By Alex Newman
BERLIN, Germany – With a tiny thorn in its side, the European Union is fuming.
The outrage stems from the fact that independent Switzerland has the freest economy in Europe and one of the most free in the world, and it refuses to bow down.
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The results of that economic liberty are evident: as WND reported in September, the Swiss are among the most prosperous people on the planet even as their 500 million EU neighbors drown in debt amid mounting financial turmoil.
With Switzerland’s relative success so obvious to the world, the EU desperately wants to put a stop to it.
But the Swiss will not surrender without a fight; that much is clear.
Thanks in large part to relatively low taxes and a decentralized, business-friendly political system, companies and financial capital have been abandoning the increasingly bloated European Union regime and setting up shop in the tiny alpine country. Rich people, along with their wealth, are doing the same.
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The Brussels-based EU and its high-tax member states, however, aim to put an end to that by any means necessary, partly to protect their own inefficient and burdensome systems from real competition.
After years of bullying the Swiss, who firmly rejected membership in the EU and are generally hostile to entangling alliances, bilateral relations between Brussels and the Confederation are still based largely on a byzantine system of treaties and agreements – about 20 primary agreements and 100 supplementary ones.
Both parties are aware of their interdependence. The EU is Switzerland's largest trading partner, for example, and the Swiss are among Europe's top three partners as well.
Swiss companies, meanwhile, employ more than a million EU citizens inside the nation, and even more outside its borders.
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The EU and its member states, however, claim the current bilateral arrangement is nearing the end of its usefulness. Instead, they are increasingly clamoring for Switzerland to adopt "European law" automatically under the guise maintaining "homogeneity" in the so-called "single market."
"In those areas in which Switzerland wishes to participate in the internal market, the EU has indicated that such participation needs to take place in accordance with the internal market rules, applicable to all the participants," said Maja Kocijancic, a spokesperson for EU Commission Vice President and High Representative for Foreign Affairs Catherine Ashton.
"This involves institutional mechanisms to ensure the homogeneity and the uniform interpretation and application of the internal market rules," Kocijancic told WND. "It is up to Switzerland to determine if it wishes or not to participate in the internal market in accordance with those institutional requirements."
In other words, the Swiss must bow to EU demands or face the potential exclusion from the European single market, which literally surrounds the landlocked nation of about 8 million on all sides.
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Last year, an EU report even vowed to consider "alternative measures" if Swiss taxation policies were not reformed. Unnamed EU diplomats were also cited by the Swiss News Agency suggesting there could be "retaliatory measures" if Switzerland did not speed up the process of complying with the bloc’s demands.
Experts told WND that while the precise retaliation schemes have not been publicly specified so far, the threat is indeed very real.
Despite the intense pressure, the Swiss are trying hard to stand their ground as much as possible.
Switzerland, with its long history of neutrality and fierce defense of national sovereignty, has said repeatedly that automatic adoption of EU law, for instance, would be unacceptable except in very specific cases already covered in bilateral agreements.
Even in those areas, though, the Swiss are demanding mechanisms to refuse compliance in case lawmakers or citizens decide to reject a particular development in the EU regulatory regime.
Among other problems, Swiss officials and much of the electorate say automatic adoption of the never-ending avalanche of laws from Brussels would violate the nation's sovereignty and constitution. Also under threat are the principles of direct democracy and Switzerland's unique political system in which most issues are decided at the local or cantonal level.
Asked why the EU was growing weary of the bilateral approach and trying to coerce Switzerland into adopting EU legislation automatically, Giorgio Pompilio, chief of information at the federal Department of Foreign Affairs' Integration Office, explained the facts in typically diplomatic fashion.
"As EU legislation is constantly evolving, the EU wants to avoid that Swiss-based companies could profit from market access without complying with relevant new EU-legislation," he told WND. "In the eyes of the EU, this can result in a distortion of competition between Swiss and EU-based companies."
Essentially, the EU is hoping to guarantee that Switzerland operates under the same regulatory regime as the EU, at the very least in fields already governed by bilateral agreements providing market access. So, eurocrats say, the adoption of Brussels' dictates must be immediate.
That puts the Swiss in a tough situation, however; hence the resistance.
"Switzerland wants to preserve its own legislative procedures as foreseen in the Federal Constitution, including direct democratic participation of citizens," Pompilio explained, adding that the government does recognize the EU's concerns about the "homogeneity principle" for the “good governance” of the internal market.
Pompilio also noted that if an international agreement such as the treaties between EU and Switzerland has to be amended because of decisions made in Brussels, Swiss lawmakers and citizens must be able to approve those changes as specified in the Confederation's Constitution.
The same applies to domestic legislation, which, for members of the EU at least, generally originates in Brussels today.
"If EU legislation should apply automatically in Switzerland, without any possibility for our country to decide whether or not to modify its legislation, this would encroach on our sovereignty," Pompilio added.
"We are willing to solve these issues with the EU," he continued, explaining how the Confederation is also limited in its authority to make deals because of the decentralized constitutional system. "But on the other side, our position is clear: we are not a member state of the EU, so the EU cannot ask us to do something as if we were an EU member."
Among the biggest points of contention in the bilateral negotiations are taxation matters.
The EU has been pressuring Switzerland since at least 2005 to change the tax code in some Swiss cantons, particularly those that have different rates for corporate income earned domestically and earnings from abroad.
At issue is that the EU claims such policies constitute "illegal state aid."
Switzerland has firmly rejected those allegations. Even if it agreed, however, the Confederation cannot order cantons or Swiss voters around anyway.
In 2010, Brussels tried to get Switzerland to adopt the "EU Code of Business Taxation," a highly controversial agreement aimed at eliminating what big-government EU forces consider to be "harmful" tax-rate competition between different jurisdictions.
Business and capital, of course, prefer lower-tax jurisdictions, so high-tax European welfare states have been trying to stem the exodus of companies and money fleeing to more market-friendly locations like Switzerland.
The Swiss government eventually rejected the EU's demands and said it was not prepared to adopt the agreement.
After numerous failed negotiations, exploratory talks came to some conclusions by late 2011, according to documents from the Swiss Confederation's State Secretariat for International Financial Affairs obtained by WND.
"Switzerland's sovereignty and the cantons' powers regarding tax issues have to be preserved," a report about the bilateral dialogue explains. "Switzerland expects the EU and its member states to refrain from retaliatory measures against Switzerland during the negotiations."
Formal discussions between the Swiss Confederation and the EU are ongoing, and some cantons have agreed, in principle, to modify certain policies offensive to Brussels.
However, there are problems with that, too. Several cantons, for example, have complained that such reforms would seriously diminish government revenues. Plus, voters could decide to quash any potential agreement in a referendum.
The prospect of citizens stepping in and slamming the brakes on any deals is more than just speculation. While EU pressure is growing, Swiss opposition has remained steadfast as well.
Consider that Switzerland's largest political party, the center-right Swiss People's Party (SVP), is also among the staunchest advocates of national sovereignty and self-determination.
Thomas Widmer with the General Secretariat of the SVP told WND that acceding to EU demands – especially the automatic adoption of the bloc’s rules and regulations – would deprive Switzerland and its institutions of some of their most valuable attributes; features that have proven their merits over the centuries.
"Switzerland is organized as a confederation, whose cantons enjoy in many respects autonomy, for instance in education, taxation and law enforcement," he explained. "Apart from this, in a direct democracy like Switzerland, the people have the last word in all significant decisions."
"It is therefore by no means acceptable that the EU wants to dictate Switzerland, the Swiss cantons and the Swiss people how they should be organized politically, what laws and regulations they should accept without having a say or restrict the vote of the people in any way," Widmer continued.
"In some minor cases," the SVP official said, "Switzerland might have to compromise, but when it comes down to core issues like automatically accepting dynamic development of EU-law or other issues which fundamentally oppose the nature of Switzerland's political system, history and tradition, it is absolutely clear that SVP will by no means accept such an imposition."
Like numerous official sources and analysts who spoke with WND, Widmer pointed out the obvious: most European countries are currently in a "miserable" financial condition. As such, the governments are "desperately looking for alternative sources of money."
While the Swiss want to work with the EU and have a good relationship, there are some areas where compromise is simply not an option, regardless of the threats.
"When it comes down to fundamental questions of altering basics of the Swiss political system, we feel that coercion is not the right means," Widmer told WND. "One should also bear in mind that not only Switzerland depends on the EU as a consumer of Swiss goods, the EU as well has vital interests to remain on good terms with Switzerland, its third most important trading partner."
SVP, Widmer said, believes that the bilateral agreements are sufficient – there is no urgent reason to pursue closer bonds or even more supplementary agreements.
"As a matter of fact, some of the existing agreements such as the free movement of persons confront Switzerland with huge problems and should rather be renegotiated, according to our point of view,” he added, referring to the immigration permitted under European treaties.
Reasons to Resist:
Economist Pierre Bessard, president of the Zurich-based, liberty-minded Liberal Institute and founder of the Center for Tax Competition, also told WND that Switzerland should stand firm in the face of EU pressure.
"One of the best kept secrets of Europe's historical success – the Enlightenment, the Renaissance and the Industrial Revolution – is the dissemination of power and the absence of a central authority," he explained. "The competition between jurisdictions allowed the most productive citizens to vote 'with their feet,' i.e., to leave and take their capital with them. This created pressure for better policies and business environments."
Unfortunately, he said, by attempting to standardize and harmonize laws, regulations – even tax rules, increasingly – the EU today is working to undo that essential feature that led to unprecedented freedom and prosperity throughout Europe.
"Switzerland should stand firm on its principles," Bessard told WND. "The implications are not just about Switzerland, but institutional competition and diversity in Europe."
EU governments are desperate for cash after pursuing "irresponsible" welfare and fiscal policies for decades, he explained.
"So they don’t like having a small and competitive country next door that not only attracts capital and corporate headquarters, but also talented individuals and entrepreneurs from EU countries," Bessard said, echoing multiple experts and official sources who spoke with WND.
EU law, he continued, is all about "raising rivals' costs," centralizing power and standardizing rules so that no nation can have better rules for business and residents. And the whole scheme is based on the misguided notion of a "level playing field," which essentially amounts to suppressing competition.
"The EU was useful when it tore down barriers among European countries. That was over 50 years ago," Bessard said, referring to predecessor agreements dating back to after World War II. "Now it has become a threat not only to freedom and prosperity, but possibly peace – see the euro."
"For Switzerland, which has always been one of the more free-market and open economies, the EU is irrelevant at best, and a nuisance at worst," he added, pointing out that the pressure from Brussels was creating legal uncertainty for firms in Switzerland and other problems.
The Swiss, he concluded, should stay out of the EU while using the pressure to increase the nation’s competitiveness even more.
Swiss Foreign Minister Didier Burkhalter has been traveling to EU capitals and hosting diplomats recently in an effort to plead Switzerland's case that certain EU demands conflict with the confederation’s direct democracy and national sovereignty.
And while European governments may not want to hear about it, analysts told WND that the peoples of Europe are listening – after all, they see the crises wreaking havoc in their own countries while Switzerland remains a relative haven of prosperity and stability.
University of Geneva political science Professor René Schwok, one of the foremost experts on Swiss-EU relations, told WND that Switzerland has a long tradition of citing direct democracy when seeking to preserve its independence.
But foreign capitals, already familiar with the tactic, will not sympathize with the pleas, secure in the understanding that the Swiss government's "margin of maneuver" is fairly limited.
"I foresee a long period of procrastination because the Swiss do not have yet sufficient interest to make compromises," Schwok explained. "Actually, they do not need so much new agreements, except, partly on electricity. In other words, it is more comfortable for the Swiss Federal Council not to make concessions to the EU than to start domestic psychodramas with the strong sovereigntist part of the population."
"But in the end, both the Swiss Federal Council and the EU will make compromises," he concluded.
Still, despite the extraordinary and ever-increasing pressure, bullying Switzerland into submission will be a tough task – and it has been historically, too.
For one, the Confederation has virtually no real power to force its more than two dozen largely autonomous cantons to accept EU demands.
At the same time, opposition at all levels of society remains rock solid. A poll conducted by the Swiss Federal Institute of Technology last year, for example, found that less than 20 percent of the population would support EU membership.
Meanwhile, forces within the EU itself – especially from the United Kingdom, but across the continent as well – are increasingly citing the successful Swiss model, both in terms of its domestic political system and its refusal to join the emerging super-state.
Switzerland's success across the board is almost certainly one of the main reasons for the relentless EU assault, analysts say. That same success, however, also presents a formidable barrier to the forces seeking to unify Europe under a central authority – especially when it comes to engulfing tiny Switzerland.
The Swiss militia, meanwhile, is preparing to deal with a potential catastrophic EU economic meltdown scenario and to manage any massive influx of refugees pouring across its borders.