On 11 June, European Commission President Jean-Claude Juncker formally reached out to Swiss President Ueli Maurer requesting an acceleration of current legislative procedures in the Swiss parliament to finalize a new institutional framework agreement defining future Swiss-EU relations. Juncker's intervention followed a statement by the Swiss government on 7 June in reaction to a national stakeholder consultation on the draft agreement that was concluded in November 2018. According to the statement, further EU clarifications would be needed on EU citizens' rights in Switzerland, the regulation of state subsidies, and the maintenance of current levels of wages and worker protections.

The EU has signaled a willingness to introduce some amendments, but largely rejects major renegotiation. Plans to replace the current framework of more than 120 bilateral treaties between Switzerland and the EU with a more formalized and simplified agreement have been discussed since 2014 and are largely opposed by the right-wing Eurosceptic Swiss People's Party (Schweizerische Volkspartei: SVP).

Significance

Despite domestic political hurdles, it is likely that the Swiss parliament will eventually agree to the new framework for Swiss-EU relations. This is mainly due to the high degree of economic interdependence, including integrated supply chains and labor markets.

Recent outcomes of public referenda, such as the decision to reform Swiss corporate tax laws to bring them closer to EU regulations, represent positive indicators. However, it will be highly challenging to meet Juncker's deadline of 18 June, in particular because of ongoing disputes over labor laws. EU approval for a slightly extended time window to finalize negotiations over the coming months and a continuation of the so-called status of "equivalence" for the Swiss stock exchange beyond July would be positive signs for progress.

Should the timing slip much beyond the October 2019 Swiss federal elections, however, this would increase the likelihood of the reform of Swiss-EU relations failing. Such a scenario would have a disruptive impact on cross-border business activity and would affect a diverse array of sectors such as pharmaceutical industries, finance, food production, and fast-moving consumer goods.

Posted 14 June 2019 by Jan Gerhard, Senior Analyst Country Risk Europe, S&P Global Market Intelligence