Bern's Brussels spat to hit stock exchanges
June 27, 2019
What happened this week?
Switzerland is threatening not to sign a new agreement with the EU that would simplify its existing 120 agreements with the 28-member bloc covering everything from trade to immigration.
Switzerland had already won a one-year extension to agree to Brussels' demands in late 2017, and a further six-month extension at the end of 2018, expiring on June 30.
Switzerland's complex political system of consensus-building means the country needs more time before it can sign a new trade treaty with the EU, Foreign Minister Ignazio Cassis said this week. "The tempo demanded by the EU does not correspond to the possibilities of a direct democracy like Switzerland," he said.
The Swiss cabinet earlier in June asked Brussels to clarify provisions on wage protections, state aid and the rights of EU citizens in Switzerland before signing off on the treaty, a move some in Brussels saw as outright procrastination.
Why is this important?
The main leverage used by Brussels has been threats to halt stock market equivalence for the Swiss Stock Exchange, which is necessary for EU traders to conduct Swiss transactions directly on the Swiss market.
Shares of almost all the large Swiss companies that are traded on Switzerland's main exchange are also tradable in the EU through alternative exchange platforms.
The Swiss government responded with countermeasures, including a new system from July 1 that requires foreign stock exchanges to obtain Swiss permission to host trading in Swiss stocks.
The London Stock Exchange has warned investors they could be forced to delist Swiss stocks from Monday, July 1.
The EU is Switzerland's largest trading partner and Switzerland is the EU's third-largest trading partner, after the US and China. Switzerland accounts for 5.2% of the EU's imports.
When did the draft deal talks start?
Brussels pushed for new arrangements in 2008 that would be designed to ensure Switzerland applied EU law in a standardized manner. This after a row over Swiss measures to protect its labor market.
Brussels argued the measure broke the free-movement-of-people treaty between Switzerland and the EU.
Bilateral talks began in 2014 after the"antimass immigration" initiative was narrowly passed by Swiss voters in a referendum.
What have the negotiations focused on?
The general tone of the talks has been on how EU law should be adopted in Switzerland and how disputes between the two parties should be settled.
Talks have focused on five agreements related to Swiss access to the EU market: free movement of people, air transport, transport of passengers and goods by rail and road, trade in agricultural goods and mutual standards recognition.
A 34-page document made public by the Swiss government calls for a so-called "dynamic adoption approach" for EU law in Switzerland, which would see bilateral agreements updated "as quickly as possible” in line with changes to EU legislation.
But Switzerland wants not to be required to automatically adopt EU law and its parliament would have the right to choose to adopt legislation, as would Swiss citizens through referendums.
Who is against the deal and why?
Political opposition to the treaty in Switzerland has held up the process and is likely to continue to do so for the remainder of this year. Swiss elections, the expiration of the EU executive's current term and a possible no-deal Brexit, all in October, mean a level of uncertainty that precludes concrete decision-making ahead of time, Bern argues.
Those in Switzerland opposed to the EU trade deal range from the right-wing Swiss People's Party (SVP) to the Social Democrats (SP) and their allied trade unions. The SVP see the treaty as an infringement of sovereignty, while the SP rejects any dilution of domestic rules that protect Europe's domestic wages from cross-border competition.
What happens next?
Swiss officials say there is no point signing a deal now that will likely not be passed by parliament or be voted down under the Swiss system of direct democracy.
Switzerland will have parliamentary elections on October 20.
The news agency Reuters quoted EU sources as saying that Brussels was likely to consider extending equivalence for the Swiss stock market for another six months.
But problems lie ahead if no deal on a treaty is worked out by the time the current European Commission's term ends on October 31. That's when European Commission President Jean-Claude Juncker leaves office and a no-deal Brexit seems increasingly likely.