Swiss-EU bilateral approach: not the economic boon it is made out to be

The economic impact of the bilateral agreements between Switzerland and the European Union is vastly overrated, says François Schaller, journalist and member of the Swiss entrepreneurs’ movement autonomiesuisse. He decries what he sees as an official myth surrounding the growth generated by the “sacrosanct” bilateral track.

Five years of actual Brexit have failed to deliver on the economic ambitions of the Brexiters. But the impending catastrophe foretold by the opponents of Brexit has not come about either. Amid the apocalyptic analyses of the state of affairs in the United Kingdom, this is the unusual conclusion reached by René Schwok, honorary professor of European studies at the University of Geneva, in a recent article in Le TempsExternal link.

It could moreover be added that the UK’s growth rates since its Trade and Cooperation Agreement with the EU (2020) speak for themselves: they are far above those of Germany, and the same as in the eurozone.

And this performance looks set to strengthen further this year, according to forecasts by the Organisation for Economic Co-operation and Development (OECD). The British economy is no longer part of the European market, but it is doing well overall. Even the governing Labour Party is no longer contemplating a return to the EU.

Pro-Europe narrative

This gulf between the talk of doom and gloom and macro-economic reality begs an analysis of what has been going on in Switzerland for more than 30 years. The country is in the grips of a narrow, Europeanist narrative that is official.

It all goes back to the 1990s, which are presented as a period of stagnation – a real nightmare, in fact, followed by a spectacular recovery in the 2000s. And this was all thanks to Bilateral Agreements I and II with the EU and the “sacrosanct” bilateral track. To start with, this approach was supposed gradually to lead to full integration of the Swiss economy in the EU’s regulatory framework. The Swiss subsequently gave up on this goal, but the Europeans have not forgotten it. 

One need only look at growth rates since 1990 to realise that the hallowed narrative of “redemption through the bilateral agreements” is but a myth. The rebound of the Swiss economy – which was indeed spectacular – began in 1997. This was a good five years before Bilateral Agreements I and the progressive entry into force of the free movement of persons; and ten years before its full implementation. 

Minimal gains

This basic conclusion was recently endorsed by Tobias Straumann of the University of Zurich, one of Switzerland’s few economic historians. The bilateral track has not contributed much to the prosperity of the last 25 years. And while it has been reaffirmed by popular vote on several occasions, this was mainly because of pressure from the EU (guillotine clause, intimidation and sanctions from 2014). 

Other blatant fallacies underpin the arguments shaping the debate on Switzerland’s European integration. These are intended to convince people of the vital importance of the treaties. The famous Mutual Recognition Agreement (MRA) on technical standards is a case in point. It is the only clearly trade-related accord in Bilateral Agreements I and II; the others are concerned with neighbourly relations and cooperation.

By ensuring mutual conformity recognition for most industrial products, the MRA enables a reduction in approval costs. According to the Swiss Secretariat for Economic Affairs (SECO), however, the saving is less than… 1.5% of the value of sales in Europe. This is a drop in the ocean compared to the rising cost of Swiss exports owing to the chronic decline of the euro against the Swiss franc (30% since 2000).   

Academic lobby stirs up fear

The key medical-technology sector has been deprived of this “MRA privilege” for four years, as a retaliatory measure. Yet it has never been in better shape, posting enviable growth rates. And in fact, 90% of exports to the European market come from companies that have long preferred to forego the facility provided by this agreement (instead receiving product approval directly in the EU).

The powerful academic lobby also has a knack for spreading fear. Just see how it warns of the demise of Swiss innovation because of EU obstacles to the full participation of Swiss researchers in the Horizon Europe programme.

Yet Bern’s contribution to Horizon does not amount to even 3% of investment in research and development in Switzerland (public and private). And since the country’s associate status in the programme was withdrawn, again as a retaliatory measure (2020), Swiss universities have lost none of their appeal. They continue to attract researchers from across Europe and around the globe.

Free movement as seen by the EU…

The free movement of people lies at the heart of the institutional framework demanded by the EU. Brussels is firm on this. This principle goes far beyond the implications for migration and mobility. Acceptance of freedom of movement is what makes the Swiss market compatible, on a policy level, with the EU market: about people, capital, goods and services. Without this fourfold freedom, all prospect of subsequent legal integration would disappear.

And the EU, unlike Switzerland, has never turned its back on the goal that the bilateral “track” was officially working towards: EU membership. The EU has time, but the shock of Brexit has tried its patience. Populist movements are flourishing in Europe. Switzerland is increasingly seen as a free rider in the EU. And has the EU not unilaterally decided that Switzerland is de facto part of the European market? 

So now it must adopt its rules; to put an end to what the EU regards as “unfair competition”. Not having to integrate or comply with European regulations has become an unfair advantage for Swiss companies on world markets. Back in the 1990s, it was said that staying outside the European market could only lead to decline. Today, the economic success of Switzerland, which is not part of the EU, is regarded as cheating.

…and as seen by Switzerland

Free movement is perceived very differently in Switzerland. On the political level, the Swiss People’s Party has, for the third time, launched a popular initiative to try and put an end to it (“No to a Switzerland of ten million inhabitants”). A yes by the people in a national vote would thus spell the end of free movement. This initiative therefore must be nipped in the bud it seems, so that another vote can be held on the institutional and sectoral package negotiated last year.

    «What kind of crisis will it take to burst a potential demographic bubble?»

It is an understatement to say that today’s general climate is not conducive to good relations with the EU. There seems to be an endless increase in the number of EU nationals in Switzerland. In the 1990s and again in the early 2000s, the Swiss government predicted an increase of 10,000 people per year. Business organisations even put the figure at 8,000. Since full implementation of the agreement in 2007, the annual average has actually been 48,000. This is the equivalent of the population of the town of Neuchâtel [in northwestern Switzerland], to which must be added 20,000 non-Europeans (not including asylum seekers). 

CoContrary to frequent belief, there is not the slightest correlation between annual GDP growth and European immigration. There have been good years with relatively low levels of migration, whereas the migration balance with the EU was still 40,000 people in the midst of recession (2020).

Demographic bubble?

At the same time, there has been a rise in unemployment as defined by the International Labour Office – from less than 2% in 2000 to around 4.5% today. This brings joblessness levels closer to the European and eurozone averages (+/-6%).        

As the increase in the working population automatically generates growth, what role does it play in the evolution of GDP? This is hard to measure. And what kind of crisis will it take to burst a potential demographic bubble? Or rather: when the bubble bursts, what kind of crisis will it trigger?

Will this be the right time to enter complex discussions with Brussels to draw up, in accordance with the treaties, safeguard measures “in the event of serious economic or social problems”? And what kind of “serious problems” could Switzerland, so prosperous and stable in the eyes of the EU, actually face? These are just some of the questions that will soon require answers.

The views expressed in this article are solely those of the author and do not necessarily reflect the views of SWI swissinfo.ch.

>> Read another opinion by Cristina Gaggini, director of the business association economiesuisse for French-speaking Switzerland.

Adapted from French by Julia Bassam/sb