The Swiss may be known for neutrality, but when they showed themselves to be anything but neutral on the issue of immigration in a recent election, voting to impose limits on the number of non-Swiss who may enter the country seeking work, they might have shot themselves in the foot.
The relaxed immigration standards that went into effect 12 years ago as part of Switzerland’s agreements with the European Union have helped to fuel growth in the Swiss economy, allowing companies to bring in highly qualified workers that are essential to their businesses. Not only that, the acceptance of those relaxed standards was only a single condition among many agreements with the EU—to which Switzerland does not belong, but to which it sells 55% of its exports.
Because of the way the agreements were drawn up, voiding one provision among them invalidates them all, and the EU has already shown itself not to be pleased at Switzerland’s action. A bare two days after the vote, the EU put on hold a discussion of tying in Swiss utilities to the broader EU energy market.
That’s far from the only segment of the Swiss economy that could be affected by the vote, since agreements on transportation and commerce are also part of the overall package. And the Swiss Bankers Association has already expressed concern that the vote could restrict banks’ access to the available pool of trained staff.
While not all Swiss were in favor of restricting the number of immigrants to the country—the measure passed by 50.3%, and was carried by fewer than 20,000 votes—the country was split along rural/urban lines.
Business centers such as Basel, Geneva and Zurich voted against restriction; they need to import highly skilled workers to keep businesses thriving. However, in German-speaking rural cantons and in the Ticino region, where Italian is spoken—where concerns about housing availability and affordability and the drop in blue-collar wages are more prominent—the majority of votes were in favor of cutting the amount of competition for jobs, homes, and public benefits.
Concern about higher crime rates has also caused a number of Swiss to want to shut the door to free passage. In fact, the measure that passed also calls for curbs on asylum seekers and those who commute across Swiss borders, as well as providing preference to native Swiss workers over immigrants.
Of course, Switzerland is not the only country in the region to have reservations about unrestrained immigration. Austria, France and Italy have their own concerns about the influx of foreigners, but they are not so dependent on highly skilled immigrant workers as the Swiss, who play host to such international behemoths as Novartis and Roche in the drug market; Nestlé, the world’s largest food company; and financial giants such as UBS AG, Credit Suisse Group AG and Julius Baer Group Ltd. In Switzerland between 2010 and 2012, 69% of EU immigrants were classed as highly skilled, according to the Organization for Economic Cooperation and Development, compared with a rate of only 35% across the EU’s 28 member states.
It’s clear that the EU will not accept Switzerland’s backpedaling on immigration without a fight. European Commission spokeswoman Pia Ahrenkilde-Hansen said after the results of the vote were announced, “Clearly this vote didn’t set the right tone for the start of negotiations on an inter-institutional accord that will govern relations between the EU and Switzerland.”
Individual EU member states aren’t thrilled, either, with German Foreign Minister Frank-Walter Steinmeier quoted saying, “Switzerland has to know that cherry picking in relations with the EU can’t be a lasting strategy.” Belgian Foreign Minister Didier Reynders agreed, saying, “We can’t work à la carte. They have to accept the entirety of the European accords.”
Not just energy agreements but also environmental and other provisions, such as joint research funding and student grants, could be endangered by the Swiss vote. While the Swiss have three years to enact the immigration curbs now called for, and the parliament has some leeway in how that might be done, one of the first indications that could indicate how the Swiss will treat the vote is in a previously agreed promise to drop, as of July 1, requirements for work permits for Croatians in search of jobs. Croatia joined the EU last year.
Peter Fitzpatrick, spokesman for Fitch Ratings, indicated that the Swiss vote could have ramifications in numerous areas. Fitch said the anti-immigration measure has increased economic uncertainty, not just for the broader economy but also for the Swiss property market.
Pointing out that the EU has already indicated its willingness to act on its displeasure with the outcome of the vote by suspending energy market integration talks, Fitch said, “If EU retaliation resulted in a material adverse change to its current agreements with Switzerland, the latter’s sovereign credit profile, and those of its banks and corporates, could be affected. The most damaging macroeconomic outcome would be if Swiss banks and corporations’ access to EU markets were restricted, although this is not our baseline assumption.”
Should Switzerland’s export-oriented economy suffer restrictions in access to the EU market, Fitch said, that could cost the country some growth. Restricted access to hiring appropriately skilled employees from outside the country could also affect medium- and long-term growth at some of Switzerland’s largest corporates, “such as pharmaceutical companies.” It could also necessitate the relocation of certain operations.
Fitch said, “The potential impact of a quota on banks would probably be a function of the impact on Swiss exporters and therefore on asset quality in corporate loan books, and on Swiss property prices and asset quality in residential mortgage books. The uncertainty a possible immigration cap could bring to the residential property market reinforces our view that prices are likely to stabilize after a period of strong growth. Net immigration has contributed to housing demand, alongside low and stable unemployment, robust income growth, and low interest rates….”
John Blank, chief equity strategist for Zacks, said that while Switzerland wants neutrality and privacy, those things are not part of the arrangements for the rest of the continent. “They are really facing off with Europe’s ongoing progress in assimilating itself.”
Switzerland is not playing from a position of strength as Europe recovers from the financial crisis, Blank said. The Swiss were able to avoid confrontations with the EU, despite their efforts to shore up the Swiss franc amid a “huge backup of capital,” while one issue after another surfaced in the EU.
However, the arrival of Cyprus in the spotlight highlighted a number of issues, from the preponderance of Russian funds to money laundering to taxation, that have put the Swiss squarely in the sights of the EU.
“They [the Swiss] will be penalized. They have no leverage whatsoever. It’s much like Cyprus. Europeans want these loopholes closed down, and don’t want their banks weakened,” Blank said. Switzerland’s squabbles with its neighbors over taxation and its desire to maintain secret accounts have led to a “level of antagonism” with EU countries. “The central bank will [come down hard on] the Swiss if they don’t get with the program,” he said.