in the European Market, it was not prepared to give up its decision-making autonomy, which could produce discrimination. All this made it much harder for Switzerland to exert the kind of influence it had always sought and called prevailing attitudes and policies into question, a point made also by Gstöhl. Many in the elite believed that a more positive policy would be required. So, as other contributors have noted, Parliament pushed the government to produce a Report on Integration in 1988.18 This tried to set out the new situation created by the EU’s new dynamism and to explain that there were no easy answers since all the possible mid-way options had their problems. The only alternative to the status quo was entry. And this would mean preparation and harmonization. At the same time it tried to produce a new sense of Switzerland belonging to Europe which would facilitate matters. Unfortunately, while the report was well enough received, this warming to the EU did not happen. Warnings of the costs of incrementalism were not taken seriously as previous scepticism about the EC, and over-confidence about present policies, made it hard for it to appreciate the new situation. This was despite a second report making this clearer still. Moreover the government found itself facing mounting, and well-organized, opposition from the far right. This was led by AUNS/ASIN, which emerged as the key Eurosceptic body, with its 43,000 members; a right-wing body which emerged in the course of the abortive first attempt to join the United Nations in 1986.19 Yet the government always underrated this populism and failed to find effective means of countering it. The fact that it had not, over the years, educated people in the realities of European policy came home to haunt it as Stämpfli’s discussion suggests. Things then seemed to improve when, in January 1989, Jacques Delors talked of the possibility of a global deal with the EFTA states involving shared decision making.20 This seemed to offer exactly what the Swiss wanted so, after consultation with its EFTA colleagues, they went along with it, confident it would provide real influence, à la carte exemptions and continuing economic independence. This was a mistaken assessment. Unfortunately, fairly early on this was shown to be unfounded because Delors had to retreat from the commit-

Continuities within change 195 ment to shared decision making as Community opinion was against it. As a result, led by Austria, the other states applied for entry. Not surprisingly the negotiations were long and difficult and almost broke down on a number of occasions, with the Swiss nearly walking out on 13–14 May 1991 over decision making. While this did not stop the signing of a transit agreement which committed Switzerland to spending some 15 billion CHF on new base tunnels so as to move traffic from road to rail, the outcome was far from what the Swiss had hoped. Hence, beginning on the night of 21–22 October 1991 when the EEA was finally agreed, the government switched to membership as a long-term aim. This decision seems to have been taken unilaterally at 3 am by the ministers negotiating, because the deal was an affront to Swiss sovereignty and only permissible in the short term. This radical switch may have been encouraged by the first poll showing 50 per cent in favour of EC entry and by the ease with which parliamentary approval of Eurolex had been achieved. Thereafter little was said about this, for the government and the major parties were divided. But, following a 55 per cent vote in favour of entry to the Bretton Woods institutions, the full government, as Ganser and Kreis show, finally took the plunge on 18 May, albeit only on a 4–3 majority. This was made public six days later when the formal application was submitted. The Federal Council then issued both a Message to Parliament urging acceptance of the EEA and accompanying legislation and, more significantly, a third Report on Integration.21 This was unusual in being a clear-cut justification of entry. It made it clear that the decision of principle had been taken in order to give the country more chance of defending its sovereignty and interests. All that remained was to convince public opinion. The problem was that the application complicated the campaign for ratification of the EEA. This was brilliantly exploited by an increasingly vociferous opposition led by the dynamic Christoph Blocher and his supporting organizations at a time when the government campaign was still very low key. The opposition stressed the threat posed by the EEA to Swiss institutions, independence and prosperity, playing on traditional dislike both of the Community and of foreign judges and workers, thus using ideas from the era of the war and, especially, the Golden Years. As Ganser and Kreis have already shown, neutrality was often prayed in aid to the cause. The opposition could also paint the EEA with the anti-EC arguments used by the establishment until the recent change of mind, claiming that those who supported this did so purely for their own profit. Tempers grew very frayed as the campaign was vigorously pushed forward. Not merely were supporters of the EEA won over but the very large numbers of the undecided increasingly came down on the “no” side. Pro EEA mobilization was much more limited and often complacent.22 Thus big business was slow in appreciating the problem and its last-minute intervention proved counterproductive. The government also over-estimated popular support for European integration, misreading related votations. Government publicity was hamstrung by demands that the Federal Council should not be too committed and by its failure to find a leader to match Blocher. The ambiguity of urging acceptance of

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a deal which it admitted was unsatisfactory and would lead to Community membership did not help. It allowed the opposition to portray the EEA as a defeat for Sonderfall and sovereignty. For AUNS it was a “colonial” treaty. Hence the government was defeated by 50.3 per cent to 49.7 per cent on 78.3 per cent turnout, the highest since 1947. The cantonal vote, in which a majority was also required, was 16–7 against. With the exception of the two Basles, the cantons favouring the EEA were all French speaking. The language divide was even more marked as minorities in mixed cantons voted with their linguistic allies. The French “yes” thus averaged over 72 per cent, while that in the German and Italian “no” cantons was only 28 per cent. This was basically because of a lack of faith in the establishment which brought out huge numbers of rural German speakers who rarely voted in normal circumstances but who felt very strongly about the issue.23 This “black day, heavy with consequence” left the government weakened at home and abroad. At home it lost the initiative and were forced back on to the defensive, attacked both by supporters and opponents of membership. The latter were increasingly well mobilized. The political spill-over from this shaped later Federal Council behaviour, making the latter fearful of further upsetting the populists, especially given the declining strength of pro-European feeling. Abroad, government reliability as a negotiating partner was questioned and ideas that Switzerland was a model for an integrating Community began to look increasingly unconvincing. So the attempt at a transition to a new “middle way” ended in defeat, and the crisis it engendered was to last for another decade. If this was not bad enough, the general conditions which had helped Switzerland to maintain its neutral position in Europe disappeared. The implosion of the Soviet Union and the ending of the Cold War, the unification of Germany and the “return to Europe” of the erstwhile satellites all changed the balance in Europe. This posed problems that only NATO and the EU were really capable of solving, Switzerland’s old role as a stabilizing force now counting for little. It also, as Ganser and Kreis show, called forth changes in armed neutrality. All this was very unsettling and caused a major rethink of basic foreign policy, neutrality and defence arrangements, something regarded askance by traditionalist insular public opinion, thus reinforcing unease over government policy

The aftermath The story of events after 6 December 1992, which froze the entry application and ushered Switzerland onto an uncertain bilateral road, is taken up by the following two chapters. Thus Dupont and Sciarini show how the first bilaterals arose from the immediate aftermath of “Black Sunday” and how these went on to achieve a surprisingly easy ratification, even when it came to the extension of the free movement provisions to the 2004 entrant states from eastern and southern Europe. However, Europeanization still continued as with the replacement of the planned “Eurolex” packet of legal approximations with a reduced package of changes more subtly known as “Swisslex”.24

Continuities within change 197 Moreover, even before the first bilateral process was concluded, Afonso and Maggetti show how new talks were launched to fill the holes left by the first bilateral package. These too were to secure ratification without undue difficulty, even though they included the sensitive question of joining the Schengen and Dublin Conventions. This was clearly due to the fact that the bilateral road satisfied a public opinion which was increasingly cool on formal integration. Buoyed by the post-war experience and the December 1992 crisis, the majority did not really warm to the argument put forward in the Federal Council’s 1993 Report which argued that security and prosperity demanded full international and European cooperation.25 Thanks to the mobilizing power of past values and events, opinion would accept technical deals and Europeanization but would go no further. And, in fact, a further report in 1995 accepted this and stressed the bilateral road. The 1999 report, moreover, was limited to providing data on the relationship with the EU.26 Indeed, despite the urging of people like Robin Cook and the forces of prointegrationism, the establishment was increasingly unable to push the case for closer ties faced with a new mobilization round the approaches of the past.27 The government’s own weak communications strategy made this harder. Thus it was unable to mount a sensible counter-project to the NOMES’ call for an immediate start to negotiations and found itself in the embarrassing position of calling on the public to vote down the idea of entry talks because the time was not ripe. This the public did on 4 March 2001, by 76.8 per cent to 23.2 per cent on a turnout of 55.8 per cent. This scepticism, which still drew greatly on the past, was reinforced both by the general elections of 1999 and 2003 and by the declining support for NOMES and similar bodies. It also drew both on the apparent success of bilateralism and on developments in the EU which a small state like Switzerland found unattractive, notably the treatment of Austria after Haider’s party entered government. Hence the government was forced to concede that there was no support for closer ties, even if the Social Democrats and, as Dardanelli shows, some of the cantons felt differently. So while, as Afonso and Maggetti show, ideas of a framework agreement with the EU bringing in existing understandings and possibly adding new ones, the past and its effects on majority opinion leave little room for manoeuvre.28 Attitudes have remained surprisingly consistent despite the changes both in the external environment and the country’s own evolving relations with Europe. This does not mean that there has ever been a simple popular and elite majority against any deals with the EU. In fact, overall, this continuing legacy from the past shows how complex European relations have been and how uncertain has been the Swiss position. When outsiders encourage Switzerland to continue its detached policies, which the Daily Telegraph and others think could serve as a model for themselves, they are often unaware of the difficulties in the bilateral road, the extent of Europeanization and the internal differences created by Europe.29 Thus few are aware of the continuing commitment to entry of the Social Democratic Party. In any case, much of this has been produced by the Swiss past which, on the one hand, has made neutrality a key influence on all

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external policies and, on the other hand, has promoted the development of a view of Swiss national identity as something dependent on shared institutions and practices. As in Denmark and Norway30 this produced a stress not on influence but on sovereignty. All this has induced more reticence towards outside involvement in the Swiss population, notably in German-speaking and rural areas. And this reticence has been stronger than pro-European opinion. At the same time it has constrained government attitudes and encouraged criticism of the EC. This, and the successes of the “golden age”, reinforced popular feelings and made it hard to justify new policy choices after 1989. Again, as in Denmark, popular opinion was not educated to appreciate the new challenges this meant and continue to think in the old ways, thanks to the legacies of the war and the Golden Years. Hence it blocked entry to the EEA. And the bruising effects of this and the defeat of the “Yes” initiative made the government even more aware of popular resistance. This path dependency hardened its negotiating tactics and led it to avoid raising the question of entry. Yet, at the same time, Europeanization was going on, often unrecognized by public opinion, creating more problems for government and business by tying the country into a market over which it had no real control. The continuities with the past often proved more influential than the changes of both environment and tempo. So the constraints caused by history remain essential to the context of Swiss policy making on Europe.

Notes 1 L. Goetschel, M. Bernath and D. Schwarz, Swiss Foreign Policy: Foundations and Possibilities, London, Routledge, 2005, pp. 13–26. 2 Ibid., pp. 63–78. 3 M. Ambuhl, “En plein Nazisme”, Le Temps, 3 December 2004, 12. 4 P. Dubois, “La Suisse face à l’intégration de l’Europe”, in R. Ruffieux and A.S. MorierGenoud (eds), La Suisse et son avenir européen, Lausanne, Payot, 1989, pp. 13–28. 5 The “Vorort”, literally “leading place”, was the nickname given to the Swiss employers’ organization, the Swiss Industrial and Commercial Union (now “Economie Suisse”). The term comes from pre-1798 Switzerland where three cantons (or Orte) took it in turns to act as a kind of executive for the Confederacy. 6 S. Gstöhl, Reluctant Europeans, Boulder, Col., Lynne Rienner, 2002, esp. pp. 80–1 and 130–9. 7 C. Dupont and P. Sciarini, “Switzerland and European Integration”, in J.E. Lane (ed.), Special issue of West European Politics 24/2, 2001, 215–19. 8 Federal Council, L’évolution de l’intégration européenne et la position de la Suisse. Message du Conseil Federal, 11 August 1971 (BBl/FF II 644), pp. 4–29. 9 Dubois, op. cit., pp. 23–4. 10 C.H. Church “The Political and Economic Development of Switzerland”, in M. Butler and M. Pender (eds), Rejection and Emancipation, New York/Oxford, Wolff/Berg, 1991, pp. 10–12. 11 C.H. Church, “The Swiss Elections of 1999”, West European Politics 23/3, 2000, 215–30. 12 R. Schwok et al., Le Rapport du Conseil Fédéral sur l’intégration européen; Une évaluation inter-disciplinaire, Geneva, Euryopa, 2000, p. 130.

Continuities within change 199 13 Quoted in Gstöhl, op. cit., 158. 14 This term was to re-appear a few years later in the negotiations which led to the creation of the EEA. This was initially called the “European Economic Space” because, so rumour has it, there was no native English speaker available in the EFTA HQ when the deal was done. It took Sir Geoffrey Howe to point out the fatuousness of the concept in English and to gain acceptance for the EEA. 15 A. Fischer, S. Nicolet and P. Sciarini, “Europeanization of a non-EU country”, West European Politics 25/4, 2002, 143–70; and “How Europe hits home: Evidence from the Swiss Case”, Journal of European Public Policy 11/3, 2004, 353–78. 16 C.H. Church, “Switzerland – The Europeanization of Neutrality and Security Policy: A Paradigm too far?”, in A.J. Williams (ed.), Reorganizing Eastern Europe, Aldershot, Dartmouth, 1994, pp. 158–78. 17 D. Wallis et al., Forgotten Enlargement. Future EU Relations with Iceland, Norway and Switzerland, London, Centre for Reform, 2002. 18 Federal Council, Rapport sur la position de la Suisse dans le processus d’intégration européenne, 24 August 1988 (88.045). 19 On the growth of Euroscepticism in Switzerland see T. Theiler, “The Origin of Euroscepticism in German speaking Switzerland”, European Journal of Political Research 43, 2004, 635–56 and Church, “Swiss Euroscepticism: Local Variations on Wider Themes”, European Studies 20, 2004, 269–90. Cf also “The Contexts of Swiss Opposition to Europe”, Sussex Opposing Europe Network Working Paper 11, 2003 available at www.sussex.ac.uk/Units/SEI/pdfs/wp64.pdf. 20 F. Laursen, “The Community’s Policy Towards EFTA”, Journal of Common Market Studies 28/4, 1990, 303–35. 21 Federal Council, Rapport sur la question d’une adhésion de la Suisse à la Communauté européenne, 18 May 1992 (92.053); see EEE, Adaption du droit fédéral, 9 October 1992 (92.057). 22 R. Sally, “The Basel Chemical Multinationals”, West European Politics 16/1, 1993, 561–80. 23 H.P. Kriesi, C. Longchamp, F. Passy and P. Sciarini, Analyse des votations fédérales du 6 décembre 1992, Adliswil/Geneva, GfS and University of Geneva, January 1993. 24 For Eurolex see EEE, Adaption du droit fédéral, 9 October 1992 (92.057). The Swisslex package is contained in Federal Council, Message sur le programme consécutif au rejet de l’Accord EEE of 24 February 1993 (93.100) 1993. 25 Federal Council, Rapport sur la politique extérieure de la Suisse dans les années 1990, 29 November 1993. 26 Federal Council, Presence et Cooperation: Rapport sur la politique exteriéure de la Suisse, 2000. 27 R. Cook, “A British View of Switzerland”, Tages Anzeiger, 10 October 1998. 28 T. Meyer, “Berne étudie un accord cadre avec l’Europe”, Le Temps, 20 June 2005, plus further articles on 6 and 21 September. 29 Cf G. Turner, “The EU? It’s political suicide to mention it in Switzerland”, News Telegraph, May 2004. But cf the point already made in the Introduction at note 13. 30 Cf C. Archer, Norway Outside the EU, London, Routledge, 2005; and T. Flockhart, “The Gap between Danish Mass and Elite Attitudes to Europeanization”, Journal of Common Market Studies 43/2, 2005, 251–72.

Bibliography M. Ambuhl, “En plein Nazisme”, Le Temps, 3 December 2004, 12. C. Archer, Norway Outside the EU, London, Routledge, 2005. S. Breitenmoser “Sectoral Agreements between the EC and Switzerland: Contents and Context”, Common Market Law Review 40, 2003, 1137–2003.

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C. Buchi, Röstigraben, Zurich, NZZ Verlag, 2001. T. Christin and A. Trechsel, “Joining the EU: Explaining Public Opinion in Switzerland”, European Union Politics 3/4, 2002, 415–43. C.H. Church, “The Political and Economic Development of Switzerland”, in M. Butler and M. Pender (eds), Rejection and Emancipation, New York/Oxford, Wolff/Berg, 1991, pp. 10–12. ——, “Switzerland – The Europeanization of Neutrality and Security Policy: A Paradigm Too Far?”, in A.J. Williams (ed.), Reorganizing Eastern Europe, Aldershot, Dartmouth, 1994, pp. 158–78. ——, “The Political Making of a New Island in Europe? Switzerland After 1995”, in J. Lovenduski and J. Stanyer (eds), Contemporary Political Studies 1995, London, Political Studies Association, 1995. Vol. I, pp. 378–85. ——, “Switzerland: An Overlooked Case of Europeanization?”, Queens Belfast Papers on Europeanization, 2000a/3, available at www.qub.ac.uk/ies/onlinepapers/poe.html. ——, “Swiss Elections”, West European Politics 23/3, 2000, 215–30 and 27/3, 2004, 518–34. ——, “Redefining Swiss Relations with Europe”, in M. Butler et al. (eds), The Making of Modern Switzerland, 1848–1998, Basingstoke, Macmillan, 2000, pp. 137–60. ——, “Swiss Euroscepticism: Local Variations on Wider Themes”, European Studies 20, 2004, 269–90. R. Cook, “A British View of Switzerland”, Tages Anzeiger, 10 October 1998. P. Dubois, “La Suisse face à l’intégration de l’Europe”, in R. Ruffieux and A.S. MorierGenoud (eds), La Suisse et son avenir européen, Lausanne, Payot, 1989, pp. 13–28. C. Dupont and P. Sciarini, “Switzerland and European Integration”, in J.E. Lane (ed.), special issue of West European Politics 24/2, 2001, 215–19. ——, “Catching the Train”, European Journal of International Relations 5/2, 1999, 189–224. Federal Council, L’évolution de l’intégration européenne et la position de la Suisse. Message du Conseil Federal, 11 August 1971 (FF II 644). ——, Rapport sur la position de la Suisse dans le processus d’intégration européenne, 24 August 1988 (88.045). ——, Rapport sur la question d’une adhésion de la Suisse à la Communauté européenne, 18 May 1992 (92.053); see EEE, Adaption du droit fédéral, 9 October 1992 (92.057). ——, Message sur le programme consécutif au rejet de l’Accord EEE, 24 February 1993 (93.100). ——, Rapport sur la politique extérieure de la Suisse dans les années 1990, 29 November 1993. ——, Presence et Cooperation: Rapport sur la politique exteriéure de la Suisse, 2000. A. Fischer, S. Nicolet and P. Sciarini, “Europeanization of a non-EU country”, West European Politics 25/4, 2002, 143–70. ——, “How Europe Hits Home: Evidence from the Swiss Case”, Journal of European Public Policy 11/3, 2004, 353–78. T. Flockhart, “The Gap between Danish Mass and Elite Attitudes to Europeanization”, Journal of Common Market Studies 43/2, 2005, 251–72. J.M. Gabriel and T. Fischer (eds), Swiss Foreign Policy, 1945–2002, Basingstoke, Palgrave, 2003. L. Goetschel, M. Bernath and D. Schwarz, Swiss Foreign Policy: Foundations and Possibilities, London, Routledge, 2005. S. Gstöhl, Reluctant Europeans, Boulder, Col., Lynne Rienner, 2002.

Continuities within change 201 ——, “Scandinavia and Switzerland”, Journal of European Public Policy 9/4, 2002, 608–700. L. Hansen and O. Waever, European Integration and National Identity, London, Routledge, 2003. H.P. Kriesi, C. Longchamp, F. Passy and P. Sciarini, Analyse des votations fédérales du 6 décembre 1992, Adliswil/Geneva, GfS and University of Geneva, January 1993. S. Kux “Switzerland: Adjustment Despite Deadlock”, in K. Hanf and B. Soetendorp (eds), Adapting to Europe, London, Longman, 1998, pp. 167–85. S. Kux and U. Sverdrup, “Fuzzy Borders and Adaptive Outsiders”, European Integration 22, 2000, 237–70. J.E. Lane (ed.), The Swiss Labyrinth, London, Cass, 2002. F. Laursen, “The Community’s Policy Towards EFTA”, Journal of Common Market Studies 28/4, 1990, 303–35. S. Lavenex, “EU External Governance in ‘wider Europe’ ”, Journal of European Public Policy 12/4, 2004, 608–700. A. Lazowski, “European Union and Switzerland: Inevitable Partners? A Legal Appraisal”, Paper presented to UACES 35th Annual/Research Conference, Zagreb, 5–7 September 2005 and now in press. A. Mach, S. Haüsermann and Y. Papadopoulos, “Economic Regulatory Reform in Switzerland: adjustment without European Integration”, Journal of European Public Policy 10/2, 2003, 301–18. J. Pilet, “Les mensonges de la campagne électorale”, Le Temps, 16 October 2003, 15. R. Ruffieux and A.S. Morier-Genoud (eds), La Suisse et son avenir européen, Lausanne, Payot, 1989. R. Sally, “The Basel Chemical Multinationals”, West European Politics 16/1, 1993, 561–80. R. Schwok, N. Levrat and Y. Fricker, Le Rapport du Conseil Fédéral sur l’intégration européen; Une évaluation inter-disciplinaire, Geneva, Euryopa, 2000. P. Sciarini and O. Listhaug, “Single Cases or a Unique Pair? The Swiss and Norwegian ‘No’ To Europe”, Journal of Common Market Studies 35/3, 1997, 407–35. T. Theiler, “The Origin of Euro-scepticism in German speaking Switzerland”, European Journal of Political Research 43, 2004, 635–56. G. Turner, “The EU? It’s political suicide to mention it in Switzerland”, News Telegraph, May 2004. U. Wagschal, D. Ganser and H. Rentsch, Cavalier Seul: La Suisse dix ans après le non du 6 Décembre, Geneva, Labor et Fides, 2003. D. Wallis, S. Arnold and B. Idris Jones, Forgotten Enlargement. Future EU Relations with Iceland, Norway and Switzerland, London, Centre for Reform, 2002.

11 Back to the future The first round of bilateral negotiations with the EU Cédric Dupont and Pascal Sciarini

The conclusion of the European Economic Area Agreement granted members of the European Free Trade Association privileged access to European Union markets. The Swiss government, however, experienced a severe setback when, as we have seen, a popular vote rejected EEA membership. With most of its EFTA partners entering the EEA and clearly heading toward even more integration with the EU with their bids for accession, Switzerland could not afford to confine itself to a wait-and-see position that could end up in economic discrimination and political isolation. Facing a strongly Eurosceptic public opinion, the only alternative that the Federal Council could pursue was to seek tighter links with the EU through a series of bilateral sectoral agreements. Clearly, this strategy was not optimal because it would not bring a long-term economic solution and left Switzerland with no political say. However, it was the only one that would reduce “Switzerland’s isolation”1 and that was compatible with the domestic context. Furthermore, the bilateral approach had the advantage to be familiar to Swiss political and economic actors alike, given that it was the strategy used from the late 1960s to the late 1980s, as Church has shown in the preceding chapter.2 In January 1993, the Federal Council submitted to the EU a list of 15 issues that could be put on the negotiation agenda. Fearing that Switzerland would use the bilateral talks to have its cake and eat it, the EC made it clear from the outset that it would refuse a piecemeal approach, and that it would modify and reduce the number of issues. The General Affairs Council picked only five issues (public procurement, technical barriers to trade, research, road transportation and air transportation), and added two other issues of particular interest to some member states (agriculture and the free movement of persons). In addition, the EU insisted on the “parallelism of the talks”, i.e. that any agreement (both for signature and ratification) on a given topic was dependent on the acceptance of an agreement in the other issue areas. Thus, if one element was rejected by the Swiss, the whole package would fall. Given the EEA experience, the EU wanted to protect itself against a possible new popular rejection that would hurt the overall balance of concessions. Negotiations started in December 1994 and ended, after a painful process, in December 1998 leading to the signature of the seven agreements in Luxembourg on 21 June 1999. Although Switzerland had to make several concessions, going back to the “old” recipe of bilateralism turned

Back to the future: bilaterals I 203 out to bring to Switzerland decent, second-best, results in its relationship with the EU. As we will demonstrate, the combination on the Swiss side of sound negotiation tactics at the international level and intensive domestic corporatist efforts helped to achieve such an outcome. This chapter focuses on the negotiation dynamics of the two most difficult issues, namely, road transportation and the free movement of people. We start in the next section with the discussions on road transportation and then turn to the free movement of persons. We next provide an overview of the content of the five other issues. Finally, we shed some light on the ratification process of the bilateral agreements, which resulted in two positive popular votes: the endorsement of the first set of bilateral agreements by two-thirds (67.2 per cent) of the Swiss people on 21 May 2000, and the acceptance of the extension of the agreement on the free movement of persons to the new EU member states by 56 per cent of the Swiss people on 25 September 2005.

Negotiations on road transport Prior to the bilateral talks, the issue of transport by road had already been a matter of intense negotiations between Switzerland and the EU in parallel with talks on the EEA.3 At the end of those negotiations in November 1991, the Swiss government, in contrast to the case of the EEA,4 considered that it had achieved a major diplomatic success. The so-called Transit Agreement [TA] gave priority to the rail for North–South transit across the Alps. It also endorsed the 28-ton limit for lorries on Swiss roads, and the ban on driving at night and on Sundays. In exchange Switzerland committed itself to improving its railway infrastructure, and, especially, to building new tunnels deep under the Alps. After the rejection of the EEA treaty, a re-launch of the talks on transportation was required both because the TA stated this was so at Article 13 and because Swiss transportation firms (in particular Swissair) badly needed better access to the European market.5 However, the – unexpected – acceptance of the Alps Initiative [AI] by the Swiss people in February 1994 put the whole process on hold. The initiative aimed at protecting the Alps from road traffic damage with highly constraining measures, such as the complete transfer of North–South traffic from road to rail after ten years. The EU Council of Ministers for Transport eventually gave its green light to new negotiations with Switzerland on road transportation in March 1995. Negotiations quickly reached a stalemate. Thus, in line with the negotiation mandate delivered by the Transport Council, EU Commissioner Hans Van der Broek claimed that the access to the Swiss territory for member states’ 40-ton lorries was a precondition for a successful negotiation. For the EU, the costs of the traffic diversion caused by the 28-ton limit were simply too high. Severely constrained domestically,6 the Swiss government swiftly rejected this proposal. In a speech to the European Parliament in April 1995, Federal Councillor Adolf Ogi emphasized that the 28 tons was the centrepiece of the Transit Agreement, and that it could not be renegotiated.

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With the positions stuck on both sides, the possibility of road transport blocking the whole set of bilateral talks became an increasing concern, especially for Switzerland. Yet it was difficult for the Swiss government to break the deadlock without appearing to go beyond what was acceptable at home. The publication by the EU Commission of a Green Book on transport opened a new fiscal perspective on the issue.7 Switzerland introduced the fiscal dimension in the talks through a new offer. The proposal included, for the first time, the gradual removal of the 28-ton limit (34 tons from 2001, 40 tons from 2005) on lorries crossing Swiss alpine roads.8 In compensation, however, the Swiss would use fiscal incentives to address environmental externalities, to prevent a surge of transiting lorries and to support the transfer of transalpine heavy goods traffic from the road to the railway. Hence this new proposal had the double merit of addressing domestic environmental concerns – including the implementation of the AI – and the EU demands for an end to the 28-ton limit. The EU welcomed this new proposal and the negotiation dynamics accelerated sharply. Yet talks stumbled again due to a divergence on the size of fiscal (dis)incentives to Alpine transit by road.9 Switzerland insisted upon a levy of 600 Swiss francs for a one-way North–South crossing of its territory. Drawing on estimates from economic experts, the Swiss government argued that a lower tax would not result in any significant transfer from road to railway and therefore would fall short of the objectives stemming from the Alps Initiative. For the EU, any charge higher than 200 euro, roughly 325 CHF francs, would be an unfair burden on European carriers and would create costly traffic diversions through Austria or France. However, after a long period of stalemate, the Swiss started to show signs of flexibility. This led progressively to a new agreement on 23 January 1998. This provided that crossing Switzerland would cost 325 CHF on a weighted average. But, in return, Switzerland got the right to invoke a unilateral fiscal safeguard clause in case of excessive inflow of EU lorries after 2005.10 In short, negotiations on road transport revealed the importance of the parallelism requirement for the EU. In contrast to the 1991 TA, Switzerland had had to abandon its ban on lorries over 28 tons and then to accept a transit tax much lower than it desired. Yet, by introducing the fiscal dimension into the discussions, Swiss negotiators managed to get a deal that should prevent a massive inflow of EU lorries. They were thus able to reach an international agreement which would not jeopardize the implementation of constraining pieces of domestic legislation.

Negotiations on the free movement of persons It was the EU which brought the free movement of persons to the negotiation table. There were clear reasons behind this demand. First, the free movement of persons was a major achievement of the European Union and had become a cornerstone of the acquis communautaire. Switzerland’s immigration policy, by contrast, was restrictive in nature and rested on the strict control of immigration through a system of quotas and permits (of abode, of permanent residence and of

Back to the future: bilaterals I 205 seasonal employ).11 Swiss policy had remained restrictive toward EU member states despite repeated attempts by the Union to have Switzerland participate in the completion of the free movements of workers on the continent.12 This was not, as Koch and Lavenex have shown, because the Swiss are inherently more xenophobic than others but because of size of the Swiss foreign population and the existence of strong political forces demanding further tightening of labour controls. The issue was at the heart of the EEA negotiations. Initially, Switzerland tried to avoid the implementation of the free movement of persons and asked for a permanent derogation to this rule. It ultimately gained only a temporary fiveyear derogation during which any barrier to the free movement of persons should be progressively removed. Fear of an uncontrolled inflow of foreign workers that would threaten Swiss jobs was a major issue during the referendum campaign on the EEA agreement.13 After the popular rejection of the agreement, the mobility of persons came again in the spotlights during the bilateral talks.14 The issue included three distinct subtopics: the free movement of persons, the mutual recognition of diplomas and the coordination of social security systems. We focus here on the most important issue, namely the free movement of persons. On the basis of the negotiation mandate adopted by the General Affairs Council on 31 October 1994, the Commission opened the negotiations by requesting that Switzerland adopt all the relevant provisions of the EEA agreement. These included the abolition of working permits, the right of abode for EU citizens, and equal treatment between EU and Swiss citizens. The Commission then repeatedly stated that the final agreement should include provisions for the complete freedom of movement of persons. Arguing that the removal of the system of permits and quotas would lead to a rejection in a popular vote, the Federal Council opposed any “automatic” introduction of the free movement of persons. It suggested a gradual approach, with initially only qualitative improvements of the rules applying to the 800,000 or so EU citizens living or working in Switzerland.15 When this met with continuing opposition by the EU, Switzerland tried, as a counterproposal, to postpone the negotiation on the free movement of persons after a transitory period of three years. The EU flatly refused. It insisted on an immediate agreement on the principle of the freedom of movement with the abolition of quotas at the end of the transitory period. The first two years of negotiations hence turned into a dialogue of the deaf. This time it was the EU which was the first to show some flexibility. It slowly came round to the gradual approach suggested by Switzerland, while taking a firm negative stance on new negotiations after the transitory period. This eventually led the Swiss Federal Council to revise its negotiation mandate and to agree the principle of the free movement of persons, albeit with a safety net. After several rounds of discussion, positions progressively converged on a sophisticated system that enabled each negotiating partner to claim the final agreement as a bargaining success. According to the deal concluded on 2 December 1996,

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Switzerland gained transitional periods and provisions ensuring the progressive opening of labour markets (priority for indigenous workers, quotas, safeguard clause), as well as the possibility of terminating the agreement after seven years through a popular votation. Using this possibility, however, would be very costly because a rejection would terminate all the other bilateral agreements. For its part, the EU won recognition of the principle of the free movement of people, for an initial trial period after 2007 and then without restrictions after 2014. In all countries party to the agreement (Switzerland and EU member states), both employed and self-employed workers gained the right to settle and undertake paid work. This opening up of labour markets was accompanied by the mutual recognition of diplomas and coordination of social security systems. According to the agreement, persons without paid work may also benefit from the right to settle, as long as they have health insurance coverage and sufficient financial means of their own. On the Swiss domestic level, and well before the negotiations with the EU had been concluded, a tripartite task force comprising “social partners” (peak employers’ associations and trade unions) and state representatives was created. In confidential negotiations, the members of this task force agreed on flanking measures that aimed at protecting Swiss workers against wage and social dumping. In case of repeated and abusive salary under-cutting, the measures provide for a facilitated extension of collective labour conventions and for a compulsory application of minimal wages specified in standard labour contracts. These measures are intrinsically linked to the bilateral agreement on the free movement of persons, as a result of a strategy of the unions. Knowing that the Swiss economy desperately wanted the bilateral agreements, the unions threatened to sabotage the whole package by a referendum challenge unless a safety net against social dumping was adopted in the free movement of persons. This strategy proved very successful and resulted in legislative innovations that the unions would have been unable to get in a purely domestic setting.16 As we have already demonstrated, the agreement which came into force on 1 June 2002 largely reflects a gradualist approach to liberalization. We summarize the transitional provisions and the development of the agreement below:17 1

2

As from 1 June 2002: During the initial transitional period of two years, the principle of national priority (priority for indigenous workers) and the prior control of pay and working conditions remained valid. At the same time Switzerland every year, until 31 May 2007, grants 15,000 long-term residence permits (five years) and 115,500 short-term residence permits (one year maximum) to EU citizens. These quotas will continue to apply until 2014 in the event of large-scale immigration (“safeguard clause”). As from 1 June 2004: Abolition of the principle of priority for indigenous workers, and abolition of prior control of pay and working conditions. On the Swiss side, this opening is accompanied by measures to protect Swiss workers against social dumping. From that date on, the EU applies the free

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3

4

5

movement of persons to Swiss citizens while Switzerland continues to restrict entry through quotas. As from 1 June 2007: Experimental introduction by Switzerland of the free movement of persons with the abolition of quotas for citizens originating from the 15 old EU member states. In the event of a massive influx of EU workers (i.e. where fluctuation is greater than 10 per cent of the average for the last three years), Switzerland can unilaterally reintroduce quotas for a period of two years. This safeguard clause remains valid until the twelfth year, or until 2014. After seven years (2009): Switzerland can decide whether the agreement should continue. This will be a federal decision subject to an optional referendum challenge. As from 1 June 2014: Full and unlimited implementation of freedom of movement of persons by Switzerland.

The extension of the Agreement on the Free Movement of Persons to the new EU member states With the enlargement of the EU to ten new members on 1 May 2004, the bilateral agreements between Switzerland and the EU were automatically extended to the new member states. The exception here was the agreement on the free movement of persons because it was a composite agreement, that is to say it was concluded between Switzerland and both the EU and its 15 member states individually. For this reason, extension of the agreement to the new EU member states was not automatic and required new negotiations. On 26 October 2004 these resulted in a protocol to the original agreement that established a transitional system until 30 April 2011, in a similar way to the regulation currently in force within the EU between the 15 old EU member states and the ten new ones. During this period of transition, restrictions on access to the labour market (priority for indigenous workers, wage control) can be maintained. At the same time, Switzerland will apply annual quotas on residence permits, these quotas being gradually increased on an annual basis. This system of transition will enable a gradual and controlled opening of the Swiss labour market to citizens of the new EU member states. In parallel to this agreement, the social partners agreed on the revision of the flanking measures on wages and social dumping. Building on their successful demands in the first negotiations on the free movement of persons, trade unions again used the threat of referendum and of a campaign of opposition to get additional protective measures. They again won their case. The Federal government agreed to hire 150 additional central work inspectors to monitor the implementation of accompanying measures (working conditions and wages). Furthermore, it will be easier to make collective labour conventions compulsory. Foreign employers will be more heavily sanctioned in case of abusive practices, both with fines going up to 1 million CHF and with possible exclusion from the Swiss labour market.

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Overview of the five other bilateral treaties The content of the other five bilateral treaties can be summarized as follows.18 Technical barriers to trade The agreement establishes the mutual recognition of product conformity checks (tests, inspections, certificates, authorizations, etc.) and therefore eliminates a major non-tariff barrier to the trading of most industrial products. Public procurement markets Switzerland and the EU extend to each other the coverage of the multilateral World Trade Organization 1996 agreement on public procurement markets. It does so in two ways: (a) whereas the WTO agreement subjects the Confederation and the cantons to WTO rules on both invitations to tender and on awarding for contracts for goods, services and construction projects, the bilateral agreement extends the scope of application to the communal level. In return, the EU grants Switzerland the full application of the challenge procedure in front of EU tribunals; (b) whereas the WTO agreement covers the water, urban transport and energy sectors, the bilateral agreement extends it to the telecommunication and rail transport sectors and even to private companies working on the basis of delegated public rights. Agriculture The agreement calls for the elimination of non-tariff barriers to trade such as veterinary and phytosanitary protection and for a reduction of customs duties. Those reductions apply to a list of sensitive products including Swiss dairy products and cheese, and fresh EU produce such as fruit and vegetables. Free trade for cheese will come into effect on 1 June 2007. As regards fruit and vegetables, Switzerland grants concessions during the period when there is no harvesting (winter season) and for foodstuffs that are not produced in Switzerland or which are only produced in small quantities (e.g. olive oil). On the other hand, fresh meat, wheat and milk do not benefit from the reduction in customs duties. Civil aviation The agreement provides for a mutual open access to each party’s air transport sector. This means for instance that air carriers from both parties are granted traffic rights between any points between the two parties. Two years after the entry into force of the agreement, Swiss carriers would have the right to fly between points in different EU states (cabotage) and not just from Switzerland to EU airports.

Back to the future: bilaterals I 209 Research Switzerland becomes an associate member of the EU framework programmes. Swiss researchers and research institutions benefit from the same rights of participation as their colleagues in the EU member states. The agreement is renewable along with the evolution of framework programmes (extension to the sixth programme in 2004).

The ratification processes These were twofold. First, there was the initial Swiss parliamentary and popular approval of the new deal. Second, there was the ratification of the extension of the free movement provisions to the ten new member states which joined the EU. At the same time it is worth noting that the Swiss rules on transalpine levies and policy were also approved. Had this not been the case the bilaterals might not have been so successful. The bilateral agreements In Switzerland the bilateral agreements got strong support during the ratification debate in the Swiss Parliament: they were unanimously accepted in the Council of States (upper Chamber), and also enjoyed across-the-board support in the National Council (lower Chamber) – 183 yes against 11 no.19 Only the small far-right parties (the Swiss Democrats and the Lega dei Ticinesi) opposed the bilateral agreements. They were nevertheless able to challenge the agreements by referendum and to force a popular vote, giving the last word to voters.20 But they then proved unable to wage a major campaign. In contrast, economic actors, eager to avoid the costly mistakes of the EEA campaign, started their communication campaign very early on. Seeking to increase public awareness on bilateral agreements, they started to finance supporting advertisements in major newspapers even before the agreements had been concluded.21 Similarly, supporters of the agreements began the referendum campaign six months ahead of the vote, waged an intense campaign22 and made more efforts to coordinate their efforts than in 1992 under the leadership of “Economiesuisse”, the peak association of the Swiss economy. Satisfied with the flanking measures on the free movement of persons, the labour unions also contributed actively to the “yes” campaign. Among parties, all four governmental parties recommended a yes vote to the bilateral agreements although the Swiss People’s Party was actually heavily divided on the issue. More than half of the cantonal sections of the party, including the major Zurich section, thus recommended a “no” vote. Hence the SVP did not take an active part in the referendum campaign. The other political actors fighting against the agreements had few resources and were weakened by the non-campaign of the isolationist AUNS. As a result, they were never able to have an impact on the campaign dynamics and were

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heavily defeated in the votation. So, as has been pointed out earlier in the book, the agreements were accepted in May 2000 by more than two-thirds of voters (67.2 per cent) on a 48 per cent turnout. As revealed by the survey carried out after the popular vote (the so-called “Vox survey”), an unusually high proportion of voters (60 per cent) had already made a firm choice six weeks ahead of the vote.23 The analysis also shows that the driving reasons for “yes” voters were a general desire to open the country, the specific advantages brought by the agreements, as well as a willingness to develop tighter relationship with the EU.24 On the “no” side, the dominating concern was the fear created by the free movement of persons, followed by a general aversion to developing closer relationships with the EU. Moreover, the analysis points to the importance of ideological factors: support to the agreements increases from 37 per cent to 90 per cent as one moves from the extreme right to the left on the left–right scale.25 Among sociological factors, education, income, age and urbanization also turned out to be consistent predictors of the voting choice. Unlike the vote on the EEA, however, the vote on the bilateral agreements did not give rise to a linguistic cleavage between the French-speaking and German-speaking cantons. Only the Italian-speaking minority took a difference stance by strongly rejecting the bilateral agreements (57 per cent no). Ratification of the agreements took more time on the EU side due to the necessity to have both the Council of Ministers and the member states endorse the agreement. Ratifying the extension of the Agreement on the Free Movement of Persons During its 2004 winter session, the Swiss Parliament approved the additional protocol to the Agreement on the Free Movement of Persons, together with the extension of the flanking measures on wages and social dumping. Both bills were combined in a single federal decree that was subject to an optional referendum. The small far-right parties (Swiss Democrats and the Lega dei Ticinesi) again challenged the act and were able to call for a popular vote on the agreement. Polls conducted a few weeks before the vote revealed a clear lead of the “yes” camp, albeit with a high number of “don’t knows” (more than 10 per cent). This was worrisome given that, with previous votations on foreign policy issues, the “don’t knows” had tended to massively rally to the no side, showing a strong status quo bias. That did not happen this time and the extension was accepted on 25 September 2005 by a clear majority of Swiss voters (56 per cent “yes” on a high turnout of 53.8 per cent). We see two main reasons behind this solid majority. First, the social partners (employers and trade unions) joined forces during the campaign, thanks to the concessions granted by the employers to trade unions through the flanking measures. Only a small fringe of unions, on the extreme left of the political spectrum, in the French-speaking part of the country (in Geneva in particular), opposed the agreement. Second, the leading traditional opponent of a deepening of links with

Back to the future: bilaterals I 211 the EU, that is, the SVP, did not adopt any clear position. This was due to a split within the party as several key actors closely related to economic circles endorsed the agreement. This was the case of its charismatic leader, and now Federal Counsellor, Christoph Blocher. The vote also confirmed the narrowing of views between the French-speaking and German-speaking parts of the country. The only clear differentiation again came from the Italian-speaking canton, Ticino, with a strong rejection of the agreement. Lastly, large cities voted massively in favour of the agreements as well as smaller cities, something quite unusual. According to the Vox survey carried out after the popular vote on the extension of the Agreement on the Free Movement of Persons, the willingness to open the country was again the main reason for putting a yes vote in the ballot.26 The economic advantages associated with the agreement came only second. In the no camp, by contrast, economic considerations – and more especially the fear of a massive inflow of migrant workers and a related rise in unemployment and wage dumping – were the main reasons for casting a no vote. As with the votation on the bilateral agreements, supporters of left and right parties again expressed opposing views on the issue at stake. Similarly, a high share of loweducated voters opposed the extension of the free movement of persons, whereas highly educated voters strongly supported it.

Conclusions The ratification in two different popular votations of the first series of bilateral treaties with the EU came as a relief to the Swiss government. The agreements essentially preserve Switzerland from economic marginalization on the European continent. Furthermore, they came at a reasonable price. In particular, on sensitive issues such as the free movement of persons and road transportation, as well as on agriculture, Switzerland gained both safeguard measures and a gradual opening up of its market and territory. It thus seems that the Swiss government successfully managed the difficult exercise of giving concessions to the EU while preserving sufficient domestic support. As this chapter has shown, success required both a tactical aptitude at the negotiation table and a corporatist effort domestically. Facing an EU with rigid positions, Swiss negotiators either tried to enlarge the negotiation agenda or strived to obtain gradualism in the process of liberalization. In return, EU positions tended to soften so as to be politically acceptable. Domestically, the government anticipated difficulties, particularly on the question of the free movement of persons. It had no illusion that gradualism could be the most that it could get from the EU and did not try to send another message to social partners. To get the support of those who may face losses to the opening of the Swiss labour market, the government set up and steered a tripartite negotiation process that included employers and labour unions. The committee designed a system of compensation and protection for Swiss workers. This being said, the first series of bilateral agreements remains a second-best option for Switzerland. In terms of achievement, they do not bring more than the

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EEA and yet come ten years later and with little or no prospect of endogenous evolution. Moreover, gradualism with safeguards endangers the stability of the agreements. In case of serious pressure on the Swiss labour market that would trigger a call for a new referendum (as envisaged in the agreement of the free movement of persons) a hostile domestic public opinion could through a vote on one issue put an end to seven agreements. As such, bilateral agreements remain short-term instruments that respond to economic necessity and domestic political expediency.

Notes 1 Riklin, “Isolierte Schweiz. Eine europa- und innenpolitische Lagebeurteilung”, Schweizerische Zeitschrift für Politische Wissenschaft 1/2–3, 2005, 11–34. 2 See also C. Dupont and P. Sciarini, “Switzerland and the European integration process (1950–2000): Engagement without Marriage”, West European Politics 25/2, 2001, 211–32. 3 C. Dupont, Domestic Politics, Information and International Bargaining: Comparative Models of Strategic Behaviour in Non-Crisis Negotiations, Genève, IUHEI, 1994. 4 C. Dupont, “Succès avec la SDN, échec avec l’EEE? Résistances internes et négociation internationale”, Annuaire suisse de science politique 32, 1992, 249–72; P. Sciarini, “La Suisse dans la négociation sur l’Espace économique européen: de la rupture à l’apprentissage”, Annuaire suisse de science politique 32, 1992, 297–322; C. Dupont, D. Lutterbeck and P. Sciarini, “Catching the EC Train: Austria and Switzerland in Comparative Perspective”, European Journal of International Relations 5/2, 1999, 189–224. 5 M. Maibach et al., Schweizerische Verkehrspolitik im Spannungsfeld der Aussenpolitik: Fallbeispiel 28-Tonnen-Limite, NFP 42, Working Paper No. 2, 1998, p. 48; Conseil fédéral, Message relatif à l’accord sur le transit conclu entre la Communauté européenne et la Suisse, ainsi que sur l’accord triangulaire entre la République fédérale d’Allemagne, la Suisse et l’Italie sur le trafic combiné rail/route, 13 May 1992, p. 1015. 6 Green activists, including the authors of the Alps Initiative, had repeatedly claimed that the suppression of the 28-tonne limit would be a casus belli. 7 European Commission, Green Paper – Towards Fair and Efficient Pricing in Transport Policy – Options for internalising the external cost of transport in the European Union, Brussels, 691, December 1995. This report estimated the transportationrelated costs not borne by those who generate them. Each year, traffic jams cost the EU roughly two points of GDP, accidents 1.5 points and air pollution and noise 0.6 points of GDP. This amounts to a total of roughly 250 billion Ecus per year, with over 90 per cent due to road transport. The yield from fiscal charges levied on vehicles falls well short of these costs. 8 The proposal acknowledged that the 40-tonne limit was justified in both economic and ecological terms. Fewer 40-tonne lorries and fewer journeys will actually be needed in future to transport the same amount of freight than would be the case for 28-tonne vehicles. 9 C. Dupont, C. Eggli and P. Sciarini, “Entre cohérence et efficacité. La Suisse dans les négociations bilatérales avec l’Union européenne”, Revue suisse de science politique 7/4, 2001, 5–37. 10 This clause would allow Switzerland to increase to up to 12.5 per cent and up to one year the amount of 325 Swiss francs. An extension beyond one year would need the approval of the EU as well (Journal de Genève 26.1.1998). 11 The legal foundation of the Swiss immigration policy was a constitutional article

Back to the future: bilaterals I 213

12 13 14 15 16

17 18 19

20

21

22

23 24 25 26

adopted in 1925 and the derived law adopted in 1931. Permits of abode were limited in time (renewable) and normally allow foreigners to take up a particular job. These permits were subjected to quotas and the employer needs to prove that he/she cannot find any Swiss citizen for a given job. As a result, an employee benefiting from a permit of abode was not able to change job or to move to another canton without permission from the authorities. Permits of permanent residence give foreigners a status similar to the one of Swiss citizens, except for political rights. Seasonal permits, finally, were given to migrant workers in jobs such as construction, tourism, etc., and are limited to a maximum of nine months with a three-month leave requirement. In addition, a seasonal worker was not allowed to bring his/her family along. For a further explanation of the Swiss policy context see Koch and Lavanex earlier in this volume. Access to the Swiss labour market has been a special concern for EU southern countries (Italy, Spain and Portugal), since they are among the most important providers of the Swiss foreign workforce. H.P. Kriesi, C. Longchamp, F. Passy and P. Sciarini, Analyse-Vox de la votation fédérale du 6 décembre 1992 sur l’EEE, Genève/Zürich: Département de Science Politique/GfS-Forschungsinstitut, 1993. Dupont, Eggli and Sciarini, op. cit. For instance, the Swiss government proposed to abolish the statute of seasonal worker and to replace it with one-year working permits. A. Fischer, S. Nicolet and P. Sciarini, “Europeanization of a Non-EU Country: The Case of Swiss Immigration Policy”, West European Politics 25/4, 2002, 143–70; A. Fischer, “Wirtschaftsverbände, Gewerkschaftsstärke und Interessengegensätze der Arbeitgeber: Der Fall der flankierenden Massnahmen zur Personenfreizügigkeit”, Schweizerische Zeitschrift für Politikissenschaft 8/3–4, 2002, 85–100. www.europa.admin.ch/ba/expl/factsheets/e/personenverkehr.htm; Official Journal of the European Communities, L114, 30 April 2002. See www.europa.admin.ch/ba/expl/uebersicht/e/index.htm. Accompanying measures were more controversial. Whereas the National Council discussed the bilateral agreements in one day, discussions over the accompanying measures regarding the free movement of persons, agricultural products and railway traffic lasted five days. In Switzerland, all federal laws or similar legislative acts adopted by the national Parliament are submitted to the optional referendum: By collecting 50,000 signatures of citizens within 100 days against a law, a group may call for a final decision by the people. T. Oberer, “Die innenpolitische Genehmigung der bilateralen Verträge Schweiz-EU: Wende oder Ausnahme bei aussenpolitischen Vorlagen? Analyse der Argumente und Strategien in Genehmigungsverfarhen und in der Referendumskampagne”, Basler Schriften zur europäischen Integration 52/53, 2001. According to an analysis of the surface of campaign advertisements in six daily newspapers (Neue Zürcher Zeitung, Blick, Tages Anzeiger, Le Temps, Le Matin, Tribune de Genève) during the four weeks preceding the vote shows the strong dominance (60 per cent of total surface) of advertisements supporting the yes. H. Hirter and W. Linder, Analyse Vox de la votation fédérale du 21 mai 2000 sur les accords bilatéraux avec l’Union européenne, Berne, GfS Forschnungsinstitut/Université de Berne, 2001, p. 13. Ibid., p. 19. Some 89 per cent of followers of the Social Democratic Party supported the bilateral agreements, whereas the corresponding figure was only 24 per cent among followers of the Swiss People’s Party. L. Kopp and T. Milic, Analyse des votations fédérales du 25 septembre 2005, Zurich/Berne, Institut für Politikwissenschaft/GfS Forschungsinstitut, 2005.

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Bibliography Conseil fédéral, Message relatif à l’accord sur le transit conclu entre la Communauté européenne et la Suisse, ainsi que sur l’accord triangulaire entre la République fédérale d’Allemagne, la Suisse et l’Italie sur le trafic combiné rail/route, Berne, 13 May 1992, p. 1015. C. Dupont, “Succès avec la SDN, échec avec l’EEE? Résistances internes et négociation internationale”, Annuaire suisse de science politique 32, 1992, 249–72. C. Dupont, Domestic Politics, Information and International Bargaining: Comparative Models of Strategic Behaviour in Non-Crisis Negotiations, Genève, IUHEI, 1994. C. Dupont and P. Sciarini, “Switzerland and the European Integration Process (1950–2000): Engagement without Marriage”, West European Politics 25/2, 2001, 211–32. C. Dupont, C. Eggli and P. Sciarini, “Entre cohérence et efficacité. La Suisse dans les négociations bilatérales avec l’Union européenne”, Revue suisse de science politique 7/4, 2001, 5–37. C. Dupont, D. Lutterbeck and P. Sciarini, “Catching the EC Train: Austria and Switzerland in Comparative Perspective”, European Journal of International Relations 5/2, 1999, 189–224. European Commission, Green Paper – Towards Fair and Efficient Pricing in Transport Policy – Options for internalising the external cost of transport in the European Union, Brussels, 691, December 1995. A. Fischer, “Wirtschaftsverbände, Gewerkschaftsstärke und Interessengegensätze der Arbeitgeber: Der Fall der flankierenden Massnahmen zur Personenfreizügigkeit”, Schweizerische Zeitschrift für Politikissenschaft 8/3, 2002. A. Fischer, S. Nicolet and P. Sciarini, “Europeanization of a Non-EU Country: The Case of Swiss Immigration Policy”, West European Politics 25/4, 2002, 143–70. H. Hirter and W. Linder, Analyse Vox de la votation fédérale du 21 mai 2000 sur les accords bilatéraux avec l’Union européenne, Berne, GfS Forschnungsinstitut/Université de Berne, 2001, p. 13. L. Kopp and T. Milic, Analyse des votations fédérales du 25 septembre 2005, Zurich/Berne, Institut für Politikwissenschaft/GfS Forschungsinstitut, 2005. H.P. Kriesi, C. Longchamp, F. Passy and P. Sciarini, Analyse-Vox de la votation fédérale du 6 décembre 1992 sur l’EEE, Genève/Zürich: Département de Science Politique/ GfS-Forschungsinstitut, 1993. M. Maibach, A. Vatter, F. Sager and D. Peter, Schweizerische Verkehrspolitik im Spannungsfeld der Aussenpolitik: Fallbeispiel 28-Tonnen-Limite, NFP 42, Working Paper No. 2, p. 48. T. Oberer, “Die innenpolitische Genehmigung der bilateralen Verträge Schweiz-EU: Wende oder Ausnahme bei aussenpolitischen Vorlagen? Analyse der Argumente und Strategien in Genehmigungsverfarhen und in der Referendumskampagne”, Basler Schriften zur europäischen Integration 52/53, 2001. A. Riklin, “Isolierte Schweiz. Eine europa- und innenpolitische Lagebeurteilung.” Schweizerische Zeitschrift für Politische Wissenschaft 1/2–3, 2005, 11–34. P. Sciarini, “La Suisse dans la négociation sur l’Espace économique européen: de la rupture à l’apprentissage”, Annuaire suisse de science politique 32, 1992, 297–322.

12 Bilaterals II Reaching the limits of the Swiss third way? Alexandre Afonso and Martino Maggetti

The assertions of the Swiss conservative right notwithstanding, the second Bilateral Agreements between Switzerland and the European Union have generally been acknowledged on both sides as another rather favourable deal for Switzerland. Indeed, banking secrecy has been preserved despite great European pressure, and participation in the Schengen and Dublin conventions, which was considered to be of great benefit for Switzerland in the domains of migration and the fight against crime, has been achieved. From this point of view, the second Bilaterals could thus be seen as a simple continuation of the long-standing strategy of Switzerland towards the EU, that is, taking advantage of European integration whilst minimizing its impacts on domestic institutions and economic interests, as outlined by Church’s background chapter. However, although the negotiation process proved to be shorter than the first, as Dupont and Sciarini have just made clear, the tortuous nature of the negotiations also highlighted the ever more uncomfortable position of Switzerland vis-à-vis the EU. For many observers, this second batch of agreements may conceivably have marked the end of the Swiss “third way” between adhesion and total closure, notably because bilateral negotiations with an enlarged and therefore more heterogeneous EU are very likely to become ever more difficult to conduct in the future. The chapter provides a comprehensive account of the negotiations and ratification of the Second Bilateral Agreements between Switzerland and the European Union. We begin by presenting the major phases of the negotiations with a focus on its most important dossiers, namely taxation of savings and the fight against fraud on the one hand, and Schengen/Dublin on the other. We then address the ratification process in Switzerland and in the EU, and most notably the main themes and strategies of the actors involved in the referendum against the adhesion to the Schengen Area. Finally, we provide an assessment of these second bilateral agreements and suggest some possible paths Switzerland might take as regards its relations with the European Union.

The negotiation process The second series of bilateral negotiations was meant to be the continuation of the approach developed by the Federal Council after the rejection of the EEA

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treaty. Indeed, after the conclusion of the first set of bilateral negotiations, several dossiers of importance to the Swiss were still outstanding (processed agricultural products, statistics, environment, media, education, pensions and services). Accordingly, almost before the first bilaterals were done and dusted, Switzerland requested the opening of a new round of negotiations in order to carry on its strategy of gradual and selective integration. Above all, the Confederation sought to take part in the Schengen/Dublin convention on cooperation in the domains of security and migration. Initially, the EU was rather sceptical about this option. Nevertheless, the negotiation process started because the EU itself had put in two new requests to Switzerland, which were urgent and decisive for the intensification of European integration. In particular, an agreement with Switzerland was a condition for the implementation of the directive on the taxation of savings, as well as for intensifying cooperation in the fight against fraud. In this context, the two parties agreed that negotiations should be conducted on a parallel basis, that is, taking account of the interdependence between the dossiers, and concluded simultaneously. Hence, a new round of negotiations started in June 2002, and addressed the seven leftovers from the first series of negotiations; the additional dossier of importance to Switzerland (Schengen/Dublin); and the two topics required by the EU (taxation of savings and the fight against fraud). In March 2003, the two parties decided that negotiations in the area of liberalization of services would be postponed and continued separately, because of the complexity of the dossier. We now proceed to an analysis of the main dossiers and a shorter description of the secondary issues. Taxation of savings Since the early stages of European integration, the harmonization of tax systems has been an important objective of the EU authorities. The reinforcement of European integration has been thought to require fiscal harmonization within the Union – in particular as regards the direct taxation of savings – in order to prevent “harmful tax competition”,1 capital flight towards tax havens and to fight tax evasion.2 The first draft for a directive providing for a harmonized system of withholding taxes was proposed as early as 1989, but the issue only really became critical in the late nineties, due to the financial difficulties of some member states.3 In order to achieve this aim, the cooperation of Switzerland, who had been considered a “tax haven” for a long time, notably because of its well-known banking secrecy, was a major requirement for ensuring the compliance of member states. On the one hand, EU countries with a competitive fiscal system refused to take part if key third countries were not submitted to similar conditions. On the other hand, the existence of important loopholes in neighbouring countries would seriously undermine the efficacy of a unified taxation system at the EU level, since it would be easy to bypass it. Third countries would have a competitive advantage over EU members, and would attract a con-

Bilaterals II: reaching the limits? 217 sistent amount of supplementary fiscal resources from EU citizens fleeing harmonization, which was unacceptable for EU authorities. A concrete proposal for a directive in the domain of taxation of savings, based on the “coexistence model” of different fiscal systems, was presented in 1998. Each member state could choose between imposing a withholding tax on the interest income of citizens who resided in another member state on the one hand, and providing information to those citizens’ state of residence on the other. However, at the Feira Summit of June 2000, there was a radical policy shift. The coexistence model was abandoned in favour of a system focusing on the automatic exchange of information. This was incorporated into a new draft directive on 18 July 2001. Clearly, the acceptance of this directive calls for the adoption and the implementation of “equivalent measures” by certain non-EU countries, particularly Switzerland. The Confederation was forced to enter these negotiations, since it was eager to conclude agreements on several other topics important to it. The key aim for Switzerland was to have its proposition of a withholding tax recognized as an “equivalent measure”, and not merely as a transitional arrangement. This was done in order to block any form of automatic exchange of information,4 because of the need to protect banking secrecy5 which, as Church and his co-authors have shown, has a totemic status in Switzerland. Switzerland was, however, disposed to implement a system of administrative assistance on request to EU member states in cases of tax fraud. Swiss concessions continued in the third phase of negotiations in Brussels on 31 October 2002.6 A revision clause to come into effect at the end of the transitional period was added to the putative agreement. Then in Zurich on 21 November 2002, the principle of the withholding tax was formally accepted,7 i.e. the obligation for Switzerland to introduce a withholding tax on EU recipients of interest in Switzerland. This would amount to 15 per cent in the first three years, then 20 per cent for the following three years and 35 per cent in subsequent years. Furthermore, in case of tax fraud,8 judicial assistance concerning “moral persons” was also admitted. On 28 November 2002 Swiss negotiators admitted mutual aid in case of tax fraud and “equivalent crimes”.9 On 12 December 2002 bilateral negotiations were interrupted because of divisions at EU level. Austria and Luxembourg made their renunciation of banking secrecy contingent on the conclusion of an agreement with Switzerland.10 Subsequently, the ECOFIN Council of 21 January 2003 was able to find an agreement between member states by temporarily reintroducing a system of coexistence.11 This solution presupposed an agreement with third countries, which would have to be compelled to exchange information on demand according to the 2002 OECD convention, at the same time applying the tax at source. When such a system is implemented, Austria, Luxembourg and Belgium would pass to the automatic exchange of information. In doing all this Switzerland has agreed to align its policy on the taxation of savings on the European model. Switzerland also made several concessions so as to preserve the essential features of banking secrecy.12 The point here is that

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the OECD convention, cited in the ECOFIN agreement, stipulates that the exchange of information on demand should be possible even if the national legislation of the country from which the information is requested does not consider the object of the request as a crime.13 This strongly contradicted the principle of “double criminality” advocated by Switzerland, according to which judicial cooperation can be granted only if the offence under scrutiny is punishable in the criminal laws of both the countries involved. As “mere” tax evasion is considered an administrative offence and is thus only punishable with a fine under Swiss legislation (as opposed to most other countries’ legislation), no international cooperation is granted by Switzerland on this subject. This is the real core of Swiss banking secrecy.14 The position taken by the EU clearly exceeded the mandate of Swiss negotiators, and would cause severe protestations at the domestic level. At this time, the Swiss government went on the attack over the ECOFIN agreement,15 proposing a new version of the bilateral draft. Switzerland was now willing to make large concessions, offering especially a system of exchange of information on tax fraud and “similar fiscal crimes”. Moreover, Switzerland agreed to cooperate even if other states did not. It was nevertheless explicit that tax evasion was not concerned. In compensation Switzerland asked both for the stability of the present agreement (based on taxing at source and some concessions concerning fiscal cooperation) with the aim of protecting the basic features of banking secrecy; and for participation in the advantages of another EU directive (i.e. that on abolition of the tax at source on dividends, interests and royalties paid by affiliated companies between Switzerland and EU member states). It also sought a compromise on other dossiers that were on standby, namely Schengen/Dublin. Following this changed position, EU negotiators decided to accept the validity of the Swiss stance, thus inducing a real policy paradigm shift. Indeed, the EU went as far as to give up on its desire for a generalized and automatic exchange of information. The condition of respecting the OECD Convention was thus erased from the new draft and replaced by “a tax in conformity with domestic legislation”16 requirement. This was possible because the EU needed an agreement in order to avoid loopholes in the fiscal system and, above all, because a 35 per cent tax at source with two-thirds of the proceeds from this being redistributed to member States was considered an excellent deal. On 6 March 2003 an agreement was more or less agreed between the Swiss Federal Councillor Kaspar Villiger, the European Commissioner Frits Bolkestein, and the Greek Finance Minister and ECOFIN President Nikos Christodoulakis.17 Nevertheless, the formal conclusion of the agreement was delayed once again, this time because of divergences among member states. Indeed, during the two ECOFIN Councils of 7 March, and 19–21 March 2003, Spain, Belgium, Austria and especially Italy were opposed to such an agreement. Their ministers particularly criticized the intrusion of Swiss amendments into the original European directive, claiming that Switzerland was imposing its standards on the EU.18 Yet, after the resolution of some external questions concerning a few of these member

Bilaterals II: reaching the limits? 219 states (particularly, the cancellation of the fines concerning milk quotas), on 3 June 2003 – just before the end of the Greek presidency – the EU ministers of finance, by conceding the equivalence of the solution proposed by Switzerland, accepted the bilateral agreement on 6 March 2003.19 The essential features of the agreement are as follows: •

•

• • •

a final retention of 35 per cent levied by Swiss paying agents on interest payments to EU residents, 75 per cent of which will be shared among member states; a mechanism for voluntary notification allowing EU citizens to choose the EU system of exchange of information instead of paying the withholding tax; the exchange of information on request in cases of tax fraud or the like; a review clause that allows the contracting parties to reconsider the terms of the agreement; Swiss participation in the directive that abolishes tax at source on dividends, interests and royalties paid by affiliated companies between Switzerland and EU member states.

The fight against fraud At the same time as taxation of savings was being negotiated, the Swiss were also involved in parallel talks with a view to strengthening “administrative and legal assistance”, in other words international cooperation between administrative and judicial authorities on combating fraud, smuggling and other offences in the area of indirect taxes, subsidies and public procurement. Switzerland and the EU started negotiations in July 2001. Initial positions were somewhat apart.20 Switzerland was only ready to discuss specific cases for which administrative and mutual assistance were to be increasingly provided. Conversely the EU was calling for the inclusion of all illegal activities which harmed their financial interests, by negotiating a comprehensive agreement on administrative and mutual assistance covering all activities that contravened indirect taxation regulations. After the fifth round Switzerland and the EU were still unable to agree upon a common formula for combating fraud.21 The EU was putting forward the inclusion in the agreement of large tracts of EU legislation. On the contrary, according to the Swiss negotiators, the principles anchored in Swiss law to protect the core of banking secrecy (principle of double criminality, principle of specification22 and suspension effect of appeal) could not be lifted. The sixth round went by without any appreciable advance being made.23 Swiss negotiators did concede an extension of the scope of the accord, notably concerning the acceptance of the coercion measures. But the EU still required the adoption of the acquis communautaire. Only during the seventh round of negotiations was it possible to partially overcome the deadlock.24 Solutions were discussed which would, on the one hand, respect the Swiss legal principle of double criminality and, on the other

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hand, also take into account the concerns of the EU about the need to speed up the appeals procedure by limiting it to one appeal and introducing the delegation of criminal prosecution and extradition for serious cases of tax fraud. Therefore, on 18 October 2002, the EU and Swiss delegations conducted negotiations for the first time on the basis of a specific draft agreement.25 To a large extent, Switzerland accommodated to the EU during the negotiations on the steadily expanding set of issues. Switzerland would be prepared to implement coercive measures in a simplified form of administrative assistance. A new feature was that of implementing sanctions not just in customs duty fraud but also in professional customs duty offences (especially smuggling). Coercive measures would also be applicable in cases of qualified tax evasion and also in the case of administrative assistance.26 However, the question of double criminality was still left open, because the EU demanded cooperation with regard to offences in case of simple tax evasion. Although it might have seemed that Swiss negotiators’ room for manoeuvre had come to an end, three Federal Councillors entered directly in the negotiations in order to overcome the deadlock. They persevered with the strategy which had inspired the whole bilateral way, that is, the principle of parallelism among all dossiers, and notably between taxation of savings, Schengen/Dublin and the fight against fraud,27 arguing that nothing could be agreed until everything is agreed.28 The consequent argument was then twofold. First, Swiss negotiators would not accept the withdrawal of issues already closed in other dossiers, notably the discussion about the principle of double criminality. In other words they considered that the core of the Swiss banking secrecy as defined in the agreement on the taxation of savings could not be threatened by a comprehensive definition of fraud. Second, negotiators asserted that Switzerland, having made several concessions concerning the taxation of savings, was now waiting for a helpful attitude of the EU over the agreement on Schengen/Dublin. At the same time the authority of EU negotiators was considerably weakened by the positions of some member states, which were opposed to a harmonization of fiscal policy, an issue where unanimity is required. Those member states (particularly Luxembourg, Austria, Belgium) used the threat of veto to refuse any European regulation without the previous full participation of third countries (especially Switzerland), undermining the EU’s ability to exert pressure29 on Switzerland. The EU was then forced to accept the compromise proposed by Switzerland in the negotiations on taxation of savings, recognizing it as binding for all dossiers. As we have explained above, this draft contains several Swiss concessions, but maintains the core of Swiss banking secrecy. We can summarize the contents of the final agreement, which followed from the EU concession, as follows: •

The agreement on combating fraud will provide for extensive cooperation between the Swiss and EU administrative and legal authorities within the scope of administrative assistance (cooperation between administrative authorities) and legal assistance (cooperation between legal authorities).

Bilaterals II: reaching the limits? 221 •

• •

Measures such as these will only be taken if the grounds for double criminality are given and if the amount involved in the offence exceeds EUR 25,000. It is requested that a judicial search warrant be provided. Switzerland’s interpretation of money laundering remains unchanged. There are therefore no new notification obligations for Swiss financial intermediaries.

Schengen/Dublin On the Swiss side, the negotiations concerning the inclusion of Switzerland in the European Area of Freedom, Security and Justice through the entry into the Schengen and Dublin Conventions30 were mainly guided by the desire to provide a more efficient response to illegal immigration and trans-national crime and a better – that is, above all, less costly – management of asylum migration. The most important point for Switzerland was to ensure access to the EU’s information databases which constituted the main pillars of the Schengen and Dublin system: the SIS (Schengen Information Service) would allow Swiss authorities to know if people who tried to enter Switzerland had committed offences in the EU, whilst the Eurodac fingerprint database would permit them to know if asylum seekers arriving in Switzerland had already put in a request in a EU member state. As argued earlier by Koch and Lavenex, the development of a common asylum policy in the EU (Dublin Convention) provided a strong incentive for Switzerland to cooperate with its neighbours. Since asylum seekers could no longer submit asylum requests in multiple member states, thanks to the rule on unique responsibility, the only alternative for those whose request had been rejected in a EU member state was to ask for asylum in Switzerland. Hence, taking part in the Dublin Convention was thought likely to bring about a lowering of the number of asylum requests and thus reduce the costs of the asylum system, which had become one of Switzerland’s most debated issues in recent years, mainly under the pressure of the SVP. As regards Schengen, besides the security concerns which have arisen in Switzerland as elsewhere after the terrorist attacks of 11 September 2001, Swiss participation was also motivated by economic interests. Switzerland notably wanted to take part in the EU’s common visa policy (Schengen visas), which was important for the tourism industry. This was because it was thought that extra-European tourists, and notably wealthy Asians, would avoid Switzerland were it necessary to request a supplementary visa. At the domestic level, these agreements benefited from the support of the left and the centre-right alike. For the centre-right, they were thought to improve security and reduce costs in the asylum system. For the left, international cooperation in the domain of asylum was thought to be likely to slow down the toughening of asylum regulations. Negotiations started on 11 July 2002 in Brussels. Whereas there were no major divergences as regards the Dublin part, the negotiations were for a long

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time deadlocked because of several points in the Schengen Convention. Two were particularly contested: automatic judicial cooperation, and the mechanisms of adoption of the Schengen acquis by Switzerland in the future.31 As explained above, the first point was closely linked to the taxation of savings, in which Switzerland notably defended the principle of “double criminality”. As regards the adoption of the Schengen acquis, constraints imposed by domestic actors (mainly the SVP) and the institutions of direct democracy were very difficult to reconcile with the conditions imposed by the EU. On the one hand, the SVP asserted from the outset that it would not accept any concession as regards Switzerland’s legislative sovereignty. According to the party’s direction, adhesion to the Schengen agreement would introduce an unacceptable dose of supra-nationality into Swiss legislation, and constituted a backdoor adhesion: Switzerland could not exert any influence on the future evolution of the Schengen acquis and would have to adopt it unilaterally.32 On the other hand, the EU also adopted a rather tough stance in this domain. As EU officials asserted many times during the negotiations, it was out of the question to negotiate an “à la carte” agreement with Switzerland. An important point of the negotiations on this issue was to determine if Switzerland, although a nonmember, could have a say in the evolution of the acquis, and whether it could opt out in case this evolution would call its “vital interests”, notably banking secrecy and neutrality, into question. For most of 2003, under the Greek and Italian Presidencies, negotiations remained in a stalemate. Although the Greek Presidency made several efforts to find compromises, its propositions were judged too generous towards Switzerland by its European partners, who notably refused them in COREPER in April 2003. At the end of 2003, the election of Christoph Blocher, leader of the SVP, as Minister in charge of the Schengen dossier made many observers foresee a definitive rupture in the negotiations. Indeed, no sooner had Mr Blocher been elected than he declared that an agreement on the Schengen issue was unnecessary, thus relaying the claims of his party.33 However, he seems to have been overruled by his colleagues on the Federal Council, who wanted to go on with the bilateral talks on this dossier as well. Thereafter, Blocher proposed a “light” version of the Agreement comprising merely access to the EU’s SIS database and excluding the lifting of controls at the Swiss border, which was firmly refused by the EU.34 In many respects, the concrete exercise of power in a collegial government constrained the SVP Federal Councillor to make several concessions at variance with his initial partisan claims. In March 2004, the desire to conclude the agreement on savings encouraged a few member states, notably Germany, the Netherlands, Belgium and Luxembourg, to adopt a softer stance on the Schengen issue. Since Switzerland refused to sign the agreement on savings without having concluded the talks on Schengen/Dublin, concessions had to be made on this latter issue.35 At this very time, the Schengen issue gained high media coverage in Switzerland when the German government abruptly decided to reinforce its border controls with “third countries” not part of the Schengen Area, which caused huge traffic jams at the

Bilaterals II: reaching the limits? 223 Swiss–German border. For partisans of the Agreement, this event was a demonstration of what could possibly happen if Switzerland remained outside the Schengen Area.36 A compromise was finally found in the spring of 2004, and was tightly linked to the outcome of the agreement on the taxation of savings. The principle of “double criminality” was guaranteed, thus preserving banking secrecy.37 With regard to the future evolution of the Schengen acquis, although Switzerland gained no formal right of co-decision, it gained a participation right in the decision-making process. Moreover, the future evolutions of the Convention which will apply to Switzerland will follow the “normal” Swiss decision-making process, that is, will possibly be subject to referendum.38 As a last resort, the Schengen Agreement could theoretically be cancelled in case the Swiss people refused a fundamental evolution of the acquis, Switzerland’s sovereignty thus “remaining fully respected”.39

The secondary dossiers Although the three related dossiers on tax, fraud and people caused the Swiss most difficulties, we should also not forget that there were a series of other issues which were resolved within the negotiations. And these were often of considerable importance to specific sections of Swiss government and society. They had often suffered some exclusion from wider European cooperation without the new deals. We treat these individually in turn.40 Processed agricultural products This agreement provides for the further liberalization of trade between Switzerland and the EU as regards processed agricultural food (namely chocolate, biscuits, soups, sauces, pasta, instant coffee). Customs duties had already been abolished on the manufactured part of these products, but some remained because of their agricultural components. In the framework of this agreement the EU has accepted that it will completely lift its customs duties on such Swiss products, as well as waive export subsidies. For its part, Switzerland will reduce its customs duties and export subsidies or, in certain cases, will abolish them completely as well. This agreement is thought to be of particularly great benefit to the Swiss industrial sector which, as is well known, is very competitive in this domain. For important Swiss agro-industrial companies, such as Nestlé, the conclusion of this agreement was the most important reason for engaging in the campaign for the acceptation of the whole package of bilateral agreements. Media The main purpose of this agreement is the participation of Switzerland in EU policies on the creation, distribution and marketing of audiovisual production. The main features are provisions for cooperation amongst European producers

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and the subsidization of filmmakers and television producers. After the 1992 rejection of the EEA, Switzerland’s existing membership of the programme ended. Now, the agreement grants equal rights to the Swiss and EU audiovisual industry, so that they can both benefit from European support measures. This will require changes to Swiss legislation. Before ratification by the EU, a crucial point will be the satisfaction of quotas for European productions (fixed at a minimum of 50 per cent, with 10 per cent from independent producers). This agreement should notably facilitate the co-production of movies and TV programmes between Switzerland and EU countries. Education This agreement concerns the mobility of students, apprentices and young people within the framework of the Community programmes of general education, vocational training and extra-curricular work. The agreement will grant equal rights to Swiss citizens taking part in these programmes, and provide for the involvement of Switzerland in the development of future projects. Switzerland and the EU have decided to set up a series of bilateral meetings preparing the full participation of the Confederation in the next generation of programmes, which will be executed from 2007. This will give Swiss higher education full access to programmes from which they have often been excluded, and facilitate the exchange of students between Switzerland and EU countries. Pensions The aim of this agreement is to avoid the double taxation of pensions of retired EU officials living in Switzerland. Indeed, conventionally the EU enforces a tax at source on pensions paid to retired officials, whereas Switzerland subjects these people to federal, cantonal and local income tax on the net amount, i.e. after deduction of the European tax at source. As a solution, Switzerland has suggested the exemption of income tax on those retired persons. The EU and Switzerland have already ratified this agreement, and it entered into force on 31 May 2005, being applicable to pensions paid from the EU since 1 January 2006. The number of people concerned by this agreement is generally considered relatively small. Environment The agreement on environment provides for the adhesion of Switzerland to the European Environment Agency (EEA). Until now, Switzerland had only informally taken part in the EEA’s activities, but will now be able to actively participate in and organize its projects and research. Switzerland will thus gain access to the EEA’s pan-European data, and Swiss data will be included in the EEA’s database. Swiss environmental policy, which had been an exclusively national matter so far, is thus becoming increasingly Europeanized, as is the case in other European countries.

Bilaterals II: reaching the limits? 225 Statistics The agreement regulates the progressive harmonization of statistical data collection between Switzerland and the EU (Eurostat standards) in domains such as trade relations, labour market, social security, transport and environment. Switzerland also gains direct access to data published in the EU. Moreover, a greater proportion of Swiss data will be included in the statistics compiled by Eurostat. This should improve the comparison of data between EU countries and Switzerland, a country where public statistics have suffered from a notable underdevelopment.

Ratification The second bilateral talks between Switzerland and the EU were finalized in Brussels on 19 May 2004 during a meeting between the European Commission and Federal Councillors Deiss (President), Calmy-Rey (Foreign Affairs) and Merz (Finances), and were signed in Luxembourg on 26 October. In the end, the second series of bilateral negotiations resulted in nine agreements (processed agricultural products, statistics, pensions, environment, media, Schengen/ Dublin, the fight against fraud, taxation of savings), which needed to be approved by the Swiss Parliament. The result of the negotiation on education, being formally a declaration of intent, did not need to be submitted to the chambers. The Federal Council submitted the agreements as separate proposals to Parliament in December 2004. All of them were accepted with a clear majority in the National Council. In the Council of States, the result was unanimous except for Schengen/Dublin. This in fact met with somewhat more resistance in both chambers (accepted by 129 votes to 60 in the National Council and 36 to 3 in the Council of States). Immediately thereafter, the SVP and its “armed wing”, the AUNS, launched a referendum challenge to the Schengen agreement, which was to be voted on in June 2005. As for the other Bilaterals, the agreement on processed agricultural products, ratified by the EU in January 2005 and by Switzerland in March of that year, came rapidly into force on 30 March 2005. The EU ratified the agreement on pensions in November 2004 and Switzerland followed in May 2005. So it too came quickly into force on 31 May 2005. The agreement on taxation of savings was ratified by the EU in February 2005, by Switzerland in May 2005, and it came into force on 1 July 2005. So far, the agreements on statistics, environment and media, ratified by Switzerland during the year 2005, are still waiting for ratification by the EU. The agreement on the fight against fraud has not yet been ratified either by Switzerland or by the EU. This is because the agreement has a “mixed” form and this requires that it should be approved by the 25 member states as well as by the Union itself. And this obviously takes more time.

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The referendum on Schengen/Dublin The referendum against the Schengen/Dublin agreements launched in December 2004 by the SVP and the AUNS was a cause of considerable concern for the Federal Council and business interests associations, who were very eager to see the second package of Bilaterals come into force. The SVP, who had been considerably emboldened by its victory over all other major parties and interest groups41 in the vote on facilitated naturalization in October 2004, succeeded in collecting 85,000 signatures by April 2005, which was many more than the number required. Besides the SVP, the AUNS and other smaller far-right political groups, a number of extreme-left parties also opposed the Agreement on the grounds that it allegedly paved the way for a European police state that would seriously threaten civil liberties. At the end of 2004, it was rather uncertain that Swiss citizens would accept the Agreement in the votation due for 5 June 2005. As a consequence, all major pro-bilaterals actors started the campaign very early on, and invested particularly important amounts of money in it. In doing this they showed they, in turn, had learned the lessons of what had worked for the first Bilaterals and what had not in 1992, just as Dupont and Sciarini have shown for the earlier ratifications. Unsurprisingly, the SVP focused its campaign on the most symbolic and emotional part of the Schengen Treaty, that is, on the removal of systematic border controls within the Schengen Area. By contrast, this issue had not constituted a major point of disagreement in the negotiations, the creation of an area of free movement of people being the AFSJ’s raison d’être.42 On the one hand, the SVP claimed that the opening of borders, besides being a backdoor form of EU membership, would lead, amongst other things, to the entry of more foreign criminals, Islamic fundamentalists, clandestine workers and prostitutes. It would also cause greater unemployment and insecurity. Taking advantage of a scandal involving the German Ministry of Foreign Affairs, it strongly insisted on the supposed deficiencies of the visa allocation system of Schengen countries, who were said to distribute visas much too easily.43 Conversely the government, political parties and major interest groups claimed that Schengen would on the contrary strengthen Switzerland’s security through the access to the SIS database and the establishment of mobile controls. The focus of the debates on Switzerland’s inner security was a rather difficult area for partisans of the Agreement, since law and order was, as for other national-populist parties in Europe, one of the SVP’s themes of predilection. Economiesuisse, Switzerland’s most important employers’ association, notably financed an advertising campaign in favour of the agreement that used “typical” SVP arguments.44 Furthermore, one very interesting point of the campaign was the very strong dissensions between employers’ associations and the SVP. In Swiss newspapers, the director of the Swiss Employers’ Union, Peter Hasler, strongly criticized the stance adopted by the SVP on the Bilaterals issue, accusing the party of sabotaging Switzerland’s international competitiveness. As a response, a SVP MP advised employers’ associations to merge with trade

Bilaterals II: reaching the limits? 227 unions, for they no longer represented the interests of the Swiss economy. Beyond its anecdotal nature, this conflict raised several questions as regards the SVP’s future positioning. The party had made several efforts to appear as the only representative of economic interests in the parliamentary arena, notably by championing financial austerity programmes and reduction in social benefits. In this case, nationalist arguments seemed to conflict with neo-liberal orientations within the party, as had already been the case in the past.45 Although opinion polls revealed a very clear lead for the “yes” camp at the beginning of the campaign, it seems that the SVP’s publicity had a significant influence on undecided voters throughout the last weeks before the vote. Hence, according to various opinion polls, the opponents’ camp grew from 21 per cent at the end of April to 35 per cent by late May, whereas the percentage of people who intended to vote in favour of the agreement declined from 62 per cent to 55 per cent in the same period. Many political actors now feared a further decline of the “yes” camp that would annihilate many years of painful bilateral talks. In fact, on 5 June 2005 Swiss citizens finally accepted the Bilateral Agreement on Schengen/Dublin by a majority of 54.6 per cent, with a voter turnout of 56 per cent, which was significantly higher than the average turnout for popular votes (44 per cent for the period 1992–2002). The Vox analysis of voting behaviour, conducted shortly after the votation, showed that a majority of voters who had made up their mind in the last days of the campaign rejected the Agreement.46 Hence, whilst the percentage of voters in favour of the Agreement seems to have remained stable in the last days of the campaign, the greater part of undecided voters finally chose to refuse the Agreement, as has already been the case in similar votes. Unsurprisingly, party affiliation was the most determining factor in explaining voting behaviour. Hence, whereas sympathizers of the Social Democrats approved the agreement by 86 per cent, only 8 per cent of voters who declared themselves SVP supporters accepted it. The percentage of acceptance nearly reached 80 per cent for supporters of centre-right parties (Radical Democrats and Christian Democrats). Broadly speaking, these characteristics were closely linked with the socio-demographic profile of voters: people with a lower education level (compulsory school, apprenticeship), manual workers, independent workers and people with a low income, that is, the core of the SVP electorate, refused the agreement in a majority, whilst people holding a university degree or with an above-average income accepted it by a large majority. Among the reasons given by voters for refusing the Agreement, the most often cited was that they feared an increase of immigration – which might possibly threaten their social position – as a result of the opening of borders, whereas voters who accepted the Agreement mostly evoked the necessity for Switzerland to be open to the world.47 In many respects, the results of the vote provided further evidence of the rise of a “new structural conflict between losers and winners of globalization” that cannot be explained by the left–right divide.48 As had already been the case for other popular votes on issues related to the European Union or other supranational institutions, citizens who perceive themselves as possible losers

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from this process tended to refuse changes, while people who do not feel threatened accepted them. The Schengen Agreement will be enforced by the EU only when the European Council has decided unanimously that Switzerland is able to implement it, and after the conclusion of a series of agreements between Switzerland, Norway and Iceland; and between Switzerland and the EU. One contested point as regards the ratification of the Agreement has been the fact that it could be bound to Switzerland’s contribution to enlargement. A solution seems to have been found in this issue, Switzerland having proposed a “memorandum of understanding” providing for the payment of one billion francs within five years.

Conclusions The second bilateral agreements have been considered by the Federal Council and by the vast majority of Swiss political and economic actors (the SVP and the far right notwithstanding) as a very satisfying deal. In fact, Switzerland’s key requirements – the conclusion of all dossiers, notably Schengen/Dublin, and the protection of banking secrecy, especially in the dossier on the taxation of savings – have been fulfilled. With regard to Schengen/Dublin, at least in the area of direct taxes, banking secrecy remains protected, and even legitimized. Should a future Schengen provision give rise to an obligation for legal assistance with regard to tax evasion offences, Switzerland has obtained an “opt out” clause. Concerning the fight against fraud, the definition of money laundering according to the Swiss Criminal Code remains unchanged, and there are no new reporting requirements for Swiss financial intermediaries. However, Swiss fiscal policy is now tightly linked with that of the EU. As regards Schengen and Dublin, the main aims of the Federal Council have also been attained. The outcome of the negotiations has been considered positive on the EU side as well, the main aim of the European negotiators being to find quickly an agreement on the taxation of savings in order to harmonize European fiscal policy.49 Due to the discrepancy of interests between member states, and in a very stringent institutional environment (unanimity rule), the EU was not able to exert sufficient coercive pressure on Switzerland (whose domestic actors displayed a fairly cohesive position on this issue) to induce a more radical policy shift on the Swiss side. Indeed, a tougher stance could have caused the failure of negotiations. Thus, even if the EU had to give up on the automatic exchange of information, it was realistic enough to accept a solution considered satisfying in the medium term, a global agreement linking Swiss policy to the EU, with a tax levied by Swiss paying agents, the revenue of which will be shared with member states. On the Swiss side, the bilateral way has constituted a rather good functional equivalent to adhesion to the EEA, and much more than a simple substitute because, thus far, Switzerland has obtained several of the advantages of EU membership whilst paying a very low cost as regards economic interests and domestic institutions. Nevertheless, the bilateral strategy currently suffers from

Bilaterals II: reaching the limits? 229 two sets of related limitations. A first set of problems is inherent in the content of these agreements, and most notably in the domain of taxation of savings. First, many provisions remain quite ambiguous and subject to divergent interpretations, namely the concept of “tax fraud or the like” as regards the exchange of information. The effective implementation of this norm could therefore give rise to a certain number of conflicts in the future. Second, the existence of a few loopholes in the agreement challenges the efficacy of the tax at source, which is said by experts to be easy to avoid by individuals with some simple measures of fiscal optimization.50 This point, if it proved to be true, could eventually upset member states. Finally, the existence of a revision clause for the agreement on the taxation of savings is revealing of the willingness of the EU to implement a more constraining version of exchange of information in the long run, which could undermine the entire range of agreements. Indeed, it seems very unlikely that Switzerland will agree to make further concessions on this subject. The second set of limitations is related to the continuation of the bilateral way. First, bilateral negotiations imply long and difficult procedures, whereas the results, even if satisfactory, are fragile and likely to become rapidly obsolete because of the ever-evolving nature of European integration. For instance, the extension of the free movement of persons to Romania and Bulgaria promises further emotional and uncertain voting battles in the years to come. Second, bilateralism will indisputably become harder with an enlarged EU, where the interests of member states are more and more heterogeneous, in particular on topics where a qualified majority or unanimity is required.51 Yet, as argued elsewhere in this volume, Alleingang is not economically sustainable for Switzerland, and full EU membership is at the moment not a politically feasible solution, mainly because of direct democracy and the importance of the SVP, which has (successfully) built a great part of its electoral strength on opposition to Europe. Considering these constraints, alternative options that could reconcile domestic constraints and functional needs are rather scarce besides the long and tortuous bilateral path.52 Among the options evoked, one can mention adhesion to the EEA – more than 15 years after its rejection by the Swiss people – or a “framework agreement” that could merge all existing agreements and be steered by a joint committee empowered to regularly update agreements in line with the evolving acquis communautaire. This latter solution has notably been evoked by Micheline Calmy-Rey, Federal Councillor in charge of Foreign Affairs. Another hypothetical option could be a “light” adhesion of Switzerland to the EU, that is, an adhesion that would provide for derogations in domains affecting domestic institutions. If this solution is very unlikely to materialize in the short term, enlargement might possibly provide a more favourable opportunity structure for such an “à la carte” solution in the medium or long term. Indeed, many analysts think that the increasingly heterogeneous nature of the EU as regards socioeconomic conditions and the discrepancy of interests between member states might require a more flexible and less constraining integration process, which could fit better with Swiss domestic constraints. Yet, in order not to give

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up on its main electoral theme, the SVP can be expected to strongly oppose this solution in the future as in the past.

Notes 1 C. Radaelli, The Politics of Corporate Taxation in the European Union: Knowledge and International Policy Agendas, London, Routledge, 1997. 2 C. Eggli, “Le secret bancaire suisse face aux pressions internationales”, in R. Schwok (ed.), Place financière suisse, évasion fiscale et intégration européenne, Genève, Euryopa/IEUG, 2002, pp. 31–42. 3 C. Bonte, “Comprendre la logique politique de l’UE pour comprendre les négociations actuelles”, in R. Schwok (ed.), Place financière suisse, évasion fiscale et intégration européenne, Genève, Euryopa/IEUG, 2002, pp. 47–68. 4 X. Oberson, “Coordination entre l’UE et la Suisse de l’imposition des revenus de l’épargne”, in R. Schwok (ed.), Place financière suisse, évasion fiscale et intégration européenne, Genève, Euryopa/IEUG, 2002, pp. 163–78. 5 Département fédéral des finances (hereinafter DFF), Press Release: Deuxième cycle de négociations bilatérales entre la Suisse et l’UE – Ouverture des négociations concernant la fiscalité de l’épargne, 18 June 2002. 6 DFF, Press Release: Négociations bilatérales Suisse – UE concernant la fiscalité de l’épargne. La retenue d’impôt comme base d’un accord, Département fédéral des finances, 31 October 2002. 7 DFF, Press Release: Négociations bilatérales II Suisse – UE concernant la fiscalité de l’épargne. Discussion au niveau ministériel, 22 November 2002. 8 Under Swiss legislation, tax fraud implies the fabrication of false documents, whereas tax evasion refers to “simple” fiscal subtraction. 9 DFF, Press Release: Négociations bilatérales Suisse – UE concernant la fiscalité de l’épargne: position du DFF sur le rapport de la Commission européenne destiné au conseil Ecofin, 28 November 2002. 10 ECOFIN, 2478ème session du Conseil Affaires Economiques et Financières, Bruxelles, 11 September 2002. 11 A. Lautenberg, “La fiscalità: una questione politica nell’evoluzione del contesto europeo”, Paper presented at the Conference “Segreto bancario e tassazione del risparmio. Il dovere di discrezione del Banchiere”, 21 February 2003, at Villa Negroni Vezia. 12 DFF Press Release: Négociations bilatérales II entre la Suisse et l’UE sur la fiscalité de l’épargne. L’UE reporte sa décision – la Suisse maintient son offre, 12 December 2002. 13 OECD, Agreement on exchange of information on tax matters, OECD global forum working group on effective exchange of information, 2002. 14 Département Fédéral des Finances and Département Fédéral des Affaires Etrangères, La place financière suisse. Aperçu des principaux thèmes et évolutions dans le domaine financier, Bern, Swiss Federal Administration, 2003. 15 J. Deiss, “Agir ou subir?”, Paper presented at the Annual Assembly of the Swiss Private Bankers’ Association, 8 June 2001, Fribourg. 16 J. De Watteville, “Négociations Suisse-UE sur la fiscalité de l’épargne”, Paper presented at a conference on «Secret bancaire. État des négociations sur la fiscalité de l’épargne et des travaux de l’OCDE», 16 June 2003, at Villa Negroni Vezia. 17 DFF, Press Release: L’Ecofin reporte sa décision sur la fiscalité de l’épargne, 7 March 2003. 18 Eléonore Sulser, “Fiscalité de l’épargne: les quinze s’engagent à tout régler au mois de juin”, Le Temps, 14 May 2003. 19 DFF, Press Release: Fiscalité de l’épargne: le Conseil des ministres de l’UE approuve le projet d’accord entre la Suisse et l’UE, 4 June 2003.

Bilaterals II: reaching the limits? 231 20 DFF, Press Release: Negotiations with the EU on Combating Fraud, 19 July 2001. 21 DFF, Press Release: Bilateral Negotiations EU–Switzerland Combating Customs Fraud: Progress, but still no Agreement, 15 March 2002. 22 This means that information shared in the framework of judicial assistance cannot be used for fiscal investigations. 23 DFF, Press Release: Négociations bilatérales Suisse-UE – Pas de solution commune en matière de lutte contre la fraude, 18 April 2002. 24 DFF, Press Release: Bilateral Negotiations between Switzerland and the EU – Discussions regarding the Dossier on Combating Customs Fraud, 19 September 2002. 25 DFF, Press Release: Significant Improvements in Cooperation Possible, 18 October 2002. 26 DFF, Press Release: Further Working Session to Resolve Remaining Differences in the Draft Agreement, 15 April 2003. 27 DFF, Press Release: Entretien entre le conseiller fédéral Kaspar Villiger et la commissaire européenne Michaele Schreyer, 16 May 2003. 28 Département Fédéral des Affaires Etrangères, Press Release: Entretiens au sommet pour la Cheffe du DFAE à Bruxelles: Mme Calmy-Rey a rencontré MM. Romano Prodi, Chris Patten et Javier Solana, 2 February 2004b; Le Président de la Confédération, Joseph Deiss, rencontre la présidence irlandaise de l’UE. Entretiens avec le Premier ministre Ahern et la Présidente McAleese, 16 February 2003. 29 C. Radaelli, “The Domestic Impact of European Union Public Policy: Notes on Concepts, Methods, and the Challenge of Empirical Research”, Politique européenne 5, autumn 2001, 107–42. 30 N. Walker (ed.), Europe’s Area of Freedom, Security and Justice, Oxford, Oxford University Press, 2004. 31 Federal Office of Justice, Bilatérales II: deuxième rencontre de négociation sur Schengen/Dublin, 4 October 2002 (press release). 32 “L’UDC appelle à suspendre toute négociation bilatérale jusqu’en 2009”, Le Temps, 8 April 2002. 33 Le Temps, 16 December 2003. 34 Pietro Petrucci, spokesperson of Commissioner to Justice and Home Affairs Antonio Vitorino, asserted jokingly to a Swiss newspaper that “the EU’s tobacco shop doesn’t sell Schengen Lights”, Le Temps, 24 March 2004. 35 Le Temps, 10 March 2004. 36 Le Temps, 16 March 2004. 37 Bureau de l’intégration, Document final sur le sommet Suisse–UE. Aperçu des solutions retenues lors des négociations sur les questions en suspens, 26 April 2004 (press release). 38 See P. Sciarini, “Decision-Making Processes”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics, Zurich, Neue Zürcher Zeitung, 2004, pp. 509–62. 39 Official Document of the Swiss Integration Office, www.europa.admin.ch. 40 This description is based on Integration Office DFAE/DFE, Accords bilatéraux II Suisse – Union européenne. Fact sheets, Bern, June 2005. 41 Though they engaged very late in the campaign and invested little money, at least in comparison with issues with bigger financial or economic stakes. 42 Besides this, since Switzerland was not part of the customs union, border controls were meant to be maintained as regards goods and, as a consequence, to the people carrying them through terrestrial borders. 43 One initiative committee, citing an unverified German source, asserted in a campaign leaflet that “90 per cent of holders of a Schengen visa are criminals or illegal workers”. 44 The advert showed a criminal being handcuffed, with the text “Warning to all criminals: Schengen strengthens the police”.

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45 See notably O. Mazzoleni, Nationalisme et populisme en Suisse. La radicalisation de la “nouvelle” UDC, Lausanne, Presses Polytechniques et Universitaires Romandes, 2003. 46 I. Engeli and A. Trechsel, Analyse des votations fédérales du 5 juin 2005, Genève, GFS/Université de Genève (Vox Analysis), 2005. 47 I. Engeli and A. Trechsel, op. cit. 48 See notably H.P. Kriesi and R. Lachat, Globalization and the Transformation of the National Political Space: Switzerland and France Compared, Zurich, CIS Working Papers, 2004. 49 R. Schwok (ed.), Place financière suisse, évasion fiscale et intégration européenne, Genève, Publications Euryopa IEUG, 2002, 163–78. 50 Oberson, op. cit. 51 F. Scharpf, Gouverner l’Europe, Paris, Presses de Sciences Po, 2001. 52 The Federal Council plans to provide a report during 2006–7 which should outline these options.

Bibliography C. Bonte, “Comprendre la logique politique de l’UE pour comprendre les négociations actuelles”, in R. Schwok (ed.), Place financière suisse, évasion fiscale et intégration européenne, Genève, Euryopa/IEUG, 2002, pp. 47–68. T. Börzel and T. Risse, “When Europe Hits Home: Europeanization and Domestic Change”, European Integration online Papers (EIoP) 4/15, 2002, 1–20. Bureau de l’Intégration DFAE/DFE, Accords bilatéraux II Suisse – Union européenne, Fact sheets, Bern, June 2005. Département Fédéral des Finances and Département Fédéral des Affaires Etrangères, La place financière suisse. Aperçu des principaux thèmes et évolutions dans le domaine financier, Bern, Swiss Federal Administration, 2003. J. De Watteville, “Négociations Suisse-UE sur la fiscalité de l’épargne”, Paper presented at a Conference on “Secret bancaire. Etat des négociations sur la fiscalité de l’épargne et des travaux de l’OCDE”, 16 June 2003, at Villa Negroni Vezia. J. Deiss, “Agir ou subir?”, Paper presented at the Annual Assembly of the Swiss Private Bankers’ Association, 8 June 2001, Fribourg. C. Eggli, “Le secret bancaire suisse face aux pressions internationales” in R. Schwok (ed.), Place financière suisse, évasion fiscale et intégration européenne, Genève, Euryopa/IEUG, 2002, pp. 31–42. I. Engeli and A. Trechsel, Analyse des votations fédérales du 5 juin 2005, Genève, GFS/Université de Genève (Vox Analysis), 2005. H.P. Kriesi and R. Lachat, Globalization and the Transformation of the National Political Space: Switzerland and France Compared, Zurich, CIS Working Papers, 2004. A. Lautenberg, “La fiscalità: una questione politica nell’evoluzione del contesto europeo”, Paper presented at the conference “Segreto bancario e tassazione del risparmio. Il dovere di discrezione del banchiere”, 21 February 2003, at Villa Negroni Vezia. O. Mazzoleni, Nationalisme et populisme en Suisse. La radicalisation de la “nouvelle” UDC, Lausanne, Presses Polytechniques et Universitaires Romandes, 2003. X. Oberson, “Coordination entre l’UE et la Suisse de l’imposition des revenus de l’épargne” in R. Schwok (ed.), Place financière suisse, évasion fiscale et intégration européenne, Genève, Euryopa/IEUG, 2002, pp. 163–78. C. Radaelli, The Politics of Corporate Taxation in the European Union: Knowledge and International Policy Agendas, London, Routledge, 1997.

Bilaterals II: reaching the limits? 233 C. Radaelli, “The Domestic Impact of European Union Public Policy: Notes on Concepts, Methods, and the Challenge of Empirical Research”, Politique européenne 5, autumn 2001, 107–42. F. Scharpf, Gouverner l’Europe, Paris, Presses de Sciences Po, 2001. R. Schwok (ed.), Place financière suisse, évasion fiscale et intégration européenne, Genève, Publications Euryopa IEUG, 2002. P. Sciarini, “Decision-Making Processes”, in U. Klöti, P. Knoepfel, H. Kriesi, W. Linder and Y. Papadopoulos (eds), Handbook of Swiss Politics, Zurich, Neue Zürcher Zeitung Publishing, 2004, pp. 509–62. N. Walker (ed.), Europe’s Area of Freedom, Security and Justice, Oxford, Oxford University Press, 2004.

13 The EU response to Switzerland Still a “special case”? Sieglinde Gstöhl

The preceding chapters have detailed the complexity of Switzerland’s relations with the European Union (EU) from a Swiss point of view. The aim of this chapter is to complement their accounts by assessing the Union’s attitude toward Switzerland in the recent past. This matters because Swiss integration policy is not only rooted in national considerations of desirability but also in the constraints of feasibility marked out by the EU. A non-member may, in other words, only achieve what the Union is willing, and able, to offer. I argue that the Union’s response to the Swiss Confederation has generally been obliging. However, since the late 1980s it has steadily hardened for reasons that are to be found on both sides. On the one hand, Swiss behaviour has several times tried the Union’s patience. Even though potential obstacles to closer integration such as the Cold War or economic incompatibilities had waned, the Swiss in 1992 rejected membership of the European Economic Area [EEA] – and thus indirectly in the EU.1 Instead, they have been demanding special treatment on the basis of a “pick and mix” approach. Swiss interest groups and parties have been eagerly campaigning for sectoral agreements promising benefits but are reluctant to accept those involving potential costs (in terms of sensitive reforms or solidarity contributions). For many observers this conduct raised the question whether the country really suffered from the constraints of direct democracy or was simply acting as an economic free rider. On the other hand, developments in and beyond Europe have simply absorbed the EU’s attention thanks to the new priorities they pose. The past decade and a half has proved a remarkably dynamic period of integration. Never before have treaties succeeded each other so fast, while Union membership has doubled. This process of widening and deepening has also rendered the EU’s external (economic) relations more complex as the number of agreements with third countries and of issue areas covered by them have increased. The Union has therefore come to prefer a group-based approach to tailor-made agreements with single countries. A Union of 25, reaching for world-power status, is forced to pay less attention to the wishes and sensitivities of an individual small, but well-off partner. Consequently, as the German Foreign Minister put it, mere “technical problems may become politicized” more easily.2 Hence, what are considered “technical problems” in the eyes of the Union, for example a change

The EU response to Switzerland 235 of practice leading to EU tariffs on Swiss re-exports or tightened controls at the Swiss–German border, might, in Switzerland, be interpreted as bullying. In addition, the facts that the Swiss economy is already closely incorporated in the internal market, and that the EU is increasingly embarking upon political matters, require further steps in integration to allow a move into increasingly sensitive issue areas. This has led to tougher bargaining on both sides in terms of preconditions, linkages and cross-concessions. With each further step of rapprochement Switzerland has thus found itself facing increasingly intricate multilevel negotiations. As a result, the traditional Swiss strategy of maximizing the (economic) advantages of European integration while minimizing its (political) burdens is likely to reach an impasse. The options open to Switzerland have narrowed to either further pursuing a bilateral approach, whose package deals require more and more political concessions, not to mention creating a cumulative lack of influence, or going for full membership with all its dreaded domestic implications – albeit with a voice at the table. Even though Switzerland is still a significant neighbour for the EU due to its geographic position and its weight as a trading partner, its relative importance has, from the EU’s perspective, been in decline since the early 1990s. Hence, the Union seems less prepared to grant exceptional status to the reluctant small state in the heart of its territory. And, since the EU is more vital to Switzerland than vice versa, bargaining leverage tends to be increasingly on the side of the former. The chapter is therefore divided into two main sections: the first sets out the Union’s principal (economic) options for non-member states and situates Switzerland within them, while the second looks more specifically at the EU approach to Swiss integration policy. The wider European perspective sets the comparative context in which the characteristics of Swiss–EU relations need to be assessed. Finally, some conclusions are drawn with regard to the future development of the relationship.

EU approaches to non-members Trade policy has traditionally been the EU’s principal instrument of foreign policy, in particular as long as the Common Foreign and Security Policy really existed only on paper. The legal basis of the trade preferences employed can differ, depending on their aim and material scope. Pure tariff and trade agreements in the framework of the Common Commercial Policy are based on Article 133 of the Treaty establishing the European Community [TEC] which, inter alia, covers partnership and cooperation agreements and certain types of freetrade accords. In general, these all concern an exclusive Community competence, where the Council may decide by qualified majority and the European Parliament is merely consulted.3 A more demanding procedure is foreseen in the case of association agreements which, according to Article 310 TEC, involve “reciprocal rights and obligations, common action and special procedures” with third countries or international organizations. Examples are the Cotonou

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Agreement and the Europe Agreements offered to the Central and Eastern European countries prior to their entry.4 These require unanimity in the Council, and the European Parliament must give its assent. In case of shared competences, both the Community and the member states become parties to the mixed agreement. Table 13.1 provides a typology of EU trade relations, starting with the most far-reaching arrangement. This table shows all too well that “the degree of preference accorded by the EU can depend on a combination of historical, economic and geo-political factors”.5 The European Economic Area (Group 1) constitutes an extended free-trade area which is best described as an internal market association between the Table 13.1 A typology of EU trade relations Type of trade regime

Examples

(1) internal market association

European Economic Area (Norway, Iceland, Liechtenstein)

(2) customs union – with perspective of accession – without perspective of accession (3) free trade agreement – with perspective of customs union

Turkey Andorra, San Marino former association agreements with Malta, Cyprus, Greece and Turkey

– without perspective of customs union and – symmetric reciprocity Switzerland (and with “bilaterals”) – asymmetric reciprocity South Africa, Mexico, Chile, former Europe Agreements (4) partnership and cooperation agreement – with perspective of free trade Russia, Ukraine, Moldova – without perspective of free trade Armenia, Azerbaijan, Georgia, Kazakhstan, etc. (5) non-reciprocal trade preferences – contractual: with perspective of Euro-Mediterranean Association Agreement reciprocal) free trade (Group 3) (Egypt, Morocco, etc.), Stabilization and Association Agreement (Macedonia, Croatia), Economic Partnership Agreements (ACP) – contractual: without perspective of Cotonou Agreement (African, Caribbean free trade and Pacific states) – autonomous Generalized System of Preferences, “Everything But Arms” Initiative, Stabilization and Association Process (Western Balkans) (6) most-favoured-nation (MFN) treatment other WTO member states (USA, Japan, Australia, etc.) (7) less-than-MFN treatment North Korea Source: adapted from Pascal Lamy, “Stepping Stones or Stumbling Blocks? The EU’s Approach Towards the Problem of Multilateralism vs Regionalism in Trade Policy”, The World Economy, 25/19, 2002, 1404.

The EU response to Switzerland 237 Community and the countries of the European Free Trade Association, with the exception of Switzerland. The EEA has been fully reciprocal and symmetrical among the partners from the beginning and reaches beyond the stage of “shallow integration” (i.e. the removal of border measures) into the area of “deep integration” (i.e. the harmonization or mutual recognition of economic or regulatory policies). Agreements on a customs union (Group 2) exist only with Turkey (established in 1996, pursuant to the 1963 Association Agreement) and the two small enclaves of Andorra and San Marino.6 The free trade agreements [FTAs] of Group 3 comprise the Europe Agreements with the (former) candidate countries of Central and Eastern Europe, the earlier association agreements with the Mediterranean countries (with their long-term perspective of leading to customs unions) as well as new bilateral treaties with non-European states all over the world. The Europe Agreements have contained elements of deep integration in some areas, for example harmonization of competition policies, while providing for non-symmetric reciprocity in the field of trade liberalization (with the EU liberalizing bilateral trade faster than its partners). The FTAs with Mexico, Chile and South Africa7 provide reciprocal but asymmetric bilateral trade liberalization and involve a somewhat lower degree of integration than the Europe Agreements. Switzerland’s free-trade agreement (for industrialized products) dates back to 1972, when, in the wake of its first enlargement, the Community had concluded bilateral agreements with all EFTA countries.8 Partnership and Cooperation Agreements [PCAs] have been negotiated with the Eastern European and Central Asian countries of the Commonwealth of Independent States [CIS]. The PCAs with the European CIS (Russia, Ukraine, Moldova) aim at the eventual setting up of a free-trade area at an unspecified time in the future thus, in the long run, shifting them from Group 4 to Group 3. These agreements are reciprocal, but non-preferential, and basically grant MFN treatment. CIS exports to the EU are also partly eligible for Generalized System of Preferences [GSP] benefits. In the framework of the Euro-Mediterranean Partnership, the EU has negotiated association agreements with nine Mediterranean countries which in most cases replaced older cooperation agreements from the 1970s. Free trade is to be introduced in accordance with WTO rules, and over a transitional period which may last up to 12 years as regards tariff dismantling by the partner countries. Hence, the Euro-Mediterranean Association Agreements (Group 5) are being transferred into the “higher” class of reciprocal free-trade agreements (Group 3), but currently only Israel has obtained free trade with the EU. The so-called Stabilization and Association Process for the war-torn countries of South-Eastern Europe involves autonomous trade preferences which are also gradually being replaced by reciprocal obligations and a free-trade perspective in the Stability and Association Agreements (presently in force for Croatia and the former Yugoslav Republic of Macedonia). In addition, the EU has in 2004 agreed a European Neighbourhood Policy [ENP], reinforcing its ties with neighbouring countries to the East and South, through an array of new forms of cooperation

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and (technical and financial) assistance which may include a continued reduction of trade barriers. The ENP builds on the existing contractual relations of the Euro-Mediterranean Partnership and the PCAs. Switzerland, like other potential candidates for EU membership, is not covered by the ENP. In the Cotonou Agreement with the African, Caribbean and Pacific states, which had replaced the Lomé Convention, the trade chapters are being exchanged for a series of new Economic Partnership Agreements [EPAs], given that their exception from WTO law will expire in 2008. These EPAs are based on the progressive and increasingly reciprocal removal of trade barriers. EU–ACP relations are thus also moving in the direction of free-trade agreements (Group 3). Furthermore, the Community has since 1971 been implementing a unilateral GSP which grants developing countries either duty-free access or tariff reductions. The most favourable treatment is provided by the so-called “Everything But Arms” initiative of 2001 which offers duty-free access without any quantitative restrictions to imports from least developed countries, except for weapons and munitions. Five observations can be drawn from this classification. First, the Swiss position is not “on top” of the pyramid of trade preferences outlined in Table 13.1, even though Switzerland is the EU’s second most important export market after the United States, and no other third country has as many agreements with the EU in place as does Switzerland. Second, many countries have over time been climbing upwards in Table 13.1, for example from non-reciprocal to reciprocal trade and from cooperation to free-trade agreements. For Switzerland, however, not much room for manoeuvre remains in its quest for an “EEA-like” bilateralism. The idea of a customs union was recently discussed but has officially never been considered a viable option when compared to full membership.9 Third, Switzerland might nevertheless move closer to internal market association by trying to conclude further bilateral agreements. In fact, Hanf and Dengler already classify the EU’s relationship with Switzerland as an association agreement, and Lavenex even sees it as a quasi-membership.10 From an institutional point of view, however, it does not seem to fall into either category. An association agreement would create proper organs of common decision making (for example an association council at ministerial level, an association committee, some kind of dispute settlement procedure and perhaps also a parliamentary dialogue) and not just a mixed committee at official level as a forum for bilateral negotiations.11 Only a few of the 16 “bilaterals” are actually qualified as association agreements (civil aviation, free movement of persons, Schengen/Dublin).12 Yet, as a result of the package deal – discussed by Dupont and Sciarini – regarding “bilaterals I”, and in order to avoid internal conflicts regarding the division of competences,13 the EU Council of Ministers had opted for a reference to Article 310 TEC and a procedure requiring the assent of the European Parliament which is a characteristic of associations.14 By contrast, for the “bilaterals II” deals, as described by Afonso and Maggetti, both Switzerland and the EU have opted for individual ratification decisions, and the European Parliament is merely being consulted. The current state of relations thus

The EU response to Switzerland 239 embraces elements of an association, with a real association agreement still constituting a potential – yet hardly discussed – option for the future.15 Most recently, however, the European Commission and the Swiss government agreed to explore the possibility of concluding a “framework agreement” for all the bilaterals although, as Church notes, there are difficulties about this.16 Fourth, the Community’s range of trade regimes with third countries has broadened considerably over time. From this angle, Switzerland’s position may not be considered wholly exceptional. In addition, the Swiss achievements are increasingly qualified by the general trend in the Union’s external relations to request reciprocal free trade – even with developing countries – and to include services together with provisions on harmonization in terms of an approximation to Community rules, for example on technical standards, intellectual property rights, competition and government procurement.17 Hence, categories 4 and 5 in Table 13.1 are slowly moving upwards, while the top groups are reaching the upper limit, which really only leaves EU membership as an alternative. Fifth, in the 1990s the Union’s goal of structured region-to-region relations has been considerably strengthened. Cremona identifies three criteria which the EU applies to differentiate between states and groups of states: regional or geopolitical policies (e.g. Euro-Mediterranean Partnership, PCAs, South Africa); economic or developmental characteristics (e.g. the Cotonou Agreement); and a conditional differentiation (e.g. Stabilization and Association Process).18 Furthermore, the Community prefers to negotiate with groups of states that already have close relations with each other; it has in fact raised regional integration abroad into an objective by encouraging partners to cooperate among themselves, such as with the Visegrad, Arab-Mediterranean or Caribbean states.19 While this linkage is often less welcome from the third country’s perspective, it creates economies of scale for the EU. As an intergovernmental organization of West European small states practising free trade among themselves, EFTA formed a grouping that the EU could easily deal with. Switzerland, however, defied the Union’s regional approach by not joining the EEA and by not reactivating its 1992 EU membership application in the context of the Northern or Eastern enlargement rounds.

The Union’s response to the Swiss solo run In spite of fulfilling the accession criteria from the outset, Switzerland has been a “reluctant European” which, for a long time, has aimed at a lower level of integration than full EU membership.20 Yet, the Community began to treat the seven EFTA states as a group in the mid-1980s, when the “Luxembourg Process” was launched. This was potentially, as Church has noted in a previous chapter, a pragmatic sector-by-sector approach of cooperation in areas reaching beyond the bilateral free-trade agreements of 1972. In light of the Community’s plans to complete its internal market by 1992 and the discriminatory potential this entailed for the European Free Trade Association, however, this first truly multilateral EFTA undertaking quickly proved to be too slow and cumbersome.

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In order to deter possible membership applications, which at the time might have interfered with the EC’s deepening process, Commission President Delors in 1989 initiated the idea of a broad institutionalized partnership resting on two pillars, the Community and an upgraded EFTA organization. In the course of the EEA negotiations, it turned out that this concept could not provide a viable alternative for most EFTA countries: while it would extend the benefits of the internal market, it would not grant them a say in the political decision-making process.21 Within the span of a few years all EFTA states, except for Iceland and Liechtenstein, applied for accession to the EU. In fact, the fall of the Berlin Wall, the successful conclusion of the Maastricht Treaty on European Union and the unsatisfactory EEA outcome made membership attractive not only to non-members but also to the Union which then welcomed the contribution of the small, rich EFTA states to the outstanding task of uniting the European continent. On 20 May 1992, only a few days after having signed the EEA Agreement, the Swiss government applied for EU membership. After the Swiss people and cantons rejected the ratification of the EEA Agreement on 6 December 1992, the Federal Council decided to suspend any accession talks until further notice. As a matter of fact, the Swiss government had never felt comfortable about being forced to speak with one voice in the EFTA camp; and with regard to the institutional structure of the EEA, the Swiss expectations had been far from what the EC was able or willing to deliver.22 Switzerland seems to have been surprised that the Community, on the basis of Delors’ proposal, was not prepared to compromise its internal decision-making autonomy in favour of a joint one-pillar EEA structure which would have granted EFTA parity.23 In order to minimize the negative economic consequences of not joining the EEA, Switzerland opted for bilateral negotiations, thereby compelling the EU to revert to what it saw as an “outdated” approach.24 In the summer of 1993, the Swiss Federal Council submitted a wish list of 16 policy areas for talks with the EU. Negotiations finally began in late 1994 in seven sectors that had already been covered by the EEA talks. Fraught with several difficulties,25 negotiating the “bilaterals I” took five years, as Sciarini and Dupont show elsewhere in this volume.26 While the EU started out with clear objectives and altered its mandates only marginally during the bargaining process, Switzerland had regularly to adapt its negotiation guidelines.27 Senti also observes that, generally, the length of negotiations with the EU has markedly increased in the past 20 years.28 The EU system of multilevel governance implies that a third country needs to deal with different actors (Commission, Council, Parliament, member states), none of which individually possess the final competence to conclude an agreement. Hence, it needs to cultivate goodwill on all levels, and not just in the case of mixed agreements. In the runup to the 1999 overland transport agreement, for instance, Switzerland received about 50 delegations.29 On 6 May 2000, the Swiss people approved the seven agreements. After ratification in all EU member states, they finally entered into force on 1 June 2002,

The EU response to Switzerland 241 almost ten years after the rejection of the EEA Agreement. In the same year, a second series of sectoral consultations began, and another nine bilateral agreements were signed on 26 October 2004.30 As already discussed in more detail by Afonso and Maggetti, both rounds of negotiations have been marked by three characteristics: first, the EU negotiates only if it is very much in its own interest; second, the EU prefers package deals with a parallel opening and conclusion of the negotiations and a simultaneous entry into force, typically involving issue linkages; and third, negotiations take place on the basis of the acquis communautaire (or equivalent norms). Where the specific interests of the two sides are concerned, the EU made it clear that the free movement of persons was a non-negotiable requirement and also asked the Swiss to raise their limit for trucks from 28 to 40 tonnes. Switzerland, in turn, wanted access to the internal market similar to that offered by the EEA Agreement. With regard to the “bilaterals II”, the Union was eager, as Church and his co-authors have already noted, both to integrate Switzerland into its planned system of cross-border taxation of savings and to increase cooperation in the fight against fraud in the area of indirect taxes.31 Switzerland, on the other hand, was interested in cooperation on policing, justice, visa and asylum (Schengen/Dublin) as well as on the “leftovers” from the first round of negotiations such as statistics, environment and education. Moreover, in view of its Eastern enlargement, the Union seized the opportunity to request a financial contribution to its economic and social cohesion funds from Switzerland in the form of 1 billion CHF over a period of five years. With regard to package deals, the Union insisted on an “appropriate parallelism” between the seven agreements of the first round. A “guillotine clause” ensures that all the agreements will come to an end if any one of them is terminated (except for the agreement on research which is tied to the EU’s Framework Programmes). From the EU’s point of view, this was necessary in order to guarantee that the free movement of persons could not be the only agreement failing Swiss ratification. That such a linkage was indispensable was not only obvious in the controversial Swiss ratification process of the “bilaterals I”, but also in view of negotiating an extension of the agreement on the free movement of persons to the new member states that joined the EU in 2004 (the other six agreements being adopted automatically). A referendum challenge was indeed launched, but was rejected by a votation on 25 September 2005, allowing the extension to go ahead.32 A rejection of the extension would have led to discrimination between EU citizens which the Union could not have accepted. Whether a Swiss “no” would have implied the resilience of all the bilateral agreements concluded in 1999 was a question left open by the EU. Ironically, in the second round of negotiations it was not the EU but the Swiss government that insisted on parallelism and a balanced outcome.33 Since the only subject likely to generate a call for a referendum was a Swiss negotiation request, to be associated with the Schengen/Dublin Conventions, there was no need for the EU to demand a linkage between the sectoral agreements. Hence, the “bilaterals II” do not contain a “guillotine clause”.34 Even though an

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optional referendum would have been possible against seven of the nine new agreements, it was only launched against Schengen/Dublin. After a controversial campaign, the Swiss voters approved the agreement on 5 June 2005. Finally, institutional issues are far less suitable for sectoral bilateral treaties. Any participation in the EU’s political system requires the application of the same legal rules and their identical further development. This basically means that Switzerland adopts or adapts to the acquis communautaire.35 Both the development of the Union’s typology of trade regimes and of its “deep integration model” of regionalism imply a lack of flexibility in its negotiations with third countries. The EU is likely to “offer a package of provisions that fits its own conception of differentiation and its own views of what level of integration is desirable, and will ‘tailor’ the regulatory provisions accordingly”.36 In other words, the EU may be less willing (and able) to take account of the particular needs of its interlocutors. In fact, the EU’s “near abroad” has become a target of significant “policy export” from the Union.37 Such an approach reduces the transaction costs and the complexity of external relations and facilitates future enlargements. Given Switzerland’s already high level of integration, it will become more and more difficult to find areas of mutual interest to conclude further bilateral agreements, or, respectively, the price of such agreements will increase, both in terms of financial and sovereignty costs. Kux and Sverdrup thus conclude with regard to Switzerland and Norway that “the process they are involved in remains formally intergovernmental, but the effects they experience are supranational”.38 In the end, this realization might well lead to Swiss EU membership. The Union would definitely welcome Switzerland as a multi-cultural model country in the very heart of Europe and as a net contributor to its budget.

Conclusions: reaching the limits of bilateralism This chapter has attempted to show that both the European Union and Switzerland face constraints which impact their bilateral dealings. On the one hand, the EU’s attention has been absorbed by new priorities due to its enlargements (and the growing heterogeneity that comes with them) and treaty revisions (including the failed ratification of the Constitutional Treaty) which, in turn, lead not only to a growing global role of the Union but also lower its inclination to grant special treatment to individual countries. On the other hand, Switzerland has been very demanding in its approach to the EU because of its domestic politics. Its insistence on tailor-made alternative agreements and its already impressive level of integration make further steps more difficult. Nevertheless, the EU has demonstrated a willingness to accommodate Swiss peculiarities, even beyond its preferred regional approach. The Schengen association is the latest case in point: the bilateral agreement guarantees Switzerland a permanent exception in the event that further development of the Schengen acquis should give rise to an obligation for mutual legal assistance with regard to the evasion of direct taxes, which would endanger the Swiss banking secrecy.

The EU response to Switzerland 243 This solution had been reached in spite of the fact that the EU normally only grants transitional periods.39 Moreover, the EU has shown consideration for Swiss direct democracy by admitting a consultation procedure in the Schengen/Dublin association as well as a two-year period for ratification of new legal acts – in spite of the fact that the two other associated non-members, Norway and Iceland, had been granted only six months and four weeks, respectively. However, the EU has also clearly shown the limits of its understanding, these limits being of a substantive, institutional and legal nature. First, as regards contents, negotiations will only take place if they cover interests of both sides. Balancing is achieved through parallelism, package deals and side payments. Second, the Union does not compromise its institutional decision making. In fact, since the intensification of EC–EFTA relations in the late 1980s, the Community had continuously been insisting on the priority of its internal integration, on the preservation of its decision-making autonomy and on the maintenance of a balance of benefits and obligations.40 This principle was to a large extent also enforced in the institutional set-up of the EEA. In a similar way, former Commission President Prodi had, more recently, pointed out that the European Neighbourhood Policy would include “sharing everything but institutions”.41 Switzerland may to some extent take part in the decision shaping (with Swiss experts participating in relevant EU working groups), but not in the decision making of the relevant acquis. Third, legal harmonization has to take place on the basis of the acquis communautaire. This holds not only for the EEA Agreement but also for the bilaterals. According to the Swiss chief negotiator, the EU had made it very clear that “EU law is the guiding principle in negotiations with third states”, a condition that is likely to become even more important after the enlargements.42 Today, Switzerland is still a “special case” in Europe, but this position is coming under pressure: other countries are “catching up” with the Swiss “Sonderfall”; the EU is “streamlining” its external relations; Swiss domestic opinion may be changing; and bilateralism may be reaching its limits. Eliassen and Sitter, for instance, argue that the “Norwegian method” of securing access to the internal market via the EEA, participating ad hoc in other policy areas and adapting to developments in the European Union “is coming close to its limits with respect to new forms of cooperation that are not readily accommodated by buy-ins” such as a Norwegian participation in the monetary union or the Common Foreign and Security Policy.43 The same observation holds for the “Swiss method” of concluding a series of static bilateral agreements. The EU has been, and is, developing into areas that are increasingly difficult to cover through the EEA or bilateral buy-ins. Consequently, the traditional Swiss strategy of maximizing the (economic) advantages of European integration, while minimizing its (political) burdens, is increasingly being challenged. Switzerland may either further pursue a thorny bilateral approach requiring package deals without an adequate say, or opt for full membership. The issue of liberalizing services is still on the table and talks on access to the electricity markets have recently been agreed, but in general the

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liberalization of markets has to a great extent been achieved. Agreements beyond market access, however, often entail asymmetrical interests which can only be satisfied by political cross-concessions and side-payments in package deals. Hence, it might become more difficult but – depending on the dynamics of the EU’s deepening process – also less pressing to conclude such complex bargains. Besides, the Union might have a weaker interest in further bilateral agreements as long as a Swiss accession remains something relegated to a distant future.

Notes 1 In addition, the Swiss institutions and electorate, as Church shows elsewhere in this volume, in 2001 rejected the “Yes to Europe!” initiative which required an immediate opening of negotiations on EU membership. 2 “Die Einsamkeit der Eidgenossen”, Süddeutsche Zeitung 8/9 May 2004, 10. 3 The procedures for the conclusion of agreements are set out in Article 300 TEC. 4 The definition has thus been kept very flexible, allowing for associations ranging from an alternative to accession, over a waiting room for membership to an instrument of development or of interregional cooperation. 5 D. McGoldrick, International Relations Law of the European Union, London, Longman, 1997, p. 183. Table 13.1 should not be interpreted as a strictly hierarchical pyramid of trade preferences. 6 Whereas the agreement with Turkey is based on Article 310, those with Andorra and San Marino are based on Article 133 TEC. Through its special relations with France, Monaco is indirectly an integral part of the Community’s customs territory, albeit not of its external trade relations. 7 More precisely, the EU has concluded an Economic Partnership, Political Coordination and Cooperation Agreement with Mexico, an Association Agreement with Chile and a Trade, Development and Co-operation Agreement with South Africa. 8 The Swiss FTA derives from Article 133 TEC but the more recent bilateral agreements have different legal bases. 9 “Eine Zollunion – keine überzeugende Option”, Neue Zürcher Zeitung, 27 March 2004, 25. 10 D. Hanf and P. Dengler, “Les accords d’associations”, in J.V. Louis and M. Dony (eds), Le droit de la CE et de l’Union européenne, vol. 12: Relations extérieures (Commentaire J. Mégret), Brussels, Editions de l’Université de Bruxelles, 2005, p. 302; S. Lavenex, “EU External Governance in ‘Wider Europe’ ”, Journal of European Public Policy 11/4, 2004, 683. 11 The European Court of Justice has characterized an association agreement as an accord creating “special, privileged links with a non-member country which must, at least to a certain extent, take part in the Community system” (Case 12/86 Demirel (1987) ECR 3719, paragraph 9). 12 In contrast to the FTA and other bilateral agreements, they imply taking over parts of the acquis (including interpretations of the European Court of Justice). 13 Hanf and Dengler, op. cit., p. 308. 14 Official Journal L 114, 30 April 2002, 1–5. The European Commission had only proposed individual Council decisions based on different treaty provisions according to the policies concerned (COM (1999) 229 final). 15 D. Freiburghaus, “Ist der Bilateralismus am Ende? In den Hauptbereichen Lösungen mit der EU gefunden”, Neue Zürcher Zeitung, 28 May 2004, 15. Swiss doubts about an association might have had something to do with the failed association attempt in

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16 17 18 19

20 21 22 23 24

25 26 27 28 29 30 31

32 33 34

35

the 1960s which left Switzerland sceptical with regard to the balance between the legal obligations and the institutionalized rights of an associated state. Cf Gstöhl, Reluctant Europeans: Sweden, Norway, and Switzerland in the Process of Integration, Boulder, Rienner, 2002 at Chapter 4. Interestingly, the association request of 1963 has never been officially withdrawn. “Rahmenvertrag mit der EU?”, St. Galler Tagblatt, 28 September 2005. M. Cremona, “Flexible Models: External Policy and the European Economic Community”, in G. de Búrca and J. Scott (eds), Constitutional Change in the EU: From Uniformity to Flexibility?, Oxford, Hart, 2000, pp. 74–91. Ibid., pp. 60–2. In all these cases, there has, since the 1990s, been a trend to insert human rights and democracy clauses. In this regard, the agreements with Switzerland (and the EEA) are exceptions. This tendency is most visible in the EU’s long-term plans to establish free trade with other regional integration schemes (such as its ongoing negotiations for an Interregional Association Agreement with Mercosur or for a free-trade agreement with the Gulf Cooperation Council). Cf Gstöhl, op. cit. S. Gstöhl, “EFTA and the European Economic Area or the Politics of Frustration”, Cooperation and Conflict 29/4, 1994, 333–66. See also Church elsewhere in this volume. Federal Council, Botschaft des Bundesrates vom 18. Mai 1992 über die Genehmigung des Abkommens über den Europäischen Wirtschaftsraum, Berne, 18 May 1992, I/49. Ibid., I, 46–7; Cf also P. Nell, “L’accord sur l’Espace Economique Européen et les bilatérales Suisse/UE: réflexions sur deux négociations”, Revue économique et sociale 60/1, 2002, 65–6. In addition, unilateral measures such as the “Eurolex”/“Swisslex” programme aimed at bringing Swiss law into line with that of the EU, and a revitalization programme was to improve Switzerland’s economic attractiveness by the dismantling of various domestic market barriers. Nell, op. cit., 67–71. Cf Federal Council, Botschaft des Bundesrates vom 23. Juni 1999 zur Genehmigung der sektoriellen Abkommen zwischen der Schweiz und der EG, Berne, 23 June 1999, pp. 13–16. Nell, op. cit., 81. R. Senti, “Handelsverhandlungen mit der EU aus der Sicht eines Drittstaates”, Integration 23/3, 2000, 211. Ibid., 212. The member states are not negotiating but may exercise a veto or at least political pressure at different points in the process, and they sometimes seize the opportunity to pursue their own particular interests. Negotiations on liberalizing services were suspended in May 2003. Federal Council, Botschaft des Bundesrates vom 1. Oktober 2004 zur Genehmigung der bilateralen Abkommen zwischen der Schweiz und der Europäischen Union, einschliesslich der Erlasse zur Umsetzung der Abkommen (“Bilaterale II”). Berne, 1 October 2004, 5989. Another referendum might be called after the accession of Bulgaria and Romania as well as in 2009, when Switzerland has to decide whether to continue the agreement on the free movement of persons. Ibid., 5992–4. See on this Afonso and Maggetti elsewhere in this volume. However, Commissioner Ferrero-Waldner had hinted at a political linkage when pointing out that the EU might put the ratification of Schengen/Dublin on hold if the extension of the free movement of persons was rejected. Neue Zürcher Zeitung, “Kein Schengen ohne Personenfreizügigkeit”, 6 June 2005. Freiburghaus, op. cit. The Schengen/Dublin agreements foresee a termination should Switzerland reject new acts or measures and subsequent ministerial consultations on alternative solutions fail.

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36 Cremona, op. cit., 92. 37 T. Christiansen, F. Petito and B. Tonra, “Fuzzy Politics Around Fuzzy Borders: The European Union’s ‘Near Abroad’ ”, Cooperation and Conflict 35/4, 2000, 389–415. 38 S. Kux and U. Sverdrup, “Fuzzy Borders and Adaptive Outsiders: Norway, Switzerland and the EU”, Journal of European Integration 22(3), 2000, 264. The agreement on civil aviation, for instance, extends existing Community law to Switzerland, and EC institutions have the power to oversee competition law. 39 The EU probably made a tactical mistake by putting itself under time pressure with the condition of concluding negotiations with third countries like Switzerland before adopting its own directive on the taxation of savings by the end of 2002. 40 W. De Clercq, Speech by the Commissioner at the EC–EFTA Ministerial Meeting, Interlaken, 20 May 1987, 5–6. 41 R. Prodi, “A Wider Europe – A Proximity Policy as the Key to Stability”, Speech at the Sixth ECSA–World Conference, Brussels, 5–6 December 2002. 42 Neue Zürcher Zeitung, “Geeint zum Verhandlungserfolg”, 21 May 2004. 43 K. Eliassen and N. Sitter, “Ever Closer Cooperation? The Limits of the ‘Norwegian Method’ of European Integration”, Scandinavian Political Studies 26/2, 2003, 137.

Bibliography T. Christiansen, F. Petito and B. Tonra, “Fuzzy Politics Around Fuzzy Borders: The European Union’s ‘Near Abroad’ ”, Cooperation and Conflict 35/4, 2000, 389–415. M. Cremona, “Flexible Models: External Policy and the European Economic Community”, in G. de Búrca and J. Scott (eds), Constitutional Change in the EU: From Uniformity to Flexibility?, Oxford, Hart, 2000, pp. 59–94. W. De Clercq, Speech by the Commissioner at the EC–EFTA Ministerial Meeting, Interlaken, 20 May 1987. K. Eliassen and N. Sitter, “Ever Closer Cooperation? The Limits of the ‘Norwegian Method’ of European Integration”, Scandinavian Political Studies 26/2, 2003, 125–44. Federal Council, Botschaft des Bundesrates vom 18. Mai 1992 über die Genehmigung des Abkommens über den Europäischen Wirtschaftsraum, Berne, 18 May 1992. Federal Council, Botschaft des Bundesrates vom 23. Juni 1999 zur Genehmigung der sektoriellen Abkommen zwischen der Schweiz und der EG, Berne, 23 June 1999. Federal Council, Botschaft des Bundesrates vom 1. Oktober 2004 zur Genehmigung der bilateralen Abkommen zwischen der Schweiz und der Europäischen Union, einschliesslich der Erlasse zur Umsetzung der Abkommen (“Bilaterale II”), Berne, 1 October 2004. D. Freiburghaus, “Ist der Bilateralismus am Ende? In den Hauptbereichen Lösungen mit der EU gefunden”, Neue Zürcher Zeitung, 28 May 2004, 15. S. Gstöhl, “EFTA and the European Economic Area or the Politics of Frustration”, Cooperation and Conflict 29/4, 1994, 333–66. S. Gstöhl, Reluctant Europeans: Sweden, Norway, and Switzerland in the Process of Integration, Boulder, Col., Lynne Rienner, 2002. D. Hanf and P. Dengler, “Les accords d’associations”, in J.V. Louis and M. Dony (eds), Le droit de la CE et de l’Union européenne, vol. 12: Relations extérieures (Commentaire J. Mégret), Brussels, Editions de l’Université de Bruxelles, 2005, pp. 293–324. S. Kux and U. Sverdrup, “Fuzzy Borders and Adaptive Outsiders: Norway, Switzerland and the EU”, Journal of European Integration 22(3), 2000, 237–70. P. Lamy, “Stepping Stones or Stumbling Blocks? The EU’s Approach Towards the Problem of Multilateralism vs Regionalism in Trade Policy”, The World Economy 25/19, 2002, 1399–413.

The EU response to Switzerland 247 S. Lavenex, “EU External Governance in ‘Wider Europe’ ”, Journal of European Public Policy 11/4, 2004, 680–700. D. McGoldrick, International Relations Law of the European Union, London, Longman. 1997. P. Nell, “L’accord sur l’Espace Economique Européen et les bilatérales Suisse/UE: réflexions sur deux négociations”, Revue économique et sociale 60/1, 2002, 61–86. Neue Zürcher Zeitung, “Eine Zollunion – keine überzeugende Option”, 27 March 2004a, 25. Neue Zürcher Zeitung, “Geeint zum Verhandlungserfolg”, 21 May 2004b. Neue Zürcher Zeitung, “Kein Schengen ohne Personenfreizügigkeit”, 6 June 2005. R. Prodi, “A Wider Europe – A Proximity Policy as the Key to Stability”, Speech at the Sixth ECSA–World Conference, Brussels, 5–6 December 2002. R. Senti, “Handelsverhandlungen mit der EU aus der Sicht eines Drittstaates”, Integration, 23/3, 2000, 208–14. St. Galler Tagblatt, “Rahmenvertrag mit der EU?”, 28 September 2005. Süddeutsche Zeitung, “Die Einsamkeit der Eidgenossen”, 8–9 May 2004, 10.

14 Prospects Yannis Papadopoulos

I should perhaps start by expressing my deep reservations about the ability of the social sciences to predict anything in the future. I would like to illustrate my reservations with the following example from Swiss politics. About 15 years ago, Wolf Linder and Huyen Ballmer-Cao were asked to produce, in the framework of the Commission «Schweiz Morgen» (“Switzerland tomorrow”), some scenarios sketching plausible political evolutions in Switzerland.1 They produced three scenarios: «Es bleibt (fast) alles, wie es ist», «Europäisierung der Verfassung», and «Gesellschaftliche Vitalisierung der Demokratie» (“Everything remains – almost – as it is”, “Europeanization of the Constitution”, and “Societal Revitalization of Democracy”). Unsurprisingly, it is the first scenario that proved closer to reality, coupled with some elements borrowed from the second scenario on europeanization. Nevertheless, none of the three scenarios accorded much importance to two major changes observed in the last few years: the strengthening of neo-liberal ideas and policies, and the rise of the nationalpopulist opposition.2 This has nothing to do with the excellent quality of the authors’ work, but to bias related to the intellectual logic of this simulation exercise. Generally speaking I do not really believe in deterministic laws. Even less can I believe in them when the subject of the prediction is so complex, and its evolution so uncertain, as is the case of relations between Switzerland and the European Union. Nonetheless, in looking to the future of the relations between Switzerland and the European Union on the basis of the preceding chapters, I am afraid that the most likely scenario is the worst-case outcome for pro-Europeans. For even if a majority of Swiss voters may one day decide in favour of EU membership in a (mandatory) referendum, hopes of achieving the necessary supporting majority of cantons seem to be an illusion, in spite of the fact that, as Dardanelli shows, cantonal governments support such European integration. Unless Switzerland experiences an unlikely form of “critical juncture”, which would force it to revise dramatically its European policy options, the domestic hurdles to integration are too high to be overcome in the foreseeable future. Here, the Swiss version of “Verfassungspatriotismus”, that is to say firm identification with national direct democracy, as stressed by Trechsel, is a key obstacle to joining the EU, the Swiss people fearing that EU membership will

Prospects 249 undermine their domestic prerogatives and sovereignty. The same applies to another pillar of Swiss identity, neutrality as it is perceived by public opinion, even though, as Ganser and Kreis argue, the status of the concept has been subject to various strategically motivated rhetorical instrumentalizations. Of course federalism is also an obstacle: small cantons which are overrepresented in the double majority procedure (not to mention in the second Chamber of the bicameral federal parliament) are, as a rule, the more traditionalist, and the most afraid of a loss of influence and identity in a much larger political space. However, reluctance about engagement with the EU does not only derive from these mythical components of Swiss identity. Weder shows that economic elites have alternative options to maximize their interest, while Koch and Lavenex demonstrate that Swiss workers are fearful of the free movement of labour. And these fears can be exploited by the nationalist opposition which has at its disposal a fairly favourable domestic opportunity structure, thanks to the utilization of the referendum instrument as Stämpfli shows.

Europeanization The interesting, and perhaps somewhat surprising, thing is that, in many ways, Switzerland is already “europeanized”. Despite not being an EU member, Switzerland’s economy is strongly integrated with the EU economy (and with that of the wider world). But europeanization also affects – although admittedly to an uneven extent – all the components of the Swiss political system: notably “politics” in the sense of political competition, but also public policies and, to some extent, national institutions, that is to say the “polity” side of things. As regards the “politics” dimension, and just as in EU countries, the partisan landscape was widely restructured by the pro- versus anti-European cleavage which now figures high on the political agenda.3 The successes of the nationalpopulist Swiss People’s Party [SVP] are, to a large extent, a consequence of a reaction against Europe (and against the diverse facets of general foreign penetration). The moderate conservative parties are divided and thus are not strongly committed on the European issue, partly because they fear the “blackmailing” power of the SVP which has led to “contagion” from the right on the issue. Not only was the national-populist opposition sweepingly successful in successive elections, but this led to its increasing acceptance “into the mainstream”, as Stämpfli has demonstrated. Although counterfactual reasoning is risky, it is almost certain that, in the absence of the “shadow” of Europe, the conditions which gradually led in recent years to the explosion of the post 1959 Swiss “magic formula” would not have come into existence. With respect to the degree of policy europeanization, one might expect Switzerland to be a “least likely” case. There has been a considerable misfit between Switzerland and the EU in a number of policy fields, and this can be coupled to an institutional architecture, with several formal and informal veto points, which is inimical to reforms. Yet, in spite of having decided not to join the EU, the Swiss federal authorities deliberately opted for systematically checking

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the “eurocompatibility” of every reform on the domestic agenda. This, of course, does not mean that they refrain from engaging in reforms which do not fit with the acquis communautaire, but it can be considered as a sign of a considered position vis-à-vis policy developments within the EU. The europeanization of policies in Switzerland mainly occurs in the indirect form of the so-called “autonomer Nachvollzug” (or autonomous adaption).4 This is an official euphemism which overstates the role of unconstrained decision making and underestimates the fact that, by remaining outside the EU, Switzerland is unable to “upload” any of its policies from the national to the European level. There is some empirical evidence on the European impact, mainly on regulatory policies such as various facets of competition policy (cartel legislation, public procurement and the domestic market), or the liberalization of the utilities sector (telecoms, the postal services and the electricity market).5 It seems, however, that the initial “boom” in the europeanization of Swiss policies has now passed, partly also because the actual fate of political decisions is strongly influenced by implementation processes. And, in a federal state, these are highly variegated. Resistances to europeanization come both from conservative protectionist forces and from the left and the trade unions. It is therefore likely that the degree of policy europeanization in Switzerland will very much depend on the future – and perhaps changing – configuration of the domestic arena. If we attempt to make a provisional (and certainly partial) assessment, we may conclude that europeanization indeed takes place, but remains incremental and incomplete. On the other hand, the degree of policy adjustment may not be significantly lower than among those EU member states at the “bottom of the class”. We know that “à la carte” or differential, adjustment can also be the case for EU members, and is increasingly acknowledged as unavoidable, if not necessary. Swiss eurosceptics should consider that things may be more flexible than they believe inside the EU, and less flexible than they think outside it. But it is true that europeanization outside the EU can be an argument both in favour of EU membership (Switzerland would, as will be seen, be more influential in the EU) and against it (it is not necessary as adjustment takes place anyway). Finally, the external impact on the “polity” – that is on Switzerland’s decisional architecture – is, likewise, not insignificant. This may seem surprising for several reasons. Institutions are by definition resilient structures, and they are the part of national political systems which have proved most resistant to European influence.6 In the case of Switzerland, among the major reasons that have been advanced for not joining the EU is the need to preserve federalism and direct democracy, both major components of the domestic institutional architecture. This did not, however, prevent more subtle changes taking place. For instance, Dardanelli, in his chapter, sees the creation of a Conference of cantonal governments as an effect of the European issue. The role of this coordinating structure was further strengthened in recent years through the process of local federalist reform, and the Conference is becoming an important federalist actor, certainly more federalist in its spirit than the Council of States, the nominal home of cantonal interests.

Prospects 251 At the same time the consensual pattern of Swiss policy-making has also been modified. When the impetus for policy reform came from Europe, preparliamentary consultation procedures either lost weight to the benefit of governmental and administrative forces, very much in line with the findings of the international literature on integration, or became more informal and selective. This procedural reshaping was clearly a strategy aiding the federal authorities in their aim of circumventing local veto points in order to achieve some degree of policy europeanization.7

Bilateralism and beyond? Europeanization is also, of course, the consequence of the numerous bilateral agreements between Switzerland and the EU. At first glance, the bilateral way can be seen as a win–win game for the Swiss authorities. It allows them to opt for selected forms of European integration and pool support for each of them in the domestic scene – as was recently the case with participation in the “Schengen” system, which was both part of the second package of bilateral agreements and the subject of a referendum challenge. The bilateral way has been extended in functional and spatial terms, as the chapters on the two sets of bilaterals make clear, and appears today as the privileged option for the management of the country’s relations with the EU. Its expansion has also taken place because it is the only realistic option given the domestic power balance. As a matter of fact, the 1992 application by the Swiss government to join the EU has been “frozen” since then, not to say definitely “buried”. This should be seen in terms of the fact that a considerable part of Swiss public opinion tends to see the bilateral way as an alternative to, and not as a “training camp” for, future EU membership. The “Vox” analysis of the referendum vote which took place on 21 May 2000 on the first bilateral package showed that nearly half of opponents of EU accession nevertheless voted in favour of the first bilateral package. Similarly a comparison of the voting behaviour on the EEA (1992), Bilaterals I (2000), and the extension of free movement to new EU members (2005) shows that the bilateral way is overwhelmingly supported because so much of the electorate favours an opening to Europe but considers EU membership premature or unnecessary.8 However, the bilateral way is not as optimal as may initially appear. First, bilateral negotiations with the EU are a painful and increasingly harder undertaking as several chapters in the book make clear. An EU with 25 member states (and soon probably even more) and facing acute internal institutional challenges will not put its relations with Switzerland high on its agenda, so that integration through bilateralism will appear more and more outdated. In addition, the EU will probably be increasingly reluctant to demonstrate its goodwill when confronted with what is often perceived as a “free riding” strategy by a distant and self-interested neighbour. As a result the power balance between the EU and Switzerland will, in all likelihood, change, to the detriment of the latter as Gstöhl implies. So it is questionable whether, in the long run, it will continue to

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be easier for Switzerland to argue convincingly about its specificities outside the EU. As is underlined by Weder, Switzerland, by staying outside the EU, does not seem to suffer in terms of economic integration, and the Swiss bilateral approach to its relations with the EU “may be a sustainable and viable alternative”. Moreover, where the banking and financial sector is concerned, Switzerland appears somewhat as a competitor to the EU, as Church and his co-authors note. Indeed, in spite of growth problems, and of a somewhat higher rate of unemployment than in the past, the Swiss economic model remains a success story in terms of wealth and prosperity, so that the Swiss can hardly conceive how they might benefit from EU membership. However, the issue of the political costs of remaining outside should be framed in quite a different manner. I would like to refer here to the trade-off between autonomy and influence posited by Goetschel in his chapter. Unlike other small European countries, Switzerland has apparently renounced the attempt to exert international influence, putting a higher priority on the preservation of national autonomy. In particular, according to Goetschel, Switzerland even refuses to exert forms of “qualitative” influence, which seem to offer an adequate “niche” strategy for small countries. Within the EU the Nordic countries, for instance, were successful in diffusing their ideas about transparency in the functioning of the administration, not to mention the mere fact that the unanimity rule, and even qualified majority voting, imply a disproportionate representation and influence for smaller states, in a way somewhat similar to the situation found in Swiss federalism.9 Even if we compare Switzerland with another outsider such as Norway, there is no real comparison between the Swiss efforts to be present on the international scene, and the acknowledged role conceded to Norway for decades. Further, Goetschel argues that, if Switzerland were a EU member, its European policy would come under more stringent domestic parliamentary control, something confirmed by recent comparative research on national parliaments’ oversight of EU policy-making.10 And, with respect to the safeguarding of sovereignty, we know that the degree of Swiss autonomy in the process of europeanization of policies should not be overstated. Moreover, not only is the idea of preserving sovereignty outside the EU an illusion, but we may also question whether it contributes to the domestic public interest. For instance, after the rejection of EEA membership in 1992 a vast campaign was initiated to liberalize the Swiss economy because it had not joined the single market. More than a decade later the outcome is disappointing, with the Swiss economy retaining its dual structure, as Church and others make clear, and the consumer continuing to lose because of the various forms of protectionism found in a country that remains a “high-price island”.11 Hence the present situation is suboptimal: it combines a slightly less limited autonomy than that available to EU members with a very clear loss of influence in comparison with that enjoyed by states which are EU members. However, the problem is that such an assessment about the terms of the trade-off between

Prospects 253 autonomy and influence is not (yet?) widely shared by a majority of political actors. In addition, a learning process will be needed in public opinion that would allow European integration to be talked of in less Manichean terms, something which applies to both pro- and anti-European discourses. Such processes take a long time and do not always take place, as noticed by Clive Church in his background chapter. He points out that Swiss public opinion, and part of the political elite as well, are neither able nor willing to rapidly acknowledge changes in the external environment which have a constraining effect on the national room for manoeuvre.

Coming together? On the other hand, I would like to emphasize that, in spite of remaining an exception in the context of ever-wider European enlargement, Switzerland should not be perceived as an anomaly. The European issue is a source of polarization in several EU member states as well. Hence there is widespread agreement that the era of the “permissive consensus” on European integration, marked by citizens’ apathy and a benevolent attitude vis-à-vis the efforts at integration undertaken by political and economic elites, is now over. In order to pursue and legitimize European integration, national and European authorities will have to be more sensitive to the need for their constituencies to undergo learning processes. This is not a Swiss specificity. Thus Koch and Lavenex, for instance, strongly challenge the idea of Swiss exceptionalism where the level of xenophobia as an impediment to integration is concerned. The widespread opposition in several EU countries on Turkey’s accession is emblematic here. The difference between Switzerland and EU countries seems to lie mostly in the contrasting reluctance of political and economic elites. This has to do with the permanent referendum threat in the political arena, and with a wider transnationalization enjoyed by at least part of the Swiss economy. Another important aspect, clearly highlighted by Dardanelli, is that the European issue periodically gave rise to a linguistic cleavage – although by no means the sole one, and one which is now probably losing in saliency – which could be a potential threat to internal cohesion. Of course the EU should not be perceived in static terms. After the defeat of the Constitutional Treaty in the French and Dutch referendums, and the problems related to the enlargement, Europe might in the future appear less exciting to pro-Europeans in Switzerland, but also less threatening at least to moderate eurosceptics. How the Swiss will envisage their relation to Europe will also depend on what the contours of European integration will look like, both in spatial and in functional terms. The more European integration becomes “differential”, the more it is likely – or rather the less it is unlikely – that Switzerland will one day accept to become part of it. But this requires that some EU member states not only enjoy exceptions as to functional aspects of integration – e.g. common defence, monetary or social policy – but are conceded a very minimalist degree of political integration too. This is far from being the case so far.

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On the other hand, it may be argued that some degree of “helvetization” of the EU might be helpful with respect to a rapprochement between Switzerland and the European Union. The signs in this direction are not that numerous but, nonetheless, they do exist. Thus integration in EU member states is becoming the object of popular referendums giving rise to wide political debates. Political elites are increasingly compelled – as they have long had to do in Switzerland – not merely to convince voters about their options, as Trechsel suggests, but also to do this under increased media coverage. And the latter often relays populist suspiciousness as Stämpfli shows is already the case in Switzerland. Flexible, “soft” and “à la carte” instruments of governance such as the open method of coordination, reminiscent of the policy style prevailing in Swiss federalism, are increasingly being utilized. It is indeed a pity that, by remaining outside the EU, Switzerland forfeits any influence on shaping the future European institutional configuration, even though it possesses considerable knowhow and competitive advantages over most other EU members. Suffice it to say that Switzerland has wide experience not only with referendums, as these become ever more frequent in the EU, but also with the “management” of direct democracy: in the establishment of negotiation procedures allowing the consequences of votes to be anticipated and by adjusting policies in order to win a majority in a “consociational” system with several actors having competing interests and heterogeneous values.12 Moreover, the emerging European quasifederalism is closer to the Swiss than to the German or Spanish models,13 so that in this field too Switzerland could contribute much in terms of “steering” of policy implementation in a system of multi-level governance. Of course as long as Switzerland is not in the EU this does not maximize the chances of moving the latter closer to the Swiss model and to the aspirations of the Swiss people. Hence the “helvetization” scenario might well remain mere wishful thinking. As noted in the beginning of this chapter, unless cataclysmic events take place, Switzerland will, in all likelihood, remain outside the EU. Economic prosperity will probably not be severely affected by this but political marginalization will increase. Although economic considerations tend to prevail in the domestic discourse on European integration, the neglect of the political dimension (“what are the costs of non participation in the shaping of the European order?”) is a sign of excessive short-sightedness on the part of most Swiss opinion-makers.14 A couple of years ago, the late Raimund E. Germann, Professor of political science at IDHEAP in Lausanne, entitled one of his numerous essays “Der Gang nach Ballenberg”.15 Ballenberg is a large open-air museum wonderfully located in the Bernese Oberland which advertises itself on its website as follows: “With 100 original century-old buildings from all over Switzerland, ‘historical’ gardens and fields, demonstrations of typical crafts, many special events and 250 native farmyard animals, Ballenberg creates a vivid impression of rural life in bygone days. Ballenberg is in fact absolutely unique.” In other words, a unique, lovely and immobile relic artificially transposed from the past. Germann’s metaphor was eloquent as to where Switzerland was heading. Probably Germann dramatized the negative prospects. I would rather consider

Prospects 255 more plausible a scenario of moderate yet ever increasing “liechtensteinization” of Switzerland. Moderate because, as suggested by Weder, this country is not small in economic terms. Yet also increasing because of the coupling of political marginalization in Europe with a loss of significance of Swiss neutrality in a unipolar world. Whether such a scenario is welcome is another matter altogether.

Notes 1 W. Linder and T.-H. Ballmer-Cao, “Das politische System der Schweiz von Morgen”, Annuaire suisse de science politique 31, 1991, 337–61. 2 See A. Mach (ed.), Globalisation, néo-libéralisme et politiques publiques dans la Suisse des années 1990, Zurich, Seismo, 1999, and H. Kriesi et al., Der Aufstieg der SVP, Zurich, NZZ Verlag, 2005. 3 S. Hug and P. Sciarini (eds), Changements de valeurs et nouveaux clivages politiques en Suisse, Paris, L’Harmattan, 2002. 4 P. Sciarini, S. Nicolet and A. Fischer, “L’impact de l’internationalisation sur les processus de decision en Suisse”, Revue Suisse de science politique 8/3–4, 2002, 1–34. 5 See A. Mach, S. Haüsermann and Y. Papadopoulos, “Economic regulatory reforms in Switzerland: adjustment without European integration or how rigidities become flexible”, Journal of European Public Policy 10/2, 2003, 301–18; together with P. Sciarini, A. Fischer and S. Nicolet, “How Europe Hits Home: Evidence from the Swiss Case”, Journal of European Public Policy 11/3, 2004, 353–78. 6 K. Auel and A. Benz, “The Politics of Adaptation: The Europeanization of National Parliamentary Systems”, The Journal of Legislative Studies 11/3–4, 2005, 372–93. 7 A. Mach, S. Haüsermann and Y. Papadopoulos, op. cit., 301–18. 8 See “Vox” analyses of the referendum of 21 May 2000 (p. 16) and of the referendum of 25 September 2005 (p. 25). 9 The Swiss remember that, in financial matters, they were able to find objective allies within the EU that undermined European cohesion by threatening to block decisional procedures: among them counted Luxembourg, the smallest of the then 15 EU members. 10 Auel and Benz, op. cit., 372–93. 11 Weder shows in his chapter that, in addition to a strongly subsidized agricultural sector, Switzerland does not perform very well as regards the abolition of non-tariff barriers. The federalist structure of the country is another important obstacle in this respect. 12 Y. Papadopoulos, “Implementing (and Radicalizing) Art. I-47.4 of the Constitution: is the addition of some (semi-) direct democracy to the nascent consociational European federation just Swiss folklore?”, Journal of European Public Policy 12/3, 2005, 448–67. 13 D. McKay, Designing Europe. Comparative Lessons from the Federal Experiences, Oxford, Oxford University Press, 2001. 14 The negative consequences of not being an EU member have been exaggerated in the past, so that such discourse is no longer convincing to domestic public opinion. On the other hand, the risk of becoming politically a “quantité négligeable” has not been sufficiently emphasized, and such an emphasis might even have some resonance amongst Swiss “sovereignists”. 15 “The way to Ballenberg.” The essay was published in the Bernese newspaper Der Bund (25 April 1992) and reprinted in Germann’s 1994 book (at pp. 163–5). He wrote, on p. 163, that “(. . .) our state has abandoned its role as a relevant actor at the

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international level in order to withdraw to the open air museum of its political institutions” (my translation). My only reservation would be that Swiss political institutions may not be so outdated, even, as already suggested, for the EU.

Bibliography J. Anderson, “Europeanization and the Transformation of the Democratic Polity”, Journal of Common Market Studies 40/5, 2002, 793–822. K. Auel and A. Benz, “The Politics of Adaptation: The Europeanization of National Parliamentary Systems”, The Journal of Legislative Studies 11/3–4, 2005, 372–93. R. Germann, Staatsreform. Der Uebergang zur Konkurrenzdemokratie, Berne, Haupt, 1994. S. Hug and P. Sciarini (eds), Changements de valeurs et nouveaux clivages politiques en Suisse, Paris, L’Harmattan, 2002. H. Kriesi, R. Lachat, P. Selb, S. Bornschier and M. Helbling, Der Aufstieg der SVP, Zurich, NZZ Verlag, 2005. W. Linder and T.-H. Ballmer-Cao, “Das politische System der Schweiz von Morgen”, Annuaire suisse de science politique 31, 1991, 337–61. A. Mach (ed.), Globalisation, néo-libéralisme et politiques publiques dans la Suisse des années 1990, Zurich, Seismo, 1999. A. Mach, S. Haüsermann and Y. Papadopoulos, “Economic regulatory reforms in Switzerland: adjustment without European integration or how rigidities become flexible”, Journal of European Public Policy 10/2, 2003, 301–18. D. McKay, Designing Europe. Comparative Lessons from the Federal Experiences, Oxford, Oxford University Press, 2001. Y. Papadopoulos, “Implementing (and Radicalizing) Art. I-47.4 of the Constitution: is the addition of some (semi-) direct democracy to the nascent consociational European federation just Swiss folklore?”, Journal of European Public Policy 12/3, 2005, 448–67. P. Sciarini, A. Fischer and S. Nicolet, “How Europe Hits Home: Evidence from the Swiss Case”, Journal of European Public Policy 11/3, 2004, 353–78. P. Sciarini, S. Nicolet and A. Fischer, “L’impact de l’internationalisation sur les processus de decision en Suisse”, Revue Suisse de science politique 8/3–4, 2002, 1–34.

Index

acquis communautaire 40, 153, 180, 204, 219, 221, 222, 229, 241, 242, 243, 244n12 agriculture 102, 130, 140, 144, 223; international regulation of 191, 202, 208; national support for 103, 126, 132, 158, 172, 211, 255n11 air transport 102, 133, 178, 184n28, 202, 208, 238, 246n38 alleingang 11, 13n21, 229 alpine transit 4, 53, 54, 132, 195, 203–4, 209 Alps Initiative 43, 47, 132–3, 203, 204, 212n6 Amsterdam Treaty 72, 76n78 Appenzell 81 Area of Freedom, Security and Justice 221, 226 association 11, 40, 57, 158, 189–91, 237, 238, 239, 243, 244n15 asylum 87, 148, 153, 155, 157, 158, 162, 221, 241 AUNS/ASIN 42, 87, 194, 196; and Blocher 63, 66, 68, 155, 195; political activities of 4, 42, 63, 80–1, 83, 87, 154, 194–5, 209, 225–6 Austria 31, 172, 204; economy of 100, 101, 107, 108, 112, 113, 116, 120, 121, 177; relations with Europe 40, 42, 57, 62, 70, 137, 177, 189, 190, 218, 220 autonomous adaption 44, 178, 180–1, 250 Avenir Suisse 23, 66 banking 101, 126, 129, 139–40, 252 banking secrecy 8, 138, 140, 218; political significance of 127, 143, 228, 242; role in relations with the EU 135, 142–3, 180, 215, 219–21

Basle city 42, 196 Basle country 42, 196 Belgium 30, 31, 70, 100, 107, 108, 109, 113, 120, 123, 133, 137, 218, 220, 221 Bergier Report 54, 141, 145n36 Berne 18, 25, 26, 50, 71, 93n16 bilateralism 37, 49n36, 162, 238, 243; agreements made under 1, 3–6, 7, 39, 44, 169, 177, 192, 210–12, 239, 242; implications of 4, 8, 9–10, 27, 91, 170, 180–2, 202, 228; strategy of 4, 38, 43–4, 103, 173, 193, 215, 229, 240 Bilaterals I 47, 102, 123, 148, 240; approval of 44, 66, 196, 241, 251; contents of 102, 149, 178, 184n28, 202–14; significance of 132, 156, 159, 197, 226 Bilaterals II/bis 47, 148, 156, 178, 197; approval of 44, 80, 102–3, 225–8; contents of 184n28, 215–25, 241, 251; significance of 102–3, 123, 180 Bindschedler doctrine 56 Blocher, Christoph 88, 94n29, 211; role of 42, 47, 63, 65, 85, 195, 222; views of 65, 66, 68, 73n8, 75n61, 84–5, 87, 88, 94n37, 154–5 Bolkestein, Fritz 218 Bretton Woods institutions 62, 169, 172 British Euroscepticism 1, 5, 7, 9, 10, 197 “Brussels” 4, 9, 40, 43, 79, 86, 179 Bulgaria 4, 229, 245n32 business interests 23, 27, 80, 87, 154, 160, 195, 206, 209, 226, 231n41 Calmy-Rey, Micheline 54–5, 71, 225, 229 Canada 99–100, 107, 109, 113, 120, 122, 139

258

Index

cantonal majority/veto 19, 21, 28, 29, 37, 43, 249 cantons 18–20, 135–6, 140, 158, 159; fiscal role 19, 25–6, 128, 136, 137; politics in 45, 47, 143, 175, 196, 209; positions on Europe 27–31, 33n46, 81, 177, 197, 208, 248; powers 17, 21, 22–3, 37, 177, 180 Cassis de Dijon 11, 102 Catholic People’s Party 87 centralization 19–20, 26, 28, 29–30 challenge 12n12, 29, 37, 45, 155, 206, 207, 221, 225, 226–7, 241 chemicals 130, 131 Chirac, Jacques 4, 143 Christian Democratic People’s Party 45, 87, 227 Churchill, Winston L.S. 188 citizenship 20, 149 cohesion payments 4, 228, 241 Cold War 7, 188–9, 234; end of 6, 60, 67, 88, 171–3, 196, 240; Swiss position during 55, 66–7, 69, 76n67, 176 collective labour agreements 159–60 Committee of the Regions 30, 180 Common Agricultural Policy 40 Common Foreign and Security Policy 63, 65, 72, 178, 179, 182, 235, 243 communes 19–20, 22–3, 128, 136 companion measures 148, 154, 159–60, 207, 213 Conference of Cantonal Governments 22, 25–7, 31, 34n48, 250 constitutional amendment 21, 37, 143 Constitutional Treaty (EU) 2, 4, 30, 79, 242, 253 consultation process 22, 25, 160, 174, 243, 251 Couchepin, Pascal 85 Council of Europe 36, 56, 172, 188, 190 Council of Ministers (EU) 29, 30, 134, 180, 202, 203, 205, 210, 218, 235, 238, 240 Council of States 21, 24–5, 34n48, 63–4, 65, 209, 225, 249, 250 Credit Suisse 139 Cyprus 108, 112, 113, 116, 156 Czech Republic 116 De Gaulle, Charles 40, 57, 190

Deiss, Joseph 225 Delamuraz, Jean-Pascal 62 Delors, Jacques 40, 194, 240 Denmark 57, 70, 91, 107, 108, 112, 116, 120, 177, 189, 198 direct democracy 23, 36–51, 86, 91, 127; European implications of 28, 148, 155, 175, 176, 177, 190, 234, 243; mechanisms of 79, 93n6, 94n41, 180, 222, 249, 254; political role of 6, 10, 17, 20, 52, 94n32, 137, 182, 248 division of powers 21, 22, 25–6, 32n3, 92 double criminality 142, 218, 219, 220, 221, 222 Dublin Convention 26, 44, 157–8, 221 economic openness 100–1, 103–6, 122 education 23–4, 49n36, 184n28, 210, 216, 224, 225, 241 energy 126, 133, 208, 243, 250 enlargement 4, 9, 148, 149, 156, 196, 207, 228, 229, 236, 237, 239, 241, 242, 253 environment 49n36, 184n28, 204, 224, 225, 241 Estonia 113, 117 Eurobarometer polls 2, 152 eurocompatability 1, 29, 44, 45, 72, 178, 250 Eurolex 195–6, 245n24 European Central Bank 135 European Commission 140, 143, 178, 204, 205, 239, 240, 243 European Convention on Human Rights 85, 190 European Council 29 European Court of Justice 30, 178, 244n11 European Economic Area 40–2, 55, 63, 176; abortive Swiss application to 2, 3, 5, 10, 46, 61–4, 154, 155, 169, 198, 210, 234, 239; aftermath of votation on 26, 47, 128, 154, 155, 178, 181, 238; treaty arrangements for 41, 61, 179, 195, 202, 203, 205, 236, 243 European Economic Community 37–8, 56, 57, 60, 61, 63, 174, 176, 188–93, 235, 238, 239 European Free Trade Association 38–40, 162, 172, 191, 192–4, 240, 247; advantages of 7, 102, 123, 158–9, 189, 192, 193, 202, 239; structure and scope of 57, 60, 176, 177, 190, 237

Index 259 Europeanization 6, 9, 24, 26–8, 148–65, 190, 249–51; impact of 1, 11, 17, 31, 46, 178, 191–2, 198, 224; scope of 4, 12n13, 186, 196, 197, 248; theory of 5, 12n6, 91, 193 European Parliament 180, 190, 203, 238, 240 European Union 1, 2, 8, 10, 17, 40, 46, 92, 137, 187, 197, 215, 224, 234; attitudes to Switzerland 2, 5, 6, 8, 9, 10, 12, 43, 135, 138, 145n21, 202, 205, 211, 216, 217, 234–47, 241, 242, 243; development of 4, 10, 46, 56, 148, 179, 186, 234, 235, 244; economic integration into 116–17, 120, 122, 141, 143, 158–9, 169, 179, 228; economic relations with Switzerland 126–9, 131–3, 137–8, 142, 144, 148, 182, 236, 238; economy 7, 99, 101, 122, 126, 128, 131, 144, 249; gains from negotiations with Switzerland 206, 217, 223, 251; impact on Switzerland 17, 132, 180, 220, 249–50; institutions of 30, 182, 186; law and legislation of 4, 29, 31, 44, 45, 47, 177, 178, 180, 192, 243, 246n38; member states of 30, 31, 65, 86, 92, 149, 152, 157, 169, 203, 205, 206, 207, 209, 216, 218, 219, 224, 225, 240, 241, 245n29, 250, 251, 252, 253; negotiations with Switzerland 179, 195, 203–7, 211, 216, 218, 219, 221, 234, 240, 246n39; Neighbourhood Policy 12n3, 237–8, 243; powers and policy spread of 29, 30, 132, 137, 161, 174, 179, 204, 209, 242, 245n19, 252; structural nature of 29, 107, 178, 180, 225 Eurozone 134–5 Federal Council (as Swiss government) 19–20, 81, 84, 178, 193; economic policy of 136, 176, 189; European policy of 3, 41–3, 59, 60, 62, 176–7, 187, 188–90, 202–5, 215, 228, 235, 249–51; future policy options on Europe 3–4, 9, 11, 42, 61, 179, 181, 192, 202, 224, 229, 235, 238, 239, 243, 248–51; other policy stances of 41, 44, 54, 58, 65, 68, 87, 176, 207; powers 23–5, 27, 36, 37, 42, 44, 133, 136, 156, 177, 204, 208; public relations of 8, 43, 81, 86–7, 186, 195; structures of 3, 20, 174–5, 222

Federal Democratic Union 80 Federalism 6, 10, 11, 19, 17–35, 135, 137, 174, 176, 177, 190, 249, 250, 252, 254 federation 19–20 Felber, Réné 62 fight against fraud 49n36, 138, 142, 184n28, 217, 219–21, 223, 225, 229 financial sector 126–7, 138, 140, 252 Finland 70, 76n78, 107, 112, 113, 120, 192 food industry 130, 223 Foreign Direct Investment 109, 112, 128 France 53, 69, 79, 82, 100, 107, 108, 109, 113, 117, 120, 133, 136, 139, 189, 204, 253 Free Democratic (Radical) Party 24, 45, 87, 227 Freedom Party 80, 87 free movement of labour 8, 44, 148–65, 180, 202, 203, 204–7, 241, 245n34, 249 free rider 234, 251 Free Trade Agreement (1972) 136, 172, 191, 193, 237, 239, 244n8 French speaking areas/Suisse Romande 2, 28, 64, 196, 210–11 General Agreement on Tariffs and Trade 172, 188, 190 Geneva 18, 135, 142, 210 German speaking areas 2, 28, 196, 210–11 Germany 129, 149, 222, 235; economy of 100, 107, 108, 109, 116, 117, 129, 130, 131, 137, 139, 145n33, 161; history of 53, 70, 187; role in Swiss politics 28, 82, 88, 89; structures of 30, 31, 226, 234, 254 golden years 193, 195, 198 Greece 4, 70, 108, 113, 218–19 Green party 45 Group for a Switzerland with an Army 58, 67 “guillotine clause” 44, 178, 241 half cantons 23, 32n7, 136 harmonization 154, 178, 180, 189, 192, 194, 205, 216, 219, 225, 237, 239, 242, 243, 252 health 160–1 Hungary 117, 120 Iceland 116, 120, 228, 240, 243

260

Index

identity 24, 26, 42, 93n6, 132, 198; components of 6, 8, 17, 19, 20, 24, 31, 32n4, 62, 93n6, 143, 177, 186; sensitivities concerning 3, 10, 11, 28, 144, 248–9 immigration 10, 83, 85, 87–8, 116, 148–65, 204, 206, 211, 212n11, 227 implications of Swiss entry to the EU 28–31, 46–7, 55, 127, 177 initiatives 23, 37–8, 39, 42, 43, 65, 87, 92n2 institutionalism 10 insurance 101, 127, 139, 140 integration 38, 141, 174, 237, 242; differing views of 24, 28, 153, 191, 253, 254; process of 36, 40, 149, 173, 176, 178, 229, 234, 235; Switzerland and 5, 6, 7, 12, 58, 187, 215, 234, 235, 251, 252 Integration Bureau 27 intercantonal concordats 22, 26, 32n15 interest groups 22, 23, 43, 92n6, 154, 158, 210 intergovernmentalism 188 international economic integration 112–21 international relations 61, 169, 173–4, 197 Ireland 65, 101, 107, 108, 112, 113, 114, 116, 121, 133, 135 Italian speakers 2, 28, 33n23, 196, 210–11 Italy 28, 36, 53, 100, 107, 108, 109, 120, 133, 135, 142n33, 149, 218, 222

Lithuania 112 Lucerne 84, 187 Luxembourg 36, 44, 70, 123, 140, 149, 202; economy of 107, 108, 109, 112, 113, 116, 117, 120, 129, 141; stance on banking and taxation 137, 220, 222, 255n9 “Luxembourg Compromise” 57 “Luxembourg Process” 40, 193–4, 239 Maastricht Treaty 40, 63, 65, 72, 75n42, 194 Malta 108, 113, 116, 156 mandatory referendum 37, 38, 49, 41, 42, 43, 92n2, 248 manufacturing 101, 127, 130, 131 marginalization 99, 169, 179, 180, 189, 193, 211, 254–5 media 49n36, 184n28, 223–4, 225; as a form of democracy 7, 85–6, 88–90, 93n6; impact of 10, 80, 175, 193, 254 Merz, Hans-Rudolf 138, 145n33, 225 money laundering 140, 221 multilateralism 47, 102, 173, 174, 179, 188–9, 239 multi-lingualism 18, 24, 28 Montgomery, Bernard Law 69

labour market 102, 149, 154, 156, 159–61, 206, 207, 211, 212, 213n12 Lamy, Pascal 1, 236 land transport 8, 43, 54, 132–3, 184n28, 202, 203–4, 208, 211, 214n7, 240, 241 Latvia 112 Lega dei Ticinesi 43, 45, 80, 209, 210 Leuenberger, Moritz 94n29 liberalization 129, 133, 149, 155, 158, 206, 211, 216, 223, 237, 243, 250, 252

National Council 21, 49n43, 63–4, 209, 225 NATO 7, 38, 52, 69–72, 172, 196 naturalization 85, 88, 149, 226 Nazi/Jewish related financial problems 53–4, 138, 140–2, 144, 146n37, 187 Netherlands 26, 70, 79, 107, 109, 113, 116, 117, 222, 253 Neuchâtel 42 neutrality 38, 52–78, 173; concern for in negotiation 6, 175, 188, 190; evolution of 7, 172, 179, 187, 190, 194, 196; political significance of 17, 171, 174, 197, 249, 255 NOMES/NEB 197 non-tariff barriers 103, 184n28, 193, 202, 208, 255n11 Norway 2, 4, 12n18, 48n15, 57, 70, 177, 189, 198, 228, 242, 243, 252; economy of 107, 108, 114, 117

Liechtenstein 36, 100, 109, 240, 255 linguistic divide 2, 27, 42, 186, 210, 253

OECD 38–40, 56, 107–8, 122, 128, 136, 137, 140, 169, 188, 189, 218

Japan 100, 107, 108, 109, 120, 122, 139 Koller, Arnold 60 Krafft Report 61, 63, 64, 75n42

Index 261 Ogi, Adolf 68, 203 open/closed cleavage 42, 148, 158, 176, 210 opposition to EU integration 5, 6, 153–4, 181, 204, 228, 248; bases of 10, 46, 57–8, 64–5, 91, 194, 210, 227, 229, 249; political action by 3, 4, 7, 11, 174, 195, 196, 253, 255n14; reservations involved in 9, 36, 187–8, 198, 210, 249 optional referendum 37, 38, 44, 156, 175, 201, 213n20, 241–2 OSCE 172 P26 70 parallelism 8, 43, 202, 216, 219, 220, 241, 243 Parliament 42, 70, 84, 155, 193; composition and process 32n12, 179–80, 188, 195, 209, 225, 227; political role 36, 38, 42, 45, 46, 86, 89, 142, 175, 210; powers 22, 37, 32n15, 87, 249 Partnership for Peace 68–9, 72 path dependency 186, 187, 198 pensions 49n36, 184n28, 224, 225 Poland 108, 116 polarization 79, 90 policy making process 21–2, 26, 27, 36 political culture 6, 9, 19, 89 political elite 42, 46, 47, 61, 84, 88, 91, 197, 249, 253 political parties 23, 24, 47, 80, 89, 92, 174, 175, 209, 226, 227 populism 7, 9, 10, 79–86, 186, 248, 249 Portugal 4, 57, 70, 107, 117, 120, 149, 177, 192 Prodi, Romano 143, 243 provisions of 1999 constitution 20–2; Article 3 21; Article 48a 33n32; Article 49 22; Article 55 26–7, 29, 31; Article 84 132–3; Article 89 41; Article 139 37; Article 140 38; Article 141 21, 38 public procurement 102, 158, 184n28, 193, 202, 239, 250 quasi-membership 161, 192, 238 Raiffeisen 140 ratification 4, 8, 30, 62, 137, 191, 196, 209–11, 215, 224, 225–8, 238, 240, 241, 242

regions 30–1, 58 reports by Federal Council: Foreign Affairs Report 2004 112, 177; Foreign Policy Report 1993 64, 74n35, 181, 197; Foreign Policy Report 2000 181; first Report on Integration 1988 59, 74n21, 194; second Report on Integration 1990 60; third Report on Integration 1992 62, 64, 195, 197; fourth Report on Integration 1999 65, 181, 197; fifth Report on Integration 2006 4; Report on Security 1990 67 residual powers 19, 20, 21, 136 Romania 4, 229, 245n32 Rougemont, Denis de 188, 190 Savings Tax Directive 49n36, 140, 143, 145n26, 145n33, 184n28, 215, 216, 221, 225, 228, 229, 241, 246n39 Schengen and Dublin Conventions as a package 27, 49n36, 148, 158, 180, 238; policy on 216, 218, 220, 221–3, 241, 243, 245n35; role of 27, 73n9, 142, 161, 197, 231n44; votation on 92n1, 155, 157, 226–8, 231n43, 242 Schengen systems 1, 9, 11, 40, 148, 157, 221, 228, 251 Schmidt, Samuel 86 Schwyz 136–7 Scotland 30–1 services 40, 101, 102, 108, 112, 129–31, 156–7, 182, 216, 245n30 Single European Act 6, 58 Single Market 7, 91, 102, 149, 191, 193, 194, 202, 238, 239, 240, 241, 252 Slovakia 108, 116 Slovenia 108, 112, 116 Social Democratic Party 4, 65, 68, 70, 71, 81, 87, 154–5, 197n19, 213n25 social dumping 159, 160, 161, 207, 210, 211 Solothurn 26 Sonderfall 7, 8, 10, 91, 133, 138, 186, 192, 193, 196, 243 sovereignty 153, 169, 181, 192, 195, 249; as autonomy 170, 174, 176, 188, 252; cantonal share in 18, 136; nature 73, 157, 161, 177, 222, 223, 242, 255n14 Spain 4, 30, 36, 70, 107, 112, 113, 120, 149, 218, 254 statistics 102, 184n28, 225, 241

262

Index

stay-behind armies 69–71 support for European integration 1, 135, 153, 154, 155, 181, 188, 195, 196, 197, 198, 213, 251, 253 Sweden 40, 55, 57, 177; economy of 100, 107, 108, 109, 112, 113, 116, 120, 121; neutrality of 70, 76n78, 172, 177, 189 Swiss: agricultural policy 107, 132; application for entry 2, 3, 40–1, 43, 45–6, 62, 68, 81, 93n12, 181, 195, 251; attitudes to EU 3, 5, 6, 8, 47, 52, 56–7, 127, 135, 186; competitiveness 127, 128, 129, 134, 226; constitutions 18, 37; development policy 172–3; economic reform 129; economy 7, 99–125, 126–47, 206, 235, 239; euroscepticism 28, 33n44, 86, 91, 93n6, 148, 199, 250; firm sizes 130–1; foreign policy 5, 8, 17, 26, 31, 59, 169–85, 186, 187, 210; foreign trade policy 171, 176; good offices 173; GDP 4, 100, 124n18, 128, 129, 130, 136, 138, 139; history 6, 8, 10, 18–19, 52–3, 71, 101, 133, 140, 169, 176, 186–7; impact on EU 218, 220, 234, 254; monetary conditions 126, 127, 128, 134–5; negotiating skill 171, 203, 205, 211, 218, 219, 220, 235, 242; permissive consensus 45–6, 253; policy on Europe 6, 8, 17, 54, 169, 173, 179; political culture 6, 9, 92; political system 3, 6, 17, 19, 20–2, 24–5, 28, 31, 52, 82, 174–6, 249, 250, 251, 255n15; protectionism 99, 103, 109, 112, 124n14, 126, 132, 158, 161, 173, 211, 250, 252; prices 135, 159, 252; public opinion 36–7, 46–7, 82, 88, 135, 141, 152, 155, 174, 186, 196–8, 211, 249, 253, 255n14; public sector 128; relations with EU 1, 3, 5, 9, 12, 17, 27, 43, 44, 146, 161, 186–99, 202, 215, 253; right-wing radicalism 82, 92n6; trade unions 23, 43, 45, 154, 159, 206, 209, 210, 250; watches 101, 130–1, 190 Swissair 133, 203 Swiss Democrats party 43, 45, 80, 87, 209, 210 Swisslex 186 Swiss People’s Party 47, 81–2, 85, 132, 152, 227, 249; ideas of 11, 84, 91, 135, 143, 230; organization of 42, 83, 86, 88, 90, 93n12, 222; role in anti-Europeanism

2, 7, 28, 45, 87–8, 92, 143, 154–5, 209–10, 213n25, 225–6, 229 Switzerland: as an anomaly 1, 2, 5; as a confederation 19–20, 29, 32n5, 171, 193, 208; Defence Ministry 66; Federal Aviation Agency 71; Federal Banking Commission 14, 141–3; Federal Police 71; Federal Tribunal 84, 142; as a financial centre 8; Foreign Ministry 56, 59, 61, 66, 140, 178–9; geography 124n16, 130–2; influence of 1, 10, 11, 170–1, 173, 177, 179–82, 194, 252, 254; Justice and Police Ministry 71; as a model 1, 3, 5, 10, 79–80, 196, 202, 242; National Bank 54, 129, 133, 134; pariah 10, 79–80, 243, 253; as a small country 7, 8, 99–123, 126, 169, 170–4; and the UN 67, 68, 172, 179, 188, 192, 194 taxation 8, 19, 21, 32n6, 126, 127, 128, 136, 137, 204, 216, 218, 228, 242 technical agreements 1, 180, 191, 192, 238 telecommunications 126, 130, 250 third (middle) way 11, 196, 215, 243 Ticino 18, 80, 211 tourism 158, 163n29, 191, 221 transport 126, 133, 191 Treaty of Rome 37, 56, 189, 235 Turkey 70, 108, 117, 253 UBS 130, 139 unilateral 38, 43, 44, 204 United Kingdom 30; economy of 107, 108, 109, 113, 117, 120, 134, 139; and Europe 55, 57, 70, 72, 177, 189–90; relations with Switzerland 1, 72, 126, 140–1 United Nations 52, 61, 176 USA 3, 71, 100, 107, 108, 109, 113, 120, 122, 131, 134 Vaud 18 Villiger, Kaspar 218 Vorort/Economiesuisse 57, 138, 188, 190, 209, 226 votations 2, 12n12, 36, 38–40, 148–9, 173, 174, 175, 177, 206, 211, 254; 3 December 1972 38, 40, 46–7, 57; 26 November 1989 58; 17 May 1992 195; 27 September 1992 40; 6 December

Index 263 1992 2, 5, 40–3, 55, 64–6, 102, 148–9, 169, 174, 181, 187, 196, 202, 240, 241, 251, 252; 20 February 1994 43, 47; 12 June 1994 67; 8 June 1997 45, 65; 12 March 2000 86–7, 94n41, 209–10; 21 May 2000 43–4, 66, 93n10, 154, 203, 240, 251; 24 September 2000 87, 203; 4 March 2001 45, 65, 92n1, 93n10, 197; 10 June 2001 67, 93n10; 3 March 2002 67–8, 93n10, 172; 29 September 2002 141; 24 November 2002 87; 26 September 2004 226; 28 November 2004 25; 5 June 2005 3, 29, 44, 79–81, 92n1, 226–7, 242; 25 September 2005 2, 3, 44, 80–1, 210, 251

withholding tax 137 World Trade Organization 7, 10, 102, 172, 208, 238 World War II 53–6 xenophobia 8, 82, 148–53, 162, 205, 253 “Yes to Europe” initiative 27, 28, 33n40, 34n48, 93n10, 197–8 Zug 4, 136, 137 Zurich 4, 12n7, 18, 25, 42, 140, 145n23, 209