home
***
CD-ROM
|
disk
|
FTP
|
other
***
search
/
Current Shareware 1994 January
/
SHAR194.ISO
/
finance
/
whyswiss.zip
/
EUROPE
< prev
next >
Wrap
Text File
|
1993-02-13
|
9KB
|
146 lines
SWITZERLAND AND EUROPE
1991 was Switzerland's 700th birthday, but there
was no grand, flag-waving celebration. Throughout the
year, cities and villages celebrated in their own way,
with alpine yodeling and wrestling fests, fireworks
over Lake Zurich, and ballet in Lausanne.
This country -- made up of 26 highly independent
cantons, embracing four languages -- is simply too
diverse to host a big, nationalistic bash such as the
United States put on in 1976, the Swiss explain.
Seven hundred years ago, if legend is to be
believed, three brawny peasants met on a pretty meadow
called the Rutli at the foot of the steep climb to the
St. Gotthard pass, then as now the most direct route
from the upper Rhine to Venice and the silk routes
leading east. The perpetual alliance they swore is
usually considered the nucleus of the Swiss
Confederation.
The three men in the meadow 700 years ago were
tribal chieftains of what later became the cantons of
Schwyz, Uri and Unterwalden. They signed a treaty for
mutual protection in the crisis of succession after the
death of the Habsburg ruler Rudolf I. The Habsburgs'
ancestral castle was not far away, and the men of the
forest cantons worried that some more remote king might
be less amenable to leaving them alone to collect
bridge-tolls and provide guided mule trains.
Twenty years later the neighbors in Lucerne were
invited to join the loose confederation. Its influence
spread, sometimes by persuasion and often by conquest,
only after a resounding defeat by the French at
Marignano in Lombardy in 1515 did the mountaineers
decide to eschew foreign military adventures. That
neither kept them from fighting among themselves for a
few centuries more nor, since the country was
desperately poor in natural resources, from hiring
themselves out as mercenaries for others. The last
survivors of that practice are the Vatican's Swiss
Guards.
But expansion has its limits. In December, 1992,
the Swiss electorate voted against affiliation with the
European Community.
What should we make of the Swiss vote? Here is
the richest country in Europe (and on some measures the
richest in the world), in the middle of the world's
largest trading bloc, saying it can stand back from
closer union. On the face of it, it looks as though
the Swiss have made a serious and uncharacteristic
error, at least in economic terms. While the vote will
not lead to any economic catastrophe, conventional
wisdom suggests that it will clip something off future
growth. Swiss firms live by their exports and, to some
extent at least, they will find it harder to export
across the border. They may be forced to push some
production over to subsidiaries within the European
Community. Perhaps some investment that would have
gone to Switzerland will go elsewhere.
It was fear that the brilliant Swiss economy would
be damaged that encouraged the political leaders to
press for membership of the European Economic Area. Is
this a case of ordinary voters allowing their hearts to
rule their heads against the advice of the
establishment?
The conventional view was that the decision would
hinder future economic growth. It reckoned that as far
as the stock market was concerned a combination of
higher trade costs and lower gross domestic product
growth would more than offset any advantages from non-
membership such as lower interest rates and freedom
from EC competition policy. By this theory the
economic effects of a "no" vote would justify a
permanent fall in Swiss share prices.
This was an intriguing exercise, but of course a
move in the stock market of between 5 and 10 per cent
is not that much, given the scale of the swings that
take place in securities prices every week. The
implication for growth is perhaps more worrying. A
major investment banking firm, Goldman Sachs,
immediately published a crisis report reckoning that
the diversion of investment following the "no" vote,
and labor migration (skilled people leaving) might
together chip 0.6 per cent off annual growth over 10
years. That would be quite a lot, if it were to
happen.
But will it? There is a counter argument to be
made, which is that staying outside the EEA might
actually enhance Switzerland's economic performance. It
runs like this.
Switzerland happens to be in an extremely strong
structural position. It has great strength in
industries that look like being winners for the next
decade or more. These include financial services (the
three big banks and the Geneva-based fund management
industry), pharmaceuticals (the three big chemical
companies), food (Nestle, Suchard), and up-market
tourism (St. Moritz, Klosters and Verbier).
These are all areas of the world economy in which
Japan and the newly industrialized countries cannot
actively compete, and where the price of the product is
not being constantly shaved by some new technological
advance. By contrast, Switzerland is not strong in
cars, aircraft, electronic consumer durables, computers
-- all areas where European industry is, or is about to
be, threatened by the Far East.
In that sense it is better protected than most of
the EC. Switzerland does have important industries in
areas like machine tools, which are more open to
international competition and might suffer if the
economy were distanced from the rest of Europe, but
much of its strength is in areas where it is quite well
protected.
Indeed in some of these areas, being outside the
EC is a positive advantage. Take financial services,
which accounts for 30 per cent of the value of the
securities on the Swiss stock market. Swiss banks trade
on their safety and their discretion. It was
fascinating to see that foreign money actually flowed
into Swiss securities following the vote. Switzerland
was perceived as being a safer place to put cash if it
remained outside the EEA, presumably for fear that at
some future date the EC bureaucrats would get their
fingers on those numbered bank accounts.
In most of the other areas noted above, EEA
membership is not really an issue. In pharmaceuticals
there might be some modest disadvantage from staying
outside, but the market is such an international
"brain-based" one that it is hard to see any serious
damage. Food products? Well, Nestle generates roughly
97 per cent of its turnover outside Switzerland, and is
not really dependent on exports across the Swiss
national boundary into the rest of Europe. Tourism?
Membership of the EEA is not an issue.
So while there might be some modest disadvantage
to Switzerland, the Swiss winners would be fine. Some
sectors, in particular financial services, would do
better by staying outside. The effect might therefore
be merely to push the country even further towards its
specialties. But since these are good growth areas that
does not matter. One could even construct an argument
that Switzerland will benefit by keeping apart from the
rest of Europe.