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Briefing No 28
Switzerland and the enlargement of the European Union

The views expressed in this document are not necessarily those held by the European Parliament as an institution.


I. POLITICAL SITUATION

Switzerland is a confederation of 20 cantons and 6 half-cantons, which was established in 1291 and whose capital is Berne.

The Swiss Confederation is a federal republic comprising various language communities: German, French, Italian and Romansh, spoken by 73%, 20%, 4% and 0.6% of the population respectively, are the four national languages. However, under the terms of the Constitution, only the first three are official languages.

A. The foundations of the Swiss political system

1. Constitution and judicial system

2. Underlying principles

Switzerland's borders were guaranteed by a Treaty in 1815 which also recognised the country's permanent neutrality.

Switzerland does not belong to any military alliance, in keeping with its principle of neutrality, which is even considered by many Swiss to preclude membership of most international organisations including the United Nations, the European Union, the World Bank and the International Monetary Fund.

Nonetheless, Switzerland was a founder member of EFTA in 1960 and joined the Council of Europe in 1963 as well as a number of non-political UN agencies. In 1986 the Swiss electorate voted by a majority of 75% against joining the UN. At present, Switzerland has the status of a permanent observer at the UN.

B. POLITICAL SYSTEM

1. Operation

1.1 Legislative and executive power

Legislative power is vested in the bicameral Federal Assembly consisting of a Council of States with 46 members representing the cantons (two for each canton and one for each half-canton), who are elected for two or four years, and a National Council of 200 members directly elected by universal suffrage for four years on the basis of proportional representation. Matters falling within the terms of reference of the Federal Assembly (federal laws, federal decrees, scrutiny of reports from the Federal Council) are mostly dealt with separately by the two chambers. Some decisions (concerning elections and pardons) are taken at joint sessions of the two chambers. The Federal Assembly also has financial powers, the right of initiative and electoral and supervisory responsibilities.

Executive power is vested both in the Federal Chancellery and in the Federal Council, which consists of seven members elected for four years by a joint session of the Federal Assembly. The Federal Assembly also elects one member of this council to be President of the Confederation (Head of State) for one year. The President, who is first among equals, chairs the meetings of the Federal Council and has certain representative functions. The presidency rotates annually between the President and the Vice-President; on 1 January 1999, Ruth Dreifuss was elected President.

1.2 Parties

Four parties are the pillars of the Swiss party system: the Christian Democratic Party (CVP), the Radical Democratic Party (FDP), the Social Democratic Party (SPS) and the Swiss People's Party (SVP). Since 1959 these four parties have formed the government on the basis of the following allocation of posts: 2+2+2+1, respectively. The need for the main cantons (Berne and Zurich) and the language communities to be fairly represented is also taken into account.

Since the last elections, held on 22 October 1995, the ruling coalition holds more than 80% of the seats in the National Council (the Lower House of the Federal Assembly) and a still larger majority in the Council of States (the Upper House). The Radicals and the Christian Democrats gained slightly fewer votes, while the Social Democrats gained new seats in Parliament. The Swiss People's Party also gained a few more seats, while the Greens, who have been in Parliament since 1983, lost seats.

Although the position of the governing coalition has been virtually unchallenged for over 30 years, smaller parties do also enjoy influence (above all at regional level). Since 1983, for example, the Greens have been represented in the National Council and, in the 1991 elections, they achieved their greatest success to date, capturing 14 seats in Parliament.

Along with unemployment, reform of the welfare state, fiscal retrenchment and immigration and aliens policy, European integration was one of the main issues of the electoral campaign.

1.3 Influence of local government and direct democracy

Although national policy is the responsibility of the Federal Government (Federal Council), many powers remain with the independent cantons.

The Swiss citizen is subject to three different jurisdictions: local, cantonal and federal. Direct participation is a fundamental component of local government: all adult Swiss citizens are entitled to take part in the local assemblies and referendums at which local matters are decided. Five cantons (Glarus, Appenzell Ausserrhoden and Innerrhoden, Obwalden and Nidwalden) retain the 'Landesgemeinde', the annual assembly of those citizens entitled to vote held in the town square at which decisions are taken by a show of hands. Local government districts vary in size from the smallest with less than 20 inhabitants to the largest, Zurich, with 350 000.

Referendums are an integral part of the democratic system in Switzerland. They may be held at local, cantonal or federal level and offer an additional opportunity for direct public participation in the political decision-making process. All constitutional changes must be put to referendum and must be approved by a majority of the total number of votes and of the Swiss cantons. Referendums may also be held on laws and decrees at the request of 50 000 voters. Citizens also have a right of initiative enabling them to propose that all or part of the Constitution be amended (at the request of 100 000 voters).

2. Political life

The last elections to the Swiss Parliament (National Council) took place on 22 October 1995. The coalition which has been in government since 1959, composed of Social Democrats, Christian Democrats, the Swiss People's Party and the FDP (Radical Democratic Party), once again gained a large majority. The next elections will be held in October 1999.

Switzerland currently has a population of over seven million people, which, by the year 2020, should stand at well over seven and a half million, at which point the under-fifteens will be in a minority for the first time in the country's history.

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II. ECONOMIC SITUATION

Switzerland's basic economic profile is illustrated by the percentage of GNP accounted for by each economic sector:

1. A period of economic stagnation

The Swiss economy stagnated for six consecutive years between 1990 and 1996, mainly as a result of tight monetary policy, budgetary restrictions and restructuring on a massive scale. Although GDP increased by 0.5% in 1994 and by 0.6% in 1995, there was zero growth in 1996.

The fall in the rate of the Swiss franc in the summer of 1996 had no measurable positive impact on the performance of the Swiss economy in 1996. The foreign trade surplus did not help to boost production, given that the growth in Swiss export markets had slowed down during the year.

Domestic demand continued to be held back by spending restrictions imposed on all levels of government (with a view to reining in budget deficits) and by sluggish private consumption.

Given that real wages and employment levels remained more or less stationary, the real disposable income of households fell off in 1996, while non-wage incomes also fell and income tax and social security contributions - particularly sickness insurance contributions - shot up. In 1996 the inflation rate was 0.8%.

Investment in the construction sector fell off once again, owing to the excess capacity built up during the boom years of the late 1980s.

The persistently high level of investment in tools and machinery did very little to boost domestic production, given that most of such equipment was imported.

The surplus on current account remained at around 7% of GDP in 1996: the volume of exports of goods rose, owing to a price concession by exporters (+6% in 1997).

In parallel to the fall in output, the state of the labour market deteriorated throughout 1996, with the unemployment rate levelling off to 4.7% of the working population, following a slight, but temporary, improvement in 1995. Since 1994 the stability of the exchange rate for the Swiss franc and a certain degree of wage restraint have enabled Switzerland to curb price and wage increases.

2. A return to growth

Following seven years of stagnation, in 1997 the Swiss economy began to expand once more. GDP increased by 1.7% in 1997 and by 2.2% in 1998. The 1999 budget was based on a 2% growth rate forecast which has just been revised downwards to 1.5%. According to the Economist Intelligence Unit, however, the growth rate is more likely to be 1.3%.

In 1997 the inflation rate was 0.5% and in 1998 0.1%.

Unemployment stood at 5% in 1997, but dropped to 3.4% in 1998.

Exports started rising in 1997 and increased by 8% in 1998. In 1997 the current balance registered a record surplus of 21.2 billion dollars, which fell to 18.4 billion in 1998. The economic recovery of the US and Germany was extremely beneficial to exports. It is worth noting that the European Union accounts for 66% of all Swiss exports. Bearing in mind that trade accounts for three-quarters of GDP, growth is naturally highly dependent on export capacities. The decrease in the current balance surplus in 1998 was due to the Asian crisis and the over-valuation of the Swiss franc, the 'Asian factor' being marginal, as exports to Japan and South-East Asian countries accounted for a mere 4.1% and 3.7% of exports respectively.

The desire to prevent the over-valuation of the Swiss franc continues to underpin Swiss monetary policy. To this end the Swiss National Bank has kept interest rates low. The minimum lending rate has remained at a steady 1% since September 1996. Recently, the Swiss franc has remained stable against the dollar, but has been overvalued against the German mark.

The Swiss authorities are currently worried about the impact of the euro, which, since its launch, has been weak. A certain degree of monetary turmoil has increased demand for the Swiss franc as a safe haven and has forced the Central Bank to inject cash into the monetary markets in order to keep interest rates low. It is widely believed that the euro will mainly be used by those Swiss companies doing business with the euro zone and by banks, which are already offering euro accounts and payment systems. The Swiss Stock Exchange has already started using the euro for its international bonds. In the long term, the euro will certainly help to stabilise the Swiss franc, but strong upsurges and plunges are to be expected as a result of nervousness on the financial markets.

The Swiss Central Bank's monetary rigour is somewhat inconsistent with a certain budgetary laxity. The consolidated budget deficit (federal, cantonal and local) currently stands at 3% of GDP and total national debt at 51%. The federal government is expecting the budget to break even again by around 2001.

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III. RELATIONS WITH THE EUROPEAN UNION

Since 1945, Switzerland has consistently sought to forge closer bonds with the western European countries.

The issue of integration into the European Union has dominated political debate in Switzerland since the early 1990s, even more so than the issue of whether to draw closer to the United Nations.

A. POLICY ON INTEGRATION

1. Basic premises

The aim of the Federal Council's integration policy is to prevent Switzerland from becoming politically, economically and culturally isolated and to improve the country's competitiveness.

Closer relations with the European Union would be of major economic benefit: trade with the EU accounts for some 45% of Switzerland's GNP and 66% of all exports are destined for the EU. The Swiss have now really woken up to this fact, all the more so since observing the benefits gained by the EFTA countries that joined the European Economic Area in 1992 . Norwegian exports to the EU, for example, rose by 46.5% between 1993 and 1997 against a mere 13.2% increase for Switzerland.

With a population of only 7 million, Switzerland is not a ready market for mass-produced goods, but it does provide an outlet for 'upmarket' goods and sophisticated high-technology equipment with a high added value. Nonetheless, in 1995 Switzerland was the EU's eighth largest export market, and the European Union is by far its largest trading partner.

Opponents of Switzerland's accession to the European Union have always believed that such a move would undermine some of the fundamental principles on which the Swiss political system is based, namely its neutrality and its system of direct democracy, and that it would carry with it the risk of a massive influx of foreign nationals.

2. How the situation has developed

In 1992 the Swiss government officially applied to join the European Union. However, following the vote against the agreement on Swiss accession to the European Economic Area in the referendum of 6 December 1992, bilateral relations between Switzerland and the Community continued on the basis of the existing agreements (the free-trade agreement, the framework agreement on scientific and technical cooperation and the transit agreement), and Switzerland's application for EU membership lost all chance of being successful.

Membership of the EEA would, nonetheless, have given Switzerland many of the advantages and obligations of Community membership without actually amounting to accession.

Despite the difficulties involved, the Community expressed a desire to forge closer relations with Switzerland, and on 31 October 1994 the Council authorised the Commission to negotiate bilateral agreements in the areas in which such agreements were necessary and feasible; the bilateral negotiations began on 12 December 1994 and focused on the following:

the free movement of persons; research and technological development; agriculture; technical barriers to trade; public procurement; land and air transport.

On 16 June 1998 the European Commission and the Swiss Government announced that the technical work on the five sectors (free movement of persons, agriculture, public procurement, research and mutual recognition as regards technical compliance) had been completed. After final negotiations, seven sectoral agreements were concluded on 11 December 1998 and were signed by both parties on 26 February 1999 in Berne. After four years of negotiations these agreements, which have yet to be ratified, are highly significant in that they strengthen the bonds between Switzerland and the European Union.

B. THE DOOR TO ACCESSION STANDS OPEN

1. Internal developments

On 30 July 1996 the movements 'Born on 7 December 1992', 'Swiss European Renaissance', 'Swiss Federalist European Youth', 'Aktion Europa Dialog' and 'Swiss European Movement' filed a people's initiative entitled ' Yes to Europe', whose aim is to amend the Federal Constitution as follows:

In a decision on 14 February 1997, the Federal Chancellery noted that the initiative had gathered 106,442 signatures and that it met all legal requirements. The Federal Council was thus required to submit a communication to the Chambers on the initiative. On 22 April 1998, the Federal Council decided to put forward a counterproposal in view of the launch of negotiations for EU accession and asked the federal departments of foreign affairs and of the economy to draw up an integration report on the consequences of such accession. The report was submitted on 3 February 1999. It made a comparative analysis of the impact on Switzerland of the following:

The report also mentioned that joining the European Union would cost the Swiss Confederation between 3.1 and 3.9 billion Swiss francs per year (1.94 - 2.44 billion euros).

This document will undoubtedly spark a public debate on the future of relations between Switzerland and the EU. In the light of such debate and of the implementation of the sectoral agreements, the Federal Council will decide if and when to resume accession talks.

2. External action

On 29 June 1998 in Luxembourg the Foreign Ministers held informal discussions on the application made by Switzerland in May 1998 to take part in the European Conference between the EU Member States and the applicant countries. Switzerland argued that it met the criteria laid down by the European Council of 12 and 13 December 1997 for participation in the Conference. It reaffirmed its commitment to Europe and its intention to take part in the process of European integration.

This move was part of the consensus-seeking process vis-à-vis a possible resumption of accession negotiations.

The General Affairs Council of 29 June 1998 expressed a favourable opinion on the application to take part in the European Conference and left it to the Heads of State to take a formal decision on the matter.

Furthermore, on 16 July 1998, following a meeting with the German, Italian, Austrian and French Internal Ministers, the Swiss Federal Councillor for Justice and Police Affairs stated that Switzerland wished in the medium term to become a party to the Schengen Convention and, in the meantime, to establish a common visa policy with its EU neighbours.

The Swiss position has developed in the following manner: the economic crisis which began in 1990 led to the submission in 1992 of the application for accession to the European Union; this process was taken further both by means of the opening of negotiations with the European Union and the emergence of a political debate on European integration and opening up to the outside world (involvement in UN peace-keeping operations and NATO's Partnership for Peace programme); gradually, this paved the way for the application to take part in the European Conference, the catalyst for which was, in all probability, the implementation of economic and monetary union, which the bankers see as a factor for stability.


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© Enlargement: 8 March 1999