The End of Switzerland
A few days ago, John Quiggin wrote the following:
Not only major institutions but whole national economies are up for grabs now. The national bankruptcy of Iceland seems likely to followed by something similar for Switzerland. As Citi itself points out, UBS and Credit Suisse are bigger, relative to the Swiss economy, than Kaupthing was for Iceland. Felix Salmon (also predicting doom for Citi, has been all over this).
Given a failure and rescue, Switzerland would probably have to follow Iceland in a rush application to join the EU (which might have its hands full rescuing some of its own members). It’s a safe bet that the end of secret bank accounts, “wealth management” through tax minimisation and the like would be part of the price. The UK isn’t quite as vulnerable, but seems likely to be forced into the eurozone before long (for a contrary view, see Martin Wolf) And this will be accompanied by a big structural shift away from the dominance of these economies by the financial sector.
Fortunately, this blogger has recently been on a trip whose whole purpose was to inform him about the views of the Swiss political and business elite. And I have to say that they all struck me as remarkably sanguine on this point. I have no idea how to assess the solidly of UBS’s risk exposure and everything else. But on the rest, I can say that I had no understanding pre-trip of the weirdness of Switzerland’s relationship with the EU.
But basically, Switzerland isn’t in the EU. Not on the Euro, not a member. But there is free trade between Switzerland and EU states. And also free movement of people, à la the Schengen Agreement. This sets Switzerland up nicely to serve as a kind of “Delaware of Europe” — suggesting itself as a nice tax haven for wealthy European individuals, and also as an appealing location for the European Headquarters for an Asian or American firm. Zurich or Geneva becomes as good a place as any from which to conduct EU-wide business operations, but without the burden of paying the high taxes to support European welfare states.
It’s nice work if you can get it, but obviously a lot of EU officials wish Switzerland couldn’t get it, and have been pressuring Switzerland to participate in some “tax harmonization” vis-a-vis the rest of the Union. They don’t, however, really have a great deal in the way of levers at their disposal with which to make this happen. But if UBS and/or Credit Suisse were to need serious rescuing, then, as Quiggin observes, the situation would change a great deal. Meanwhile, EU entry for Switzerland would put a great deal of additional pressure on the country’s already fraying tradition of government by a four party grand coalition.
29 Responses to “The End of Switzerland”
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November 24th, 2008 at 9:05 am
I’m a bit confused by Quiggin’s comment that the EU would have to ‘rescue’ Iceland/Switzerland. One of the reasons people argue that the EU is inappropriate for a common currency is because it has no mechanism for doing that. Wealthier EU member states do not want to sacrifice their surpluses to bail out struggling members. Germany will not want to pay for transfer payments in Croatia. This means out-of-sync economies, and price distortions in the Eurozone.
So, if it gets bad, Iceland may be able to count on the IMF, but not the EU.
November 24th, 2008 at 10:28 am
Fortunately, this blogger has recently been on a trip whose whole purpose was to inform him about the views of the Swiss political and business elite. And I have to say that they all struck me as remarkably sanguine on this point. I have no idea how to assess the solidly of UBS’s risk exposure and everything else. But on the rest, I can say . . . .
Okay, then. Let’s review.
So basically you went on a paid junket. (How exciting.)
That said, you’re in way qualified to discuss the economic or political issues under question. (”I have no idea how to assess the solidity of BUS’s risk exposure and everything else.” The “and everything else,” by the way, is a rather amusing touch. Oh, the many things that fall under the “everything else” rubric that you “have no idea how to assess”! Too droll!)
But, this being a blog, you’re going to ramble on anyway. (In this case explaining how Switzerland is, um, sort of like the Delaware of Europe. An observation worthy of a clever, if lazy, nineteen-year-old.)
Um, maybe next year you could find someone to foot your bill to attend the 2009 CMJ Music Marathon where you could just blog about crappie bands.
http://www.sonicbids.com/Opportunity/OpportunityView.aspx?opportunity_id=13760
That might be a bit more up your speed.
If you’re incapable of discussing an issue — why not make a phone call? Or provide a link?
Sorry to be so harsh, but next time you feel yourself writing a sentence like “I have no idea how to assess . . . or anything else” you might really want to think twice before posting.
November 24th, 2008 at 10:34 am
I still don’t really see Iceland joining the EU. It will be quite hard, for structural reasons among other reasons, for pro-EU politicians to get a majority in parliament.
November 24th, 2008 at 10:57 am
I can’t believe a bank that would hire Phil Gramm could be in trouble.
November 24th, 2008 at 11:02 am
EU entry for Switzerland simply won’t happen. Despite Geneva being the host city for the UN in Europe, they only managed to join the UN as active participants in 2002 (no, seriously).
The Swiss would rather let the country fall to financial ruin than to join precipitously.
November 24th, 2008 at 11:55 am
Smug bastards, the Swiss, and both Europe and the international community as a whole have been content to give them a free ride while everyone else does the heavy lifting. For years and years, the second largest concentration of UN offices and (well-paid) jobs, and they couldn’t even deign to join the General Assembly! And on and on. They tire me. I don’t even like chocolate very much.
November 24th, 2008 at 2:16 pm
Not that I disagree with his assessement of the problems at UBS/Credit Suisse, but given that Salmon’s prescription for Citi was that “the only solution is nationalization”, I’m not so sure how seriously one should take his prescriptions for the other banks.
November 24th, 2008 at 5:12 pm
There’s other dimensions critical to the Switzerland/UBS/Credit Suisse crisis. I was in Switzerland for 4 years, intimately involved with the Swissair collapse (both banks were major contributors to the debacle). The current issue is that the two banks dwarf the overall Swiss economy so (as with Iceland) there’s no way the taxpayers can step in and try and bail out a financial crisis. More importantly these two banks have dominated Swiss politics and business culture–imagine the power the Pennsylvania and New York Central RRs had over the US economy in the late 19th Century, multiplied by the kind of dominance Cambridge/Oxford graduates had over British society in the early 20th Century.
Banking and finance depend on trust and confidence, but in modern times arrogance, self-dealing and banks “too big too fail” is a lethal brew. As ugly as this will get in America and the UK, Swiss culture/politics will be utterly unable to cope.
No the EU won’t lift a finger, unless the Swiss come begging, which they won’t. If anyone pays for UBS and Credit Suisse it will be the US taxpayer.
November 24th, 2008 at 8:59 pm
“Sorry to be so harsh, but next time you feel yourself writing a sentence like “I have no idea how to assess . . . or anything else” you might really want to think twice before posting.”
Sorry, but this is what Matt DOES.
And then he has the nerve to bitch to me about how many emails I send him every night hoping to educate him about what is actually going on in Iran, Afghanistan and Pakistan. He claims it’s “spam”!
One would expect someone who wants to be taken seriously as a foreign policy pundit to be reading the articles written by people on the ground and with regional knowledge of these hot spot areas
Not Matt! He just wants to suck down whatever swill Obama is spouting this week – just as he sucked down whatever swill the “Big Dog Democrats” spouted in 2002 about the war with Iraq.
Then he makes posts here claiming that Obama’s Afghanistan policies are “what should be done”, and posts claiming that war with Iran has “definitely been taken off the table”, etc.
None of which are true – which he’d know if he bothered to read the half dozen or so articles I send to him and some other correspondents every night.
His real complaint is that the stuff I send him DEMONSTRATES that he’s and ignorant, conceited kid with a philosophy degree who really doesn’t understand much of anything and is too arrogant to learn.
November 25th, 2008 at 4:08 pm
“Wealthier EU member states do not want to sacrifice their surpluses to bail out struggling members”
EU country are independant, a country bailout it’s own bank, not foreign bank.
And you know it’s rich country who have the most problem (UK,Germany, Switzerland) not poorest (Greece, Portugal) because finance is more important in rich country.
December 6th, 2008 at 8:23 am
The state Senate’s so-called
December 10th, 2008 at 6:33 pm
WASHINGTON – The country is sinking deeper into the economic doldrums, and it’s likely to stay there for a while. That’s part of the latest outlook from forecasters in a survey by the National Association for Business Economics, also
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