Did someone say “referendum?”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The EU’s relations with key third-party country Switzerland have sunk to their lowest point in years thanks to a last-minute decision by the European Commission to grant Swiss stock exchanges just one year’s further access to the single market. Switzerland is not a member of the EU but it does have close links to the bloc, having signed 120 bilateral trade agreements with Brussels in the last few decades.
“[Access for Switzerland] can be extended provided there is sufficient progress on a common institutional framework,” said Valdis Dombrovskis, the EU commissioner in charge of financial-services policy, just before Christmas. In other words, for Switzerland’s stock exchanges to continue to enjoy full access to the single market, it must accept further integration. By contrast, other foreign exchanges such as those in the US or Hong Kong were given open-ended access.
The decision, which formed part of the EU’s new sweeping MiFID II financial regulations, has triggered a furious backlash from Swiss policymakers. “We are in front of a pile of s***,” thundered Leader of the Social Democrats Christian Levrat. “The relationship with the EU is worse than ever. [Switzerland needs] a serious domestic political debate on the basis of facts.”
Mr Levrat’s comments chime with the views expressed somewhat more diplomatically by the country’s outgoing President Doris Leuthard, who called for a referendum to clarify what sort of future relationship, if any, the country should have with the EU. Some EU member states are putting Switzerland in the same basket as Britain and want to set an example while others see its financial center as a competitive threat that needs to be kept in check, Leuthard complained.
“The bilateral path is important,” she said. “We must therefore clarify our relationship with Europe. We have to know in which direction to go.” As such, a “fundamental referendum would be helpful.”
The Dreaded R-Word
If there’s one word that strikes mortal fear into the heart of any senior EU apparatchik, it’s “referendum.” And in Switzerland referendums are held all the time, for just about any major policy decision, particularly one seeking to amend the country’s constitution.
The last time the country held a major referendum on EU policy was two years ago when Swiss voters, concerned about rising immigration, narrowly supported a proposal to limit the number of workers coming in from the EU, effectively abandoning Switzerland’s commitment to free movement of people. Since then, relations between Berne and Brussels have been strained, even though the Swiss government is yet to introduce any actual restrictions on EU workers out of fear of EU reprisals.
But those reprisals have come anyway. By threatening to block financial access to the single market, the Commission has sharply escalated tensions. According to the Commission, the main reason why it took this decision was that the trading of Swiss shares in the EU is “more widespread” than with the US or Hong Kong, so trading in Switzerland has a “bigger and more immediate impact on the integrity of EU financial markets.” It also noted the “far closer commercial ties binding the EU and Switzerland.”
While there may be an element truth in that, the timing of the move is too convenient to ignore, coming just days after the EU’s chief Brexit negotiator, Michel Barnier, warned that financial services wouldn’t be included in an eventual post-Brexit trade agreement, much to the dismay of City of London representatives. “There is no place (for financial services),” he said. “In leaving the single market, (UK-based banks) lose the financial services passport.”
Whether the trade talks do ultimately extend to finance or not, one thing is now abundantly clear: the EU is determined to use market access for U.K. banks and insurers as leverage on other issues, just as it has done with Switzerland.
“That’s what they do with smaller states, and that’s what they will do to Britain as well,” Karel Lannoo, head of the Centre for European Policy Studies in Brussels, told Bloomberg. “We’ve seen it in the [Brexit] negotiations. You will continue to pay as long as you’re a member of the single market, even if you have politically nothing to say.” In other words, you get to enjoy all the obligations of an EU Member State with none of the rights.
The ploy is not without its risks. The EU may be a bigger fish than either Switzerland or the UK and both countries may depend heavily on the EU as its prime export market, but in using the former as a pawn in its negotiations with the latter, the EU risks alienating a nation that jealously guards its independence, neutrality and national sovereignty more than arguably any other in Europe.
The more the Commission pushes the Swiss government to accept painful political sacrifices, including judicial oversight by the European Court of Justice, in return for financial perks it already thought it enjoyed, the more likely it is to fuel popular resentment of the EU in a country that already rejected its advances way back in 1992. That’s not to mention the EU’s other third-party nations, Norway, Iceland, and Liechtenstein, which are probably now wondering how high a price they too will have to pay to preserve their own access to the single market. By Don Quijones.
Turns out all that’s needed to halt a property bubble is a constitutional crisis of epic proportions. Read… Chaos in Catalonia Hits Barcelona Housing Bubble
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The Swiss are smart. Their central bank prints money to buy US stocks like Apple, Google, and other FANG type stocks. They trade something created out of nothing for something very valuable.
They must know the secret that the bond market will fail including sovereign bonds.
I am sure it will happen but most folks are looking at economic events that could set it off but a political event will do.
Buying insanely overvalued Ponzi stocks is smart?
They are buying it with newly printed money. Even if they lose 50%, they come out ahead.
Even if the stocks lost 100%, the Swiss lose nothing. How can they lose by buying the best stocks on the planet with QE money? If FANG stocks go to zero, then you will know that an asteroid ten miles in diameter has struck the world somewhere. That’s when you turn on the news to find out where it struck if you are curious, not that it will help any. It wouldn’t have helped the dinosaurs to have known where the asteroid had struck 65 million years ago on a Flintstone news broadcast…it would have, in all probability, just soured a dinosaur’s best day dream.
The Swiss didn’t buy stocks with nothing, they bought them with credit created by Swiss banks. This credit can’t just be cancelled if stocks drop. Instead, it will sit on Swiss bank balance sheets for decades, possibly setting the scene for yet another financial crisis. It wasn’t that long ago the Swiss currency was tottering on the brink. The Swiss may be forced into the arms/clutches of the EU if and when stock prices start to fall and/or plummet. Governments investing in stock markets is an incredibly dumb idea. I thought Switzerland was smarter than that.
QE has nothing to do with credit or borrowing. The money is not borrowed from anyone. It is created electronically with much less power than is needed to mine a bit coin.
Not sure these are “best” stocks in the world. The valuations of these companies are based on near-monopoly position globally (and they are still overvalued). That position is hardly sustainable and they may be able to hold on to it for while.
This is too vague to grasp. It reads like an interpretation of EU gobbledygook. They are masters of gobbledygook.
Is the EU telling the Swiss to pay for services rendered and no longer free ride or is the EU extorting a perceived weakness? It seems like the Swiss provided some accommodation recently. Does the EU claim, thanks but we want more plus keep it up. Is the EU saying the price just went up?
Or is the EU telling the Swiss, very indirectly, to stop printing money in order to buy financial assets and this is a knee in the groin to that purpose?
No the EU is telling the Swiss the four freedoms are indivisible. Either Free movement of people and free movement of services,goods and capital or restrictions on all four.
Which is what they have been banging on to the UK about. This has got to be a signalling attempt to brexiters who still don’t believe the eu on this.
The EU is having a lot of internal and external trouble as it can not control its borders or stop unemployment exportation and benefit tourism.
The “Freedom of Movement” Needs reform and regulation, as does border control and the treatment of illegal economic migrants who claim to be asylum seekers or refugees.
The Eu ha sto reform teh Freedom of movment or seperate it.
The EU (Being the brussels Socalist dictators ) As always reach for STICK, when all does not go its way.
Soon it will choke on its stick.
The Swiss and other European countries are absolutely within their rights not accept the “free movement of people” just because Angela Merkel decides to invite millions of Syrians into Europe. This was Germany’s decision, and Germany alone should be forced to live with it.
Thanks, all. I think I get it a little better. My problem is understanding the EU and creeping control. They’re telling the Swiss the price is going up, nonnegotiable. OTOH, the Swiss printing money to buy equities is just a legal basement scam. It looks like two crooks arguing over turf and street taxes, to me.
The Swiss do well out of the EU even though they’re not fully part of it. They would follow anybody if the money’s there.
Switzerland will not do so well with the influx of immigrants, esepcially non EC immigrants, in the longer term.
Don’t forget that the Swiss had a referendum and voted to stop immigration into Switzerland. The Swiss government could do nothing about the immigration because free movement of people is an EC condition of having an EC trading treaty.
Don’t underestimate the Swiss ??.
Referenda ( aka Referendums ) are their bread & butter.
They take them VERY serious.
The EU mafia in Brussels will be surprised.
Those UNELECTED eurocrats will get a stern message.
Look what is brewing in the former Eastblock countries.
The EU party will be over quite soon.
Return to the old EEC. ( European Economic Community )
Dump the €!
It became a constant money drain/transfer from the productive North to Club Med countries in the South.
I agree with you that the Swiss have always taken their independence very seriously. As the article says the European Union Commission despises the electorate of member countries, and affiliate countries such as Switzerland, having their say in national plebiscites. I’m Irish any proposed changes to the status of my country’s EU membership has to be put to referendum first, and the EU Commission and our country’s politicians hate this accountability by plebiscite.
I hope the Swiss people send a direct and unequivocal message to the EU Commission.
The next thing you know the EU won’t let aircraft overfly the EU to land in Switzerland.
The Swiss have a regularly trained all-citizen army. How many welfare recipients can the EU gather if it came to a fight?
As a matter of historical perspective … CH did prevent any and all aircraft military and civilian from flying over CH to land anywhere else from approximately 1940 – 1950 in order to maintain their neutrality .
Switzerland is not without leverage, they didn’t drill tunnels across the Alps for nothing.
The Swiss have always lived behind a financial Chinese wall, from the days when Swiss secret bank accounts were the offshore tax haven. If history is any indicator they will probably be the only country where Bitcoin can legally operate.
Is this not also an attempt to ensure that any financial service providers fleeing post-Brexit Britain don’t decide to set up shop in Switzerland , but rather plump for an EU country as their base instead?
Good thought. Maybe it’s the primary motivation?
One minor correction ;
The EU may be a larger ‘ physical ‘ entity than Switzerland . But when it comes to economic power ( money talks bs walks ) what with over 70% of the worlds wealth ( including the EU’s ) residing in Swiss banks … Switzerland is David to the EU’s Goliath .. complete with slingshot and deadly projectiles
In as far as the BREXIT fleeing financial institutions and where they’ll set up their new shops . That’ll be where they find the largest economic advantages … and that aint …. the EU .
The EU is well aware that it is doomed if the UK manages to leave the EU. Unfortunately the UK doesn’t seem to realise that the EU is doomed without the UKs funding.
I just don’t understand the reason (it is quite obvious) that the UK politicians have no intention of leaving the EU and purposly dragging things on for it not tom happen.
If the UK has the bottle to leave the EU would be able to with the financial markets in London become the Singapore of the West.
The Swiss have lost their credibility of being a banking centre since their giving information demanded from the USA government. In fact most good Swiss bankers ahve moved to Singapore since then.
This will all be solved soon, if the Eidgenossen ( hard core Swiss)have their way :
Close the St Gotthard Autobahn tunnel for a few days and EU will come to table with a lot of good will ! The only other routes for trucks are Grossglockner ( A) or St Bernadino (F).
At 8 million inhabitants and counting the Swiss are feeling a bit crowded and will not mind the loss this will create, because the people will go too.