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 to 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 Conservative Democratic Party (BDP), the SVP and the 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 defence, civil protection & sports: Ueli Maurer (SVP)

  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 foreign affairs: Didier Burkhalter (FDP)

  Minister for justice & police: Simonetta Sommaruga (SP)

  Central bank president

  Thomas Jordan

  March 25, 2013

• Outlook

  Switzerland: Key developments

  Outlook for 2013-17

  • The political scene is stable, although the right-wing Swiss People's Party, which uses opposition tactics in government, remains ahead of the left-wing Social Democratic Party. 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 estimates that the government budget was just in balance in 2012 and forecasts small surpluses during 2013-17.
  • Real GDP rose by 1% in 2012. We forecast growth of 1.2% in 2013, supported by domestic demand. We expect annual growth to average 1.7% 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 2013; the SNB's credibility is strong.
  • Consumer prices are expected to edge higher from mid-2013. Nonetheless, inflation will be low, restrained by the strong-albeit capped-Swiss franc.
  • The protracted euro crisis and pressure on the franc ceiling pose threats to economic growth and financial stability, but macro fundamentals are robust and demand is supported by real wage growth and low unemployment.

  Review

  • In a referendum on March 3rd a large majority of Swiss voters (68% nationally and a majority in each canton) approved a popular initiative to expand shareholder rights in determining executive pay at exchange-listed companies.
  • In mid-February an announcement by the board of pharmaceutical company Novartis of a planned Swfr72m (US$78m) compensation payment to outgoing chairman Daniel Vasella triggered public outrage. The deal was later cancelled.
  • Banks have until September 30th to build countercyclical buffers of 1% of risk-weighted assets for domestic mortgage lending, following a decision by the Federal Council (the government) in mid-February.
  • The latest quarterly monetary policy assessment by the SNB in mid-March confirmed the central bank's focus on currency stability via the Swiss franc's ceiling vis-à-vis the euro. It offered few clues about any future policy change.
  • Real GDP rose by 0.2% quarter on quarter in the final three months of 2012, and by 1.2% year on year. Private and government consumption were the main drivers, while export growth accelerated modestly.

  March 25, 2013

Economy:

• Background

  Switzerland: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	8.0	Population growth	1.0
  GDP (US$ bn; market exchange rate)	632.6b	Real GDP growth	1.2
  GDP (US$ bn; purchasing power parity)	413.0	Real domestic demand growth	1.3
  GDP per head (US$; market exchange rate)	79,159	Inflation	0.4
  GDP per head (US$; purchasing power parity)	51,683	Current-account balance (% of GDP)	8.7
  Exchange rate (av) Swfr:US$	0.94b	FDI inflows (% of GDP)	3.0
  a The Economist Intelligence Unit estimates. b Actual.

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  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 them 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 main 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, 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 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 & metal products	6.3	Vehicles	9.1
  Precious metals & gemstones	4.4	Metals & 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

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  March 25, 2013

• Structure

  Switzerland: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 25, 2013

• Outlook

  Switzerland: Country outlook

  Switzerland: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The outlook for political stability is favourable. The general election in October 2011 brought a coalition of the four main parties--the Social Democratic Party (SP), the Radical Democratic Party-Liberals (FDP), the Swiss People's Party (SVP) and the Christian Democratic Party--and the smaller Conservative Democratic Party (BDP) into the Federal Council (government). The centrist and left-wing parties (the SP and the FDP) hold a majority, with two seats each, and the remaining three parties each hold one seat in government. The election halted the extended rise of the right-wing SVP, which should help to improve stability in the forecast period. During previous parliamentary terms, the SVP had become large enough to destabilise the consensus-oriented political scene, which relies on similar-sized governmental parties to function effectively. The SVP's electoral setback reduced its confidence, although it is likely to continue to use opposition tactics in government and to promote more radical right-wing policies. The division between the SVP and other parties was reinforced when an alliance of centre-left parties blocked the SVP from receiving a second governmental seat in December 2011, as would have been customary for the largest party in parliament. The SVP is expected to break with the government on issues such as European integration and immigration. An occasional alliance between the SVP and the second-largest party, the SP, to block undesired reforms (usually for divergent reasons), is likely to continue.

  ELECTION WATCH: There is no discretion about the timing of general elections; the next will be in October 2015. Changes to the governmental set-up, whereby the seven seats are divided among the four main parties and the smaller BDP, would result only from the departure of existing ministers, which seems unlikely at present.

  INTERNATIONAL RELATIONS: Relations with leading OECD countries will remain strong. Key issues are the nature of Switzerland's relationship with the EU, and negotiations over banking secrecy and corporate taxation. The relationship with the EU is currently based on issue-specific accords. 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. This is unacceptable to mainstream Swiss political opinion, which wants to maintain issue-specific influence on legislation. Talks on the future of relations resumed in early 2013. Until both sides can reach an agreement, further EU-Swiss treaties are unlikely to be agreed. The Economist Intelligence Unit expects long and tough negotiations over the next two years. Full Swiss EU membership is not expected in the forecast period; domestic support for the option has fallen over the past decade to only 11.5% of respondents in an Isopublic survey in late 2012.

  POLICY TRENDS: In the near term, policymakers will focus on defending the exchange-rate ceiling and maintaining banking sector stability. The government loosened fiscal policy in 2012 and is expected to continue to reform 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 are likely, as well as social security reforms to change the financing of support systems and limit rising healthcare costs. The first stage of the long-term phase-out of nuclear energy will focus on reducing energy consumption, lowering the proportion of energy sourced from fossil fuels, and reducing nuclear power in favour of expanded renewable energy production and better energy efficiency. Policy issues outside the government's agenda can be raised through referendums; for example, in March just over two-thirds of voters approved proposals to curb executive pay and expand shareholder rights at exchange-listed companies.

  ECONOMIC GROWTH: The Swiss economy has been surprisingly resilient in the face of subdued global demand and a strong, albeit effectively pegged, exchange rate. Domestic demand, especially private consumption, propped up the economy throughout much of 2012 and is likely to remain reasonably solid over the coming years. Export growth slowed last year, but demand improved slightly in the final quarter. Real GDP growth decelerated from 1.9% in 2011 to 1% in 2012, with domestic demand rising by 1.5%. Although exports of goods and services continued to expand, the pace of growth was weaker than that of imports and so the foreign balance subtracted from overall GDP growth. Prospects for 2013 are only slightly better: we forecast GDP growth of 1.2%, again driven primarily by private consumption, although we expect a modest acceleration in export growth.

  INFLATION: We expect consumer price inflation to remain low throughout the forecast period, reflecting sound fundamentals and the effect of a reasonably strong (albeit pegged) Swiss franc on import costs. Average consumer prices have fallen steadily since October 2011, by an average rate of 0.6% year on year since then and by 0.7% overall in 2012, but the exchange-rate ceiling set by the Swiss National Bank (SNB, the central bank) and its large-scale money creation are preventing a deflationary spiral. We forecast a return to low average inflation of 0.3% in 2013. Subsequently, inflation should creep up to reach a still modest 1.4% by 2017. There is a risk of a large deflationary shock in the event that a speculative attack breaks the exchange-rate ceiling and causes the franc to appreciate sharply and suddenly; however, this is not our central 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 currency 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 during the first half of 2012 has abated somewhat and the Swiss franc has been floating just below the ceiling in most recent months.

  EXTERNAL SECTOR: The current-account surplus should remain wide, at a forecast average of about 8.5% of GDP in 2013-17. We expect that the trade, services and income balances will maintain sizeable surpluses in local-currency terms throughout the forecast period; only the transfers balance will post a deficit.

  March 28, 2013

• Forecast

  Switzerland: Country forecast summary

  Country forecast overview: Highlights

  • After the 2011 general election, 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. The SVP's loss of support at the election is expected to make it less confrontational during the present government's term. The political centre is more fragmented, as the Green Liberals and the Conservative Democratic Party 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 will focus on improving the business environment and implementing social security reforms to make public-sector financing more sustainable. It will also try to address growing international pressure to relax bank secrecy, which will create challenges for the financial sector. The phase-out of nuclear power will start in the forecast period. Fiscal policy will be slightly expansionary but the budget balance should record 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 1% in 2012 to 1.2% in 2013 and an average of 1.7% in 2014-17. Growth will be driven by solid 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. The current-account surplus is expected to remain high throughout the forecast period.
  • The Swiss National Bank (SNB, the central bank) has stated its commitment to maintain an exchange-rate ceiling at Swfr1.20:€1. It has repeatedly confirmed its willingness to buy “unlimited quantities” of foreign currency and to 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 moderate deflation in 2012, consumer prices are forecast to start rising gradually later in 2013.
  • Risks to this forecast come from the potential for a greater delay in economic recovery and financial stability in Europe than is currently expected, reducing growth in Switzerland and causing turmoil in the banking sector.

  

  March 25, 2013

View detailed map

Country Briefing

Land area

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

Population

7,952,600 (end-2011)

Main cities

Population (December 31st 2010):

 Zurich: 1,185,214

 Geneva: 527,764

 Basel: 501,285

 Berne (capital): 352,470

 Lausanne: 334,908

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

Swiss cantons set their public holidays independently. Most have the following: January 1st (New Year's Day); March 29th (Good Friday), April 1st (Easter Monday); May 1st (Labour Day), 9th (Ascension), 20th (Whit Monday); August 1st (national day); December 25th (Christmas Day), December 26th (St Stephen's Day, most cantons). Further days according to cantonal practice

January 16, 2013