The US is not the only protectionist player in town; EU tries to strong arm Swiss into submission

Wednesday, 3rd July 2019 10:20 - by Shant

The US is not the only protectionist player in town; the EU tries to strong arm Swiss into submission.

Rumbling on in recent weeks has been the row between the European Union and Switzerland over its bilateral trade agreements, which the EU has tried to repackage via a new draft deal. The Commission has sought to consolidate the 120 or so agreements in a bid to simplify the framework and limit misunderstanding.  Naturally, the Swiss government has scrutinised the new draft, but in delaying an agreement to the draft, the EU has chosen to allow the current arrangement on 'equivalence' (observing outside rules similar to their own) to expire as at the end of June).  This allows reciprocal access to their respective financial markets, and the EU has withdrawn this 'permit' to Swiss banks and hedge funds.  

In retaliation, the Swiss have banned the trading of Swiss shares on the European bourses, and EU investors will have to trade these shares on the Swiss exchanges.  Close to 300 companies fall into this list with some significant names in the mix.  Nestle, Roche, and Novartis are big names when we think of Swiss companies, but add in UBS, Zurich Insurance, Swiss Re, Credit Suisse, and Glencore International and we have some notable absences which will have investors on the continent somewhat angered by what many see as a petulant stance from the Commission.  

Ultimately, the new deal which the EU is proposing has a number of details which Switzerland is cautious on.  Citizen's rights are one such issue, where the rights of EU citizens could impinge on welfare benefits.  Laws on business subsidies are also a bone of contention, which could potentially destabilise the internal wage structure and they have implications for the broader economy.  

However, in trying to pressurise the Swiss into accepting their deal, the EU is now seen to have shot themselves in the foot.  Much of the wrangling with the UK over financial services over past years - decades even - have been with a view to establishing greater business volumes on the continent, but their latest actions will only serve to diminish this as foreign exchanges - on this case SIX - will ultimately gain increased revenue.  So far this week, the net effect on the relevant stocks has been negligible and having seen some strong demand for the Swiss Franc recently, one could assume that EU investors have been taking some pre-emptive action.  

This row has notable parallels with the Brexit issue, but for the fact that the UK needs to agree on a withdrawal deal before it can actually get to the stage of discussing the trading relationship.  Even so, calls for the UK and Switzerland to collaborate on developing a stronger relationship between their respective financial centres - lead by London and Zurich - will have risen on the back of these latest developments and some suggest that the EU may have overplayed its hand if this tough stance was also designed as a signal to the UK going forward.  

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.