Commentary: Switzerland: In The EU's Tentacles?

More and more, Brussels is the boss -- even forcing its rules on Zurich's banks

It's acquisition season again in Europe. Sanofi-Synthélabo has bought Aventis (AVE ). Belgium's Interbrew has taken a chunk of Brazil's AmBev, and dealmakers hope for a banking megamerger. But the markets may be missing the biggest acquisition of all: a creeping, semi-hostile takeover of Switzerland by the European Union.

True, the Swiss cantons haven't been invaded successfully since Napoleon. But the Alpine republic looks more vulnerable to EU encroachment. Switzerland has thrived as Europe's meeting ground, where citizens from various countries could do their banking away from the tax man's gaze, where international executives could hash out deals. But as the EU expands all around it, the Swiss are fast losing their raison d'être. With the May 1 accession of 10 new members, Brussels is determined to extend common rules. Last year it forced Switzerland to levy a withholding tax on EU citizens' bank accounts. It now plans to tax reexports from Switzerland to the EU. In March, Germany toughened controls along its border with Switzerland. The Swiss, it seems, are being regulated into submission.

Many Swiss think the EU wants to drag them into the fold -- a notion Brussels denies. They voted against joining the EU in 2001. The anti-EU People's Party made gains in last October's election and holds two seats in the seven-member Federal Council that runs the country. But the Swiss may soon have little choice. "Political change in Switzerland moves at two speeds -- like a glacier or an avalanche," says Denis MacShane, Britain's Minister for Europe. "Up to now, Swiss movement toward EU membership has been glacial. Things might soon start moving more quickly."

EU officials think they have been too generous. They point to favorable agreements, including one giving most Swiss goods and services tariff-free access. Yet the country doesn't contribute to EU coffers and hasn't fully deregulated its economy, making it hard for EU companies to compete in some sectors. "There's a growing feeling here that everyone should play by the same rules," says a spokesman for Chris Patten, the European Commissioner for External Relations. "Enlargement will add weight to the view that Switzerland should not get special treatment."

Brussels has a long list of demands. It wants Switzerland to hand over the withholding tax it levies on EU citizens' Swiss bank accounts. It says Switzerland should contribute to the funds the EU gives poorer members, and it will give the Swiss passport-free access only if they crack down on cross-border tax evasion. The Swiss have agreed to lift bank secrecy when criminal investigations are involved. Now, it seems, tax inspectors and the police will increasingly have to do Brussels' bidding.

The Swiss are worried. Economics Minister Joseph Deiss, who now holds the rotating presidency, fears that Germany's new border controls signal a desire to demonstrate "the difference between EU and non-EU countries." Other Swiss think Brussels wants to force them to bend to EU demands in negotiations over nine accords covering a range of issues, from trade in processed farm products to cross-border policing.

Switzerland's marginalization underscores its relative economic decline, says Yves Christen, a member of Parliament and head of the pro-EU New Swiss European Movement. With average annual growth of 0.9% since 1990, its economy is one of the few doing worse than the EU's. Tense EU relations could make growth harder. Michael Dürst, who runs a Zurich info-tech operation, says he has lost prospective clients due to the paperwork involved in buying goods from outside the EU. "It would be much easier if we simply joined the EU," he recently told Swiss Radio.

With the EU's expansion, Swiss isolation will increase. "They'll be more inclined to say: 'This is what we think, take it or leave it,"' says Karin Gilland-Lutz, a specialist on Swiss-EU relations at the University of Bern. In the long run, the Swiss may be more inclined to take it.

By David Fairlamb

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