Switzerland

Politics:

• Analysis

  Switzerland politics: New talks with EU about future relationship

  Stalled negotiations between Switzerland and the EU are expected to resume in early 2013. The intent of the talks is to set up a formal framework to structure future relations. Until the two parties reach an accord on this, no further bilateral deals are likely to be agreed. Negotiations look set to be long and tough, perhaps lasting one to two years as Switzerland strives to protect its sovereignty while the EU seeks to simplify its complicated treaty system with the country, comprising 120 bilateral agreements.

  In June 2012, the Swiss government sent a proposal to the EU in which it confirmed its intention to continue developing relations through bilateral agreements. It stated that a rapid process would be used to adopt new EU laws affecting Switzerland, but rejected automatic adoption of EU legislation. This would help Switzerland to retain its system of direct democracy through referendums on some issues. It also asked for a voice in the development of new EU laws that relate to Switzerland. On the question of supervision and dispute settlement, the government proposed that a Swiss supervisory board and court would decide whether Switzerland conformed with treaty requirements.

  EU rejects many of Swiss proposals and seeks closer integration

  In December 2012, Swiss newspapers reported that the Council of the European Union had formulated a response to Switzerland's proposals in which the Council agreed to future discussions. However, the Council itself stated that the proposals did not go far enough towards satisfying EU conditions. It rejected Switzerland's wish for a Swiss supervisory body and proposed an international mechanism to supervise bilateral agreements and arbitrate conflicts. It also said that the EU would expect a greater Swiss contribution to the EU Cohesion Fund, which supports development in new EU countries and to which Switzerland has contributed Swfr1.3bn (US$1.4bn) so far. It further criticised Switzerland's decision to restrict immigration from a number of EU member states in eastern Europe, which Switzerland formally justified by concerns that a large increase in its foreign population could strain Swiss infrastructure. Finally, the EU requested closer co-operation on security matters. Overall, the EU states that it considers its relationship with Switzerland not as bilateral but as a part of "a multilateral project". The official EU response is expected to be sent to Bern before the end of 2012, making way for discussions to begin as early as January 2013.

  Reopening of talks bodes well for Swiss interests

  Nonetheless, the fact that the EU is now open to new discussions on the sensitive question of the supervision of agreements was good news for Switzerland. The recommencement of negotiations means that the way could now be open for important future treaties. Top of Switzerland's agenda is an energy agreement that would allow it to expand imports of electricity from the EU at a reasonable cost. This will be important for Switzerland to help it to manage the phase-out of nuclear power and to increase use of alternative sources of energy, such as wind power, potentially sourced from wind parks in Germany and the North Sea. Another priority for Switzerland is Swiss banks' access to EU financial markets. Switzerland has a keen interest in finding a financial services agreement that protects crossborder banking transactions between Switzerland and the EU.

  Popular support for more automatic adoption of EU law unlikely

  The relationship with the EU is Switzerland's primary international concern. Ties are close, based on history, language, geography and trade, as the EU constitutes Switzerland's most important trading partner and Switzerland in turn is among the EU's four leading trade partners. Around 1.1m EU citizens live in Switzerland, and around 420,000 Swiss citizens have their primary residence in the EU. However, Switzerland's system of direct democracy gives citizens the last word in many political decisions, and the majority remains in favour of a bilateral approach to EU agreements. A survey by the research institute gfs Bern, published on November 30th, showed that 63% of those questioned support bilateral negotiations. Trust in EU institutions is low, and appears to have been exacerbated by the euro zone crisis: a Credit Suisse survey released in December showed that only 19% of respondents had confidence in the EU, down from 34% in 2010. A significant rise in domestic support for far-reaching, automatic implementation of EU law in Switzerland is therefore questionable.

  December 18, 2012

• Background

  Switzerland: Key figures

  Doris Leuthard (CVP)

  Ms Leuthard, a member of the Christian Democratic Party (CVP), has been minister for energy, environment and transport since late 2010. She was elected to the Federal Council in June 2006 and her charisma has made her one of the country's most popular political figures, although she encountered some opposition from the powerful farming lobby over her plans to liberalise trade in agricultural products.

  Eveline Widmer-Schlumpf (BDP)

  Ms Widmer-Schlumpf's election to the Federal Council in 2007 led to a split in the Swiss People's Party (SVP), after which she joined the Conservative Democratic Party (BDP). She is popular with the electorate and considered highly competent. In 2010 she was appointed to the finance portfolio, which she retained after the 2011 general election. In 2012 she also serves as the federal president, an annually rotating post with mainly representational responsibilities, heading the Swiss Federal Council. (The federal president is not, however, head of state. This position is held by the government collectively.)

  Ulrich (Ueli) Maurer (SVP)

  A former SVP president, Mr Maurer joined the Federal Council in December 2008. He is minister for defence and responsible for a major reform of the Swiss army, designed to modernise and scale back the country's military forces. He was an SVP hardliner as party president, but has been more moderate and collegial as a member of government.

  Alain Berset (SP)

  Mr Berset became minister for the interior in January 2012, succeeding Didier Burkhalter of the Radical Democratic Party (FDP), who now heads the department for foreign affairs. Mr Berset, a member of the Social Democratic Party (SP), has one of the most sensitive Federal Council posts, with responsibility for social security and health systems that need reform to avoid financial deficits. The difficult brief, with many interest groups to satisfy, means that he is likely to keep a low profile.

  Simonetta Sommaruga (SP)

  Ms Sommaruga joined the Federal Council in 2010 as minister for justice and the police. She made her name as a consumer rights advocate and is a long-time member of the federal parliament, noted for her pragmatism. Her department's law-and-order issues do not particularly suit the SP's ideological priorities and she would be a favourite for a move in any reshuffle.

  Johann Schneider-Ammann (FDP)

  Mr Schneider-Ammann joined the government in 2010 as economy minister. A successful businessman and federal parliamentarian, he boosted his profile by speaking out against high remuneration for top managers. He has faced criticism for not mastering his ministerial brief and is deemed vulnerable to being deselected from government at the next election.

  Christoph Blocher (SVP)

  Mr. Blocher, a tough-talking industrialist with a dedicated following, served only one term on the Federal Council before being removed by the federal parliament in 2007 because of his polarising attitude. Nevertheless, he remains a powerful voice within the SVP as its vice-president responsible for strategy and leader of its dominant nationalist wing.

  September 21, 2012

• Structure

  Switzerland: Political structure

  Official name

  Swiss Confederation

  Form of state

  Federal republic

  Legal system

  Based on the constitution of 1848, with total revisions in 1874 and 2000

  National legislature

  Bicameral Federal Assembly (parliament), comprising the 200-seat National Council and the 46-seat Council of States. Both chambers are directly elected, but whereas the number of seats per canton in the National Council is apportioned according to the size of the population, each canton elects two representatives into the Council of States and each half-canton elects one representative, irrespective of the size of the population. Any law passed by both houses that modifies the constitution must be submitted to a referendum. Laws must also be submitted to a referendum if demanded by eight cantons or 50,000 citizens. Citizens may initiate changes to the constitution by gathering 100,000 signatures to petition for a referendum (people's initiative)

  Electoral system

  Universal direct suffrage over 18

  National elections

  Last federal election was held on October 23rd 2011; next federal election will be held in October 2015

  Head of state

  The head of state is the federal president; the post is purely ceremonial and by tradition rotates annually among the members of the Federal Council (the executive)

  State legislatures

  Each of the 26 cantons and half-cantons has a parliament, elected by universal suffrage, and a government, the organisation of which varies. In two cantons, the principle of universal sovereignty is exercised directly through assemblies of all voters. The cantons are sovereign in all areas that are not specifically entrusted to the federal government

  National government

  Federal Council (the executive or cabinet) of seven members elected individually for a four-year term by, but not necessarily from, the two houses of parliament in joint session. Following the 2007 election, the Swiss People's Party (SVP) temporarily moved into opposition, but returned to government in 2009. The government is composed of two members each from the Social Democratic Party (SP) and the Radical Democratic Party-Liberals (FDP), and one from each of the BDP, SVP and Christian Democratic Party (CVP).

  Main political parties

  Swiss People's Party (SVP, populist right-wing); Social Democratic Party (SP, left-wing); Radical Democratic Party-Liberals (FDP, right-wing); Christian Democratic Party (CVP, centre-right); Green Party of Switzerland (left-wing, environmentalist); Conservative Democratic Party (BDP); Green Liberals (GL, liberal, environmentalist)

  Federal Council

  Federal president & minister of finance: Eveline Widmer-Schlumpf (BDP)

  Minister for the economy: Johann Schneider-Ammann (FDP)

  Minister for transport, communications & energy: Doris Leuthard (CVP)

  Minister for the interior: Alain Berset (SP)

  Minister of defence, civil protection & sports: Ueli Maurer (SVP)

  Minister of foreign affairs: Didier Burkhalter (FDP)

  Minister for justice & police: Simonetta Sommaruga (SP)

  Central bank president

  Thomas Jordan

  December 01, 2012

• Outlook

  Switzerland: Key developments

  Outlook for 2013-17

  • The political scene is stable, although the right-wing Swiss People's Party (SVP), which uses opposition tactics in government, remains ahead of the left-wing Social Democratic Party (SP). The political centre is more fragmented.
  • Key issues for the government are dealing with international pressure on the Swiss banking and tax systems, maintaining solid public finances and starting the planned phase-out of nuclear power.
  • The Economist Intelligence Unit expects the government budget to be just in balance in 2012 and to record small surpluses during 2013-17.
  • Real GDP growth is estimated at 0.7% in 2012 and forecast at 1% for 2013, supported by domestic demand. We expect growth to average 1.9% during 2014-17 as exports recover.
  • The Swiss National Bank (SNB, the central bank) is likely to keep an exchange-rate ceiling of Swfr1.20:EUR1 in 2012-13 and its credibility appears strong.
  • Consumer prices are expected to stop falling at the end of 2012 and resume growth in 2013. Nonetheless, inflation will be low, restrained by the strong albeit capped franc.
  • The euro crisis and pressure on the franc ceiling pose threats to economic growth and financial stability, but Swiss economic fundamentals are strong and demand is supported by low unemployment and real wage growth.

  Review

  • Germany's upper house of parliament rejected a withholding tax agreement with Switzerland, set to take effect from 2013, as Germany's red-green opposition required greater compromises on Swiss banking secrecy.
  • A former minister of foreign affairs, Micheline Calmy-Rey, made a prominent call to rethink the Swiss position on banking secrecy, indicating that the "sanctity" of bank secrecy is gradually eroding.
  • UBS announced in early November far-reaching restructuring plans to shed a large part of its investment banking activities.
  • Credit Suisse followed with a more modest announcement to separate its international investment banking activities into a non-core unit that could be more easily wound down in case of a crisis.
  • Foreign-currency reserves, which had expanded rapidly in May-July and more slowly in August-September, contracted slightly in October to 72% of GDP.
  • The removal of AAA status for French bonds by Moody's, a credit rating agency, will limit the SNB's choice of bonds to purchase should it need to intervene in markets again to defend the currency ceiling.

  December 01, 2012

Economy:

• Background

  Switzerland: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	7.9	Population growth	1.1
  GDP (US$ bn; market exchange rate)	661.1b	Real GDP growth	1.8
  GDP (US$ bn; purchasing power parity)	401.9	Real domestic demand growth	1.3
  GDP per head (US$; market exchange rate)	83,336	Inflation	0.7
  GDP per head (US$; purchasing power parity)	50,665	Current-account balance (% of GDP)	8.4
  Exchange rate (av) Swfr:US$	0.89b	FDI inflows (% of GDP)	4.1
  a Economist Intelligence Unit estimates. b Actual.

  Download the numbers in Excel

  Background: Switzerland became a modern federal state in 1848 and comprises 26 semi-autonomous cantons and half-cantons. The federal constitution provides extensive elements of direct democracy. Bills passed by parliament have to be approved by the electorate if 50,000 signatures against the bill are collected. People's initiatives allow citizens to propose amendments to the constitution or to statutory law. If backed by 100,000 signatures, they must be put to a popular vote and take effect automatically if approved. A revised version of the federal constitution came into effect in 2000.

  Political structure: The seven-member Federal Council is the executive authority or cabinet. Since the October 2011 election, the government has included representatives of the four major parties and one smaller party. Parliament has two chambers, the 200-seat National Council (lower house) and the 46-member Council of States (upper house), both elected for a four-year term. The two chambers have equal say in legislating.

  Policy issues: Domestic policy issues include fiscal stability and promoting economic recovery, as well as the reform of the state social security schemes. Monetary policy will be defined by the central bank's decision to adopt an exchange-rate ceiling against the euro. The government will continue to deal with pressure to weaken banking secrecy legislation further, after initial concessions in 2009, and this will, in turn, bring more changes to the financial services sector. Energy policy is likely to begin a long-term shift towards a phase-out of nuclear power. Immigration remains a contentious subject for Swiss politicians and will be restricted for citizens of newer EU members in 2013. The relationship with the EU will be the focus of foreign policy, but issues such as negotiations on banking secrecy and other financial issues will also involve the US.

  Taxation: Cantonal and municipal taxes are the major corporate taxes, and the tax burden therefore varies widely between regions. At the federal level, corporation tax is levied at 8.5% of profits. The rate of value-added tax (VAT), introduced in 1995, will temporarily be 8% in 2011-18, in order to finance social security reforms, and then revert to the previous rate of 7.6%.

  Foreign trade: In 2011 merchandise exports totalled US$322bn and merchandise imports were US$317.5bn, resulting in a trade surplus of US$4.5bn. The current-account surplus amounted to a record US$74.1bn (11.2% of GDP) in 2011.

  Major exports 2011	% of total	Major imports 2011	% of total
  Chemicals & pharmaceuticals	35.9	Chemicals & pharmaceuticals	20.3
  Precision instruments, watches & jewellery	19.8	Machinery & electrical equipment	16.6
  Machinery & electrical equipment	17.7	Precision instruments, watches & jewellery	9.8
  Metals and metal products	6.3	Vehicles	9.1
  Precious metals & gemstones	4.4	Metals and metal products	8.0
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	21.2	Germany	34.1
  US	10.8	Italy	11.0
  Italy	8.1	France	9.1
  France	7.5	US	5.2

  Download the numbers in Excel

  Download text file (csv format)

  December 01, 2012

• Structure

  Switzerland: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 01, 2012

• Outlook

  Switzerland: Country outlook

  Switzerland: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The outlook for political stability in Switzerland is favourable. The general election in October 2011 brought a coalition of the five major parties--the Social Democratic Party (SP), Radical Democratic Party-Liberals (FDP), Swiss People's Party (SVP), Christian Democratic Party (CVP) and Conservative Democratic Party (BDP)--into the Federal Council (government). The centrist and left-wing parties (SP and FDP) hold a majority, with two seats each, and the remaining parties each hold one seat in government.

  ELECTION WATCH: There is no discretion about the timing of general elections and the next one will take place in late 2015. Changes to the current governmental set-up, whereby the seven governmental seats are distributed among the five major parties, would only occur through the departure of existing ministers, which seems unlikely for most of the current term.

  INTERNATIONAL RELATIONS: Relations with leading OECD countries will remain strong. The two main issues will be the nature of Switzerland's relationship with the EU and negotiations about banking secrecy and corporate taxation. The relationship with the EU is currently based on issue-specific accords and the EU would like a more robust and simpler framework for co-operation, whereby Switzerland automatically adopts EU law and is subject to a dispute arbitration system, similar to the EU's relationship with countries in the European Economic Area (EEA). This is unacceptable to mainstream Swiss political opinion, which wants to maintain issue-specific influence on legislation. Failure to agree on the future nature of EU-Swiss relations could lead to a temporary suspension of talks on new EU-Swiss accords. Swiss EU membership is not expected in the forecast period and is opposed by a large majority of voters (82% according to surveys conducted earlier in 2012).

  POLICY TRENDS: In the near term, policymakers will focus on defending the exchange-rate ceiling and maintaining banking sector stability. The government has loosened fiscal policy slightly in 2012 and is likely to continue reforming labour and social security laws to provide a sound medium-term fiscal foundation. A rise in the retirement age for women from 64 to 65 years and more flexibility around retirement for both sexes, as well as social security reforms to change the financing of support systems and limit sharply rising healthcare costs are likely. The first stage of the long-term phase-out of nuclear energy will begin in the forecast period and focus on reducing energy consumption, lowering the proportion from fossil fuels and substituting nuclear power with greater energy efficiency and expanded renewable energy production. Policy issues outside the government's agenda can be raised through referendums, such as the one on curbing executive pay and expanding shareholder rights in March 2013.

  ECONOMIC GROWTH: The Swiss economy is slowing as the export industry suffers from low global demand and a strong, albeit effectively pegged, exchange rate. Domestic demand propped up the economy in the first half of 2012, and is likely to remain strong, but it will be unable fully to counteract the effects of weak external demand. Real GDP growth is estimated to have slowed from 1.9% in 2011 to 0.7% in 2012, as domestic demand grew by 2% and exports dropped by 1.1%. The prospects for 2013 are only slightly better, as GDP growth of 1% continues to be driven by domestic demand growth (2.1%) and export growth stagnates.

  INFLATION: Consumer price inflation is expected to remain low throughout the forecast period, reflecting sound fundamentals and the effect of a reasonably strong (albeit pegged) Swiss franc on import costs. Consumer prices have fallen for the last 13 months at an average rate of 0.7%, but the SNB's exchange-rate ceiling and large-scale money creation are preventing a deflationary spiral. The Economist Intelligence Unit estimates deflation of 0.6% in 2012 and forecasts a return to inflation of 0.5% in 2013. Subsequently, inflation should creep up gradually to a still low 1.4% by 2017. There is a risk of a large deflationary shock, should a speculative attack break the exchange-rate ceiling and cause the franc to appreciate sharply and suddenly; however, this not our forecast.

  EXCHANGE RATES: The decision by the SNB to cap the appreciation of the exchange rate at Swfr1.20:EUR1 continues to dominate movements in the Swiss franc. Investors' preference for the franc as a safe-haven asset shows no obvious sign of reversing significantly amid continued concern about the global outlook, although the strong pressure on the currency seen during the first half of 2012 has since abated and the Swiss franc is currently floating just below the ceiling.

  EXTERNAL SECTOR: The current-account surplus should remain wide, at an estimated 11.2% of GDP in 2012 and a forecast 8.5% on average in 2013-17. Although exports have been falling and imports have grown in 2012, the trade surplus will expand as exchange-rate effects offset volume changes this year. Throughout the forecast period, the trade, services and income balances will maintain sizeable surpluses in local-currency terms; only the transfers balance will post deficits.

  December 01, 2012

• Forecast

  Switzerland: Country forecast summary

  Country forecast overview: Highlights

  • After the general election in 2011, the right-wing Swiss People's Party (SVP) remains the largest party in parliament, ahead of its main rival, the left-wing Social Democratic Party (SP). The loss of support for the SVP at the election is expected to make it less confrontational during this government's term. The political centre is more fragmented, as the Green Liberals and the Conservative Democratic Party (BDP) gained votes at the expense of the established centrist parties. The five-party government coalition is expected to serve its term to 2015.
  • The government's agenda will focus on improving the business environment and social security reforms to make financing of the system more sustainable. International pressure to lift bank secrecy will create challenges for the financial sector. The phase-out of nuclear power will start during the forecast period. Fiscal policy will be slightly expansionary but the public finances should remain just in balance in 2012, and return to slight surpluses in 2013-17.
  • Switzerland will remain in favour of a relationship with the EU based on bilateral, issue-specific agreements. However, the EU's reluctance to maintain this arrangement could cause difficulties and block the negotiation of new accords.
  • Real GDP growth is forecast to accelerate gradually from an estimated 0.7% in 2012 to 1% in 2013 and 1.8% in 2014. Growth is driven by strong private consumption, supported by low unemployment and real wage growth. The strong exchange rate implies that export volumes will be subdued in the first half of the forecast period while import volumes rise, but exports should gradually catch up in the second half of the forecast period as Switzerland's safe-haven status is forecast to diminish with improvements in the global economy. Growth is expected to accelerate to average 1.9% in 2015-17. The current-account surplus is likely to remain high but to fall during the forecast period.
  • The Swiss National Bank (SNB, the central bank) has stated its commitment to maintaining the exchange-rate ceiling at Swfr1.20:€1. It has repeatedly confirmed its willingness to buy "unlimited quantities" of foreign currency and resort to capital controls if required. Economic uncertainty in the euro zone will maintain the attractiveness of Swiss financial assets as a safe haven for investment in 2013. Speculators may test the resilience of the exchange-rate ceiling but the SNB is currently expected to defend it successfully. After deflation in 2012, prices are forecast to rise again in 2013 and to exceed 1% growth by 2017.
  • Risks to this forecast come from the potential for a worse deterioration in economic growth and financial stability in Europe than is currently expected, reducing growth in Switzerland and causing turmoil in the banking sector.

  

  December 01, 2012

View detailed map

Country Briefing

Land area

41,285 sq km (24% arable, 13% pasture, 31% forest)

Population

7,593,500 (end-2007)

Main cities

Population (2009; excluding surrounding area)

Zurich: 368,700

Geneva: 186,000

Basel: 166,200

Berne (capital): 123,500

Lausanne: 125,900

Climate

Temperate

Weather in Zurich (altitude 493 metres)

Hottest month, July, 13-24°C (average daily minimum and maximum); coldest month, January, –3-2°C; driest month, December, 64 mm average rainfall; wettest month, July, 136 mm average rainfall

Languages

German (64%), French (19%), Italian (8%), Romansch (1%), others (8%)

Measures

Metric system

Currency

Swiss franc (Swfr) = 100 centimes or rappen

Time

One hour ahead of GMT (two hours ahead in summer, late March to late October)

Public holidays

January 1st; Good Friday; Easter Monday; Ascension; Labour Day (May 1st); Whit Monday; August 1st (national day); December 24th (half-day), December 25th and 26th; December 31st (half-day); some other days, according to cantonal practice

March 27, 2012