Swiss Shares, European Deals
For the past 4 years, the European Union has found itself stuck in painfully slow negotiations with its independent alpine neighbour, Switzerland. These negotiations have been the EU’s attempt to replace over 100 bilateral trade agreements with a single imposing deal. Throughout the history of the EU, Switzerland has been a constant but minuscule annoyance. The alpine confederation’s neutrality and strong drive for independence have caused altercations in many of its dealings with the EU, as the upcoming gun control referendum demonstrates.
However, this cavalier attitude towards dealings with Europe’s most powerful super-national body has been wonderful for traders and their firms. All of Switzerland’s large firms and companies have stock available on Europe's various stock exchanges, through SIX ([Swiss Exchange] - Switzerland's main exchange). Around 60% of trading is Swiss shares come from traders and brokers based in the EU, while major Swiss companies account for around 20% of market capitalisation undertaken by Europe's 50 largest companies. Clearly, the odd 100 separate bilateral trade deals between Brussels and Bern have served Europe’s investors well.
This confusing and unintentional but beneficial state of affairs appears to be nearing its end. The system of multilateral trading which the EU has so far allowed gives the Swiss market the status of “stockmarket equivalence” - a status that allows capital to flow freely across borders and into/out of the EU. However, if Switzerland refuses to sign this newly drafted deal by the end of June, the EU may choose to revoke the Swiss status, which wouldn’t make trading shares with Switzerland impossible, but instead would make Swiss stock less liquid. Shares in Swiss companies would become riskier and more expensive, making them less sought after and traded. Swiss asset managers, commercial banks and investment banks, would certainly have to toil harder to obtain new European clients and serve them. The EU appears to be pushing Switzerland towards a deal similar to its Norwegian accord - an all-encompassing contract that dictates how every good, commodity, stock, bond and security is to be bought and sold across their borders. It is also speculated that the EU’s recent push to finish negotiations on a Swiss trade deal is related to Brexit. A European attempt to remove precedent for unbounded and free trade deals before a post-Brexit Britain would seek to use the current Swiss deal as an example to follow.
The Swiss government has made preparations for a loss of stock market equivalence status. As the Swiss Federal Council has made it known that they see the EU as struggling to “strong arm” them into the deal. Besides, Switzerland’s system of direct democracy would see this new deal being put to a national referendum - a referendum that it would be unlikely to survive, seeing as the EU’s recent undertaking of forcing its gun laws on the Swiss people has generated a powerful anti-EU sentiment.
Despite ever more strained relations between Switzerland and its all-encompassing neighbouring super-national body, few in Switzerland are actually worried. Apart from the Swiss government, nobody has lost their nerve. So far, Swiss companies and their executives seem to be mildly amused by the whole situation. No one who currently frequents SIX actually believes the EU is willing to create a new crisis for itself, as it deals with a floundering Britain. For now, it appears that the deadline for the deal’s signing will be extended, or the deal will be put to a referendum. Either way, that gives Swiss and European traders the summer before they have to panic.