Spring 1997

While Europe is caught up in a period of rapid change, moving toward ever closer integration, Switzerland is not partaking in the process and is finding itself increasingly isolated. Consequently, many of the six million Swiss are faced with difficult questions and compromises: is Switzerland's tradition of neutrality still valid as the threat of war in Europe recedes? Can the Swiss hope to compete with the European Unions' (EU) single market?

On December 6, 1992, Switzerland held a referendum on membership in the giant free-trade zone known as the European Economic Area (EEA), under which the members of the European Free Trade Agreement (EFTA) would join the EU's existing effort to create a single market in which goods, services, capital, and people circulate freely. Just over half of the Swiss voters and 16 out of the 28 Swiss cantons voted negative in the referendum. As a result, this referendum prevented the Swiss government from joining the EEA and ended the possibility of EU membership.

According to many Swiss, the cost of joining the EEA would be excessive. The EEA agreement required the EFTA countries to contribute two billion ecus ($2.4 billion) between 1993 and 1995 to a fund to aid the poorer EU countries. Switzerland was to pay 30 percent of this fund.¹ Furthermore, the question of Swiss EEA membership (as well as a possible EU membership) challenges its country's tradition of neutrality and its history of direct democracy and sovereignty. The Swiss also fear that joining the EU would threaten their high environmental standards.

Why Turn It Down?

A major obstacle to Swiss EU membership is agriculture. Although this sector only employs five percent of the Swiss workforce, it is heavily protected and subsidized by the government which devotes approximately $1.3 billion to it per year. If Switzerland were to join the EU, it would be difficult for Swiss farmers to keep up with their EU competitors. In the EU, the Swiss government would no longer be able to protect the industry from other European nations. Swiss dairy farmers would see their milk price drop by about half and livestock would sell for one-third less.

Likewise, the days of comfortable little cartels, ranging from banking to pricing in cafes, would be deemed illegal by the EU. Switzerland would have to change its statutes to allow takeovers by EU bidders, and restrictions on real estate purchases and work permits for EU citizens would have to be eased - much to the displeasure of Swiss ultranationalists.

The uncertainty of the EU's plans also frightens the Swiss. Benedict de Thscharner, Swiss ambassador to the European Community, admitted, "We Swiss have built a sound and prosperous home, where one can feel at ease. Why should we settle into a building under construction whose ultimate design no one knows?"²

Political Fears

Each of Switzerland's 26 cantons has virtual autonomy on issues from taxes to schooling. Membership in the EU would oblige Switzerland to give up its sovereignty in many areas because the Swiss would have to accept all past EU decisions, with little sat in future legislation. The country would be forced to adopt 30 years' worth of EU economic legislation and to align its policies on social affairs, the environment, and education.

The power of accountable political authority is of great importance to the Swiss; therefore the secrecy of the EU council's operation trouble many voters. By joining the EU, the Swiss who are traditionally distrustful of outsiders, would have to take orders from appointed bureaucrats in Brussels - a difficult concept for a people accustomed to Switzerland's unique sovereignty.

The omnipresent pressure is forcing companies to begin outsourcing supplies and moving production abroad. As Swiss prices rise, consumers turn to cheaper Asian and Central European products. This creates currency pressure that leaves little room for profits - even for large scale companies like Nestle, Swatch, and Ciba-Geigy. To reclaim the exchange rate losses, more companies are trying to avoid paying in francs for supplies (i.e. Swissair buys fuel in dollars). At the same time, Swiss consumers are also going to great lengths to escape the unfavorable currency values of Swiss francs. For instance, families in Geneva drive to France to do their grocery shopping because the exchange rate makes it cheaper to buy goods in France.

The Intellectual Arena

The decision not to join the EU is hurting scholars as well as economic life. The Erasmus program, which arranges student exchanges among EU nations, is strained. The Swiss are admitted to major European universities only after applicants from the EU countries, resulting in only a small number of Swiss students accepted. likewise, Swiss scientific and industrial research might suffer in the future because the Swiss representatives on the management boards of programs such as Basic Research industrial Technology in Europe were invited to take part in a committee after the 1992 referendum. Though the Swiss are still involved in existing programs, they will have little influence on the direction of future research.

Swiss Neutrality

By joining the EU, Switzerland would have to compromise its long-held tradition of neutrality. But does neutrality make sense as the risk of war in Europe diminishes and the idea of European unification advances?

Doubts about Swiss neutrality appeared in other discreet actions: NATO planes flew over Switzerland; military convoys crossed he Swiss border on their way to Bosnia; Switzerland joined the World Bank and the International Monetary Fund; Switzerland chaired the Organization for the Security and Cooperation of Europe (OSCE) and agreed to join the Partnership for Peace in December of last year. A Committee on the neutrality issue formed in August 1996, but its report is not due until the end of 1997. The question of neutrality is still to be answered.

The Debate Continues

Although the EEA referendum took place four years ago, the EU issues still cause much debate. On the one hand, Switzerland would be forced to modify it political, economic, and social structure if it joined the EU. A Zurich industrialist who lead the campaign against EU membership stated, "If Switzerland joined, it would have a lot to lose: sovereignty, independence, democratic rights, neutrality and security, and it would suffer lower wages and higher taxes." On the other hand, many Swiss simply believe that greater risks lie in not joining. In the long run, Europe will leave an aging Swiss population behind. Hans Baer of Zurich bank said, "The train is leaving."⁵ A call for a second referendum on the EEA collected the required 100,000 signatures in 1993, but the government, fearful of another turn down, has not announced another referendum.

Switzerland’s population is about six million, whereas the EU has about 345 million. The contest is unequal, and in a head-to-head competition, the victor would be obvious. Many feel that Switzerland will have more say in shaping its own law and business conditions by becoming part of the EU’s common markets rather than standing apart. But experts fear that Swiss entry into the EU may not take place for another ten to twenty years.

Notes 1. "The Difference," The Economist, 12 December 1992.  2. "Paradox of Switzerland," World Press Review, December 1989. 3. Templeman, "Rugged Terrain Ahead for Switzerland," Business Week, 7 December 1992. 4.Miller, Karen Lowry, "The Muscle-Bound Franc Is Mauling Swiss Business," Business Week, 23 October 1995. 5. Painton, Frederick and Adam Zagorin, "Angst Rises in the Alps," Time, 19 August 1991

Ms. Niederkofler, DC'00 is a student at Yale College.