Switzerland lies at the center of western Europe geographically, but outside it politically. Sometimes called Europe's water tower, it is the source of all four of the region's major river systems: the Po, the Rhine, the Rhône, and the Inn–Danube. Switzerland has built one of the world's most prosperous economies, aided by the fact that it has retained its neutral status through every major European conflict since 1815. The process of European integration has been the latest and strongest challenge to Swiss neutralism, but it remains outside the EU.

Switzerland is composed of distinct German-Swiss, French-Swiss, and Italian-Swiss linguistic groups. About 40,000 in the eastern canton of Grisons speak Romansch. The German-Swiss, in the majority, are a tightly knit community, with a dialect that is impenetrable to most outsiders. In recent years, the three groups have grown further apart. The French-Swiss, in favor of joining the EU, are opposed by the German-Swiss. In Italian-speaking Ticino, a political party has emerged to champion Italian-Swiss interests. Tension between Swiss and immigrant workers gave rise to vocal support for strict limits on the number of foreigners, but in 2000 this was heavily defeated as a referendum proposal.

Society retains strong conservative elements. Two half-cantons granted women the vote at regional level only in 1989 and 1990. Marriage rates are high and divorce is less common than in most other European states.

Strengths

Highly skilled workforce. Reliable service provider. Major machine tool and precision engineering industries. Powerful chemical, pharmaceutical, and banking multinationals. Banking secrecy laws attract foreign capital; banking sector contributes 9% of GNP. Ability to innovate to capture mass markets, typified by Swatch watch and Smart car.

Weaknesses

Protected cartels result in many overpriced goods. Highly subsidized agricultural sector.

Profile

The economy is widely diversified, with 62% of GDP coming from services and 34% from industry. There are several large multinational enterprises and, notably, a highly successful banking sector managing around one-third of the world's offshore private wealth. During most of the 1990s the economy grew only very slowly, if at all, but performance picked up in 2000 and 2001. In the long term, government finances face pressure to cater for the needs of an aging population.

Switzerland is a federal democratic republic with 26 autonomous cantons. The presidency rotates every year.

Profile

The same four-party coalition has been in power in Switzerland since 1959. Domestic and foreign policies have changed little. Politics has recently become more contentious, however, with voting patterns becoming more polarized. Divisive issues are those of drugs and of membership of the EU. Both right-wing and green minority parties have recently gained more seats in parliament. The right-wing SVP/UDC in particular capitalized on growing hostility to immigration to perform strongly in the 1999 elections.

Switzerland's political system is unique in Europe, in that taking important decisions depends on the results of referendums. A petition of more than 100,000 signatures can force a referendum on any issue.

Main Political Issues

European integration

Almost all politicians and business leaders favor joining the EU, or at least the European Economic Area (EEA). Voters are divided, and are strongly attached to the Swiss style of government. They rejected EU membership in a 2001 referendum, but approved bilateral accords with the EU which entered into force in mid-2002. These reduce trade barriers, strengthen transportation links, and introduce freedom of movement for EU and Swiss nationals.

Switzerland and World War II

In 2002 the Bergier report criticized Swiss refusal to admit many Jewish refugees during World War II, but found that the banking system was not built on the assets of Holocaust victims. In 1998 the two largest Swiss banks had agreed to pay $1.25 billion to 31,500 victims and their families in return for agreement that there would be no future claims against Swiss banks or the government. A government Fund for Needy Holocaust Victims was wound up in 2002 after paying $179 million to 309,000 survivors.

The basis of Switzerland's foreign policy remains its neutrality. Geneva has retained its position as a center for many international organizations, including the ICRC and the European headquarters of the UN (although Switzerland only voted to become a member in 2002). The city has often hosted diplomatic negotiations: those for the START nuclear reduction treaties, and peace talks for the former Yugoslavia took place there.

Switzerland has so far not joined the process of closer European integration. In 1992 voters rejected EEA membership, widely seen as the first step toward EU membership. Many advocates of joining the EU believe that the economy will suffer without closer integration. Opponents argue that Switzerland's seeming isolation will enhance its role as an international tax haven. In 2001 a proposal to apply for EU membership was overwhelmingly rejected, although a series of bilateral cooperation agreements with the EU entered into force in 2002.

The army is, in one sense, among the largest in Europe. It is organized so that almost 400,000 conscripts can be called up and armed in a few hours; it still uses skis, bicycles, and horses to protect the Alps. Bridges and tunnels are mined in accordance with a defense strategy drafted in the early 1900s. Military service and further training at intervals is compulsory for males up to the age of 50.

As in the rest of Europe, force numbers are being cut in response to the end of the Cold War. In 1995, legislation allowing civilian service in place of military service was passed. Voters approved in 2001 a referendum proposal allowing Swiss soldiers to bear arms when on international peacekeeping operations.

Switzerland is poor in natural resources, having no valuable minerals in commercially exploitable quantities. Over half of its electricity comes from hydropower, while five nuclear plants supply most of the rest, so that spending on imported oil and coal is kept to a minimum – they account for less than 4% of the total import bill. Large-scale antinuclear power demonstrations in the 1980s led to the cancellation of plans for a new nuclear power plant, but a referendum approved continued use of existing plants.

The Swiss are among the most environmentally conscious people in the world and are willing to back their convictions with money. The Basel–Milan tunnel, designed to carry trucks by rail instead of them crossing the Alps by road, was approved by referendum, despite the estimated $13.3bn cost. The planners aim to achieve a total ban on truck traffic through Switzerland by 2004, although this may not be necessary if big time savings make the tunnel attractive enough. The Swiss are keen recyclers and taxation is used to encourage this.

Switzerland is a major freight transit route. Pollution and safety are major concerns, after fires in road tunnels, including in 2001 in the Gotthard tunnel, when 11 people died. The NEAT project, begun in 1996, will provide two major new high-speed rail lines through two tunnels linking Basel and Milan, whose trains will carry trucks. Swissair, which went bankrupt in 2001, has been replaced by a new airline “swiss.”

The health system is among the most efficient and pioneering in the world, and is ranked second, after Japan, by WHO for attainment. High health costs are covered by compulsory insurance schemes.

Of total government expenditure, around 16% is spent on education. Primary and secondary education are controlled by the cantons, so that there are 26 different sytems in operation. Most students after the age of 16 are encouraged to take up vocational studies. Training is thorough and is usually combined with three or four years' apprenticeship in the student's chosen field. The Federal Technological Institute in Zürich has gained an international reputation for its computer programming research.

Crime rates are low by international standards. Muggings and burglaries are on the increase and are often related to narcotics. More cases of banking secrecy laws attracting laundered funds are coming to light.

Immigrant workers do most low-paid and menial jobs. Wages in office jobs are relatively high, although the cost of living is also well above the European average. Many workers choose to live in France and commute across the border. The land market is highly regulated.

Tourism is Switzerland's third-largest industry. About 350,000 Swiss earn their living from it, and tourism accounts for around 3% of GDP. The Alps are the main attraction, drawing winter and summer tourists from around the world, and Chillon castle on Lake Geneva continues to be the country’s most popular tourist site. In recent years, warmer winters have resulted in a shorter skiing season. The strong Swiss franc makes Switzerland an expensive destination, and Austria offers tough competition.

The autonomy of the Swiss cantons was curtailed by the Habsburgs in the 11th century. In 1291, the three cantons of Unterwalden, Schwyz, and Uri set up the Perpetual League to pursue Swiss liberty. Joined by other cantons, they succeeded in 1499 in gaining virtual independence. The Habsburgs retained a titular role.

• 1648 Peace of Westphalia ending Thirty Years' War, in which Switzerland played no active part, recognizes full Swiss independence.
• 1798 Invaded by French.
• 1815 Congress of Vienna after Napoleon's defeat confirms Swiss independence and establishes its neutrality. Geneva and Valais join Swiss Confederation.
• 1848 New constitution – central government given more powers, but cantons' powers guaranteed.
• 1857 Neuchâtel joins confederation.
• 1863 Henri Dunant founds ICRC in Geneva.
• 1874 Referendum established as important decision-making tool.
• 1914–1918 Plays humanitarian role in World War I.
• 1919 Proportional representation ensures future political stability.
• 1920 Joins League of Nations.
• 1939–1945 Neutral again. Refuses to join UN in 1945.
• 1959 Founder member of EFTA. Present four-party coalition comes to power, taking over FDP/PRD dominance of government.
• 1967 Right-wing groups make electoral gains, campaigning to restrict entry of foreign workers.
• 1971 Most women granted right to vote in federal elections.
• 1984 Parliament approves application for UN membership. Elisabeth Kopp is first woman minister (justice minister).
• 1986 Referendum opposes joining UN. Immigrant numbers restricted.
• 1988 Kopp resigns over allegedly violating secrecy of information laws.
• 1990 Kopp acquitted. Case revealed Public Prosecutor's office held secret files on 200,000 people. Violent protests. State security laws amended.
• 1991 Large increase in attacks on asylum-seekers' hostels.
• 1992 Joins IMF and World Bank. Referendum vetoes joining EEA.
• 1994 Referendum approves new antiracism law and tighter laws against narcotics traffickers and illegal immigrants.
• 1998 $1.25 billion compensation for Holocaust victims whose funds were deposited in Swiss banks.
• 1999 Ruth Dreifuss first woman president.
• 2002 Joining UN approved by third referendum on the issue. Legalization of abortions as currently carried out also approved by referendum.