Bloomberg News

Swiss Brace for Sour EU Relations After Immigration Vote

February 10, 2014

Immigration Vote

A man casts his ballot during a nationwide popular vote at a polling station in Ascona, Switerland, on Feb. 9, 2014 . Photographer: Michel Buholzer/AFP via Getty Images

The Swiss government faces enacting immigration curbs that threaten to upset ties to the European Union and hurt the economy following a popular vote yesterday demanding limits on foreign workers.

Almost 12 years after opening borders to EU expatriates, Swiss citizens recoiled, backing an initiative to impose limits on immigration. The measure, which doesn’t specify how high those quotas should be, passed by fewer than 20,000 ballots in a national vote yesterday. The government has three years to impose new rules, which will primarily affect workers from the EU, many of them highly qualified.

Immigration has supported economic growth in Switzerland, which is surrounded by EU countries without being a member itself and is the home of Nestle SA (NESN), the world’s biggest food company, and drugmakers Roche Holding AG (ROG) and Novartis AG. (NOVN) The decision, due to popular discontent about scarce housing, transport bottlenecks and falling blue-collar wages, could undermine the economy by making it difficult to take on foreigners and sour relations with the EU, the top destination for Swiss exports, the government warned.

Direct Democracy in the Home of Nestle and Novartis

“The quick population growth led to anxiety about social change, and people felt Switzerland was losing its identity,” said Michael Hermann, senior lecturer at the University of Zurich. “It’s a protest vote, and an expression of skepticism,” he said, adding that the EU “will take a hard line” as the immigration issue “has now been raised to a symbolic level.”

Cherry Picking

“Clearly this vote didn’t set the right tone for the start of negotiations on an inter-institutional accord that will govern relations between the EU and Switzerland,” European Commission spokeswoman Pia Ahrenkilde-Hansen told reporters in Brussels today. The specific ramifications of the Swiss vote “will be discussed with the member states,” she said.

Switzerland is already at odds with the EU over how it taxes multi-national corporations. Relations with the governments of neighboring countries such as Germany and Italy have been strained due to a dispute over their citizens who evaded taxes with secret bank accounts. Citizens from those two countries were the biggest groups of foreigners living in Switzerland in 2012.

“Switzerland has to know that cherry picking in relations with the EU can’t be a lasting strategy,” German Foreign Minister Frank-Walter Steinmeier told reporters in Brussels today.

His Belgium counterpart agrees.

“We can’t work a la carte,” Didier Reynders said. “They have to accept the entirety of the European accords.”

Avoid Damage

About 20 percent of Swiss residents are foreigners and 45 percent of employees in the country’s chemical, pharmaceutical and biotech industry aren’t Swiss.

“What is crucial now is the way in which the quota system is implemented and the need to avoid subsequent damage to the bilateral agreements as far as possible,” Pascal Brenneisen, the head of Novartis’s Swiss unit, said in e-mailed comments yesterday.

Companies are concerned about a return to a decades-old system under which they had to file for permission with the government for each new foreign employee. A clause in Switzerland’s package of agreements with the EU means that the one on immigration cannot be canceled without rendering the others null and void too. The pacts touch on topics such as electricity and the environment.

The vote “has far-reaching consequences,” Justice Minister Simonetta Sommaruga said yesterday. “There is no way of judging how negotiations with the EU will develop.”

Housing, Crime

The initiative, put forth by the euro-skeptic Swiss People’s Party SVP, leaves it up to the government to decide how high to set the new annual quotas, “based on the country’s economic needs.” It says Swiss citizens should be given preference on the labor market, that the curbs are to include asylum seekers and cross-border commuters, and that the right to permanent residency and social welfare payments may be limited.

“It’s clear that we will now steer things ourselves again,” said SVP President Toni Brunner. “We’ve not yet fully stipulated the level for quotas. On purpose!”

With its low taxes and high quality of living, the population has grown by an annual average of 74,000 each year between 2007 and 2012, pushing Switzerland to 8 million inhabitants.

Infrastructure, especially trains and housing, hasn’t been able to accommodate all the newcomers, the SVP says. They also attribute a rising crime rate to Switzerland’s open borders with neighboring countries, such as France and Italy.

Country Divided

Companies, particularly in the pharmaceuticals sector, say they need top-notch workers from around the world to maintain their competitive edge. About half of Roche’s research and development team are foreigners, according to Chief Executive Officer Severin Schwan, himself an Austrian.

“It creates uncertainties which are never good for the investment climate,” Beat Moser, director of scienceindustries, told Bloomberg Television today. The group’s members include Roche, Nestle, and Clariant AG (CLN), a maker of specialty chemicals.

The vote, which passed by 50.3 percent, highlighted a split between Switzerland’s cities and the country’s rural parts. Voters in Zurich, Basel and Geneva opposed the initiative, while those in rural German-speaking cantons and the Italian-speaking region of Ticino backed it.

Skilled Foreigners

“Presumably all those who voted yes will be happy to clean their own houses, pick their own fruit, serve their own beer and look after the elderly,” Diccon Bewes, author of “Swisswatching: Inside Europe’s Landlocked Island,” said on his website.

Even though immigration is a contentious topic in neighboring Italy, Austria and France, Switzerland stands apart because the anti-immigration vote targets some of the biggest economic contributors. Among arrivals from the EU between 2010 and 2012, 69 percent were highly skilled. That compares with a rate of 35 percent within the 28-member union, data from the Organization for Economic Cooperation and Development shows.

For Zurich Insurance Group AG (ZURN) “as a global insurance company with headquarters in Switzerland, the international job market is crucial,” said Bjoern Emde, a spokesman for the company. “We are dependent on highly qualified staff.”

Poison for Investments

“Uncertainty is poison for investments -- and hiring personnel should be understood as an investment,” Giles Keating and Fredy Hasenmaile, economists at Credit Suisse Group AG (CSGN) in Zurich, said in a note to customers. The bank cuts its growth forecast for the Swiss economy by 0.3 percentage points on the vote, citing lower labor market growth.

The Swiss decision wagered satisfied reactions from Marine Le Pen, head of France’s anti-EU National Front, and Heinz-Christian Strache, the leader of Austria’s anti-immigrant Freedom Party.

Among Swiss companies, the mood is grimmer. Business groups Economiesuisse and Swissmem called for a careful, non-bureaucratic implementation of the new rules, and asked the government to limit negative consequences on unrestricted EU access.

Zurich Protests

About 500 people took to the streets in Zurich late yesterday, following the vote. A handful lit fireworks, used spray cans and threw stones at buildings, causing several thousand francs worth of damages, the city’s police said. Protesters also gathered in Bern, Basel and Lucerne, according to the newspaper 20 Minuten.

Even so, some investors say the government will find a workaround so as not to compromise economic prosperity.

“I don’t think the Swiss economy will suffer,” Karim Bertoni, who helps manage $3.3 billion at de Pury Pictet Turrettini & Cie. SA in Geneva, said in a phone interview, declining to specify how he himself had voted. “Businesses will still be able to hire foreign top managers or very highly skilled employees, such as engineers. For less qualified workers, such as barkeepers or waiters at restaurants, it may be trickier.”

Past examples show the government and parliamentarians in Bern often translate into law a weaker version of what the initiators say they were aiming for. The SVP accuses the government of dragging its heels on implementing the 2010 referendum to expel foreigners convicted of crimes. Similarly, the initiators of last year’s “fat cat” limits on CEO compensation have also say the measure has been watered down.

Room to Maneuver

“The parliament has quite a bit of room to maneuver in translating it,” said Marc Buehlmann, lecturer in political science at the University of Bern.

Potentially complicating matters still further, another initiative, called “Ecopop,” which would cap the immigration rate at 0.2 percent of the resident population, is in the pipeline. The government, which opposes that measure too, hasn’t set a voting date yet.

“The government will try to find a way of implementing it that doesn’t lead to a result in which all agreements with the EU get canceled,” Buehlmann said. “Not that much will be happening that quickly.”

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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