The Swiss government faces enacting immigration curbs that threaten to upset ties to the European Union and hurt the economy following a popular vote on Sunday 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, the world's biggest food company, and drugmakers Roche Holding AG and Novartis AG 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.
"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 scepticism," he said, adding that the EU "will take a hard line" as the immigration issue "has now been raised to a symbolics level."
Avoid damage
About 20 per cent of Swiss residents are foreigners and 45 per cent 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 fear 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 cancelled 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."
Self Isolation
The European Commission in Brussels will "examine the implications" of the vote on bi-lateral relations, it said in a statement yesterday. It goes "against the principle of free movement of persons," the EU's executive body said.
Switzerland is already at odds with the EU over how it taxes multi-national corporations. Relations with the governments of neighbouring 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.
"In the interest of Europe, Germany, but also in its very own interest, Switzerland shouldn't take the path of progressive self-isolation now," Andreas Schockenhoff, deputy chairman of German Chancellor Angela Merkel's Christian Democratic Union, said via e-mail. Given that immigration had benefited the economy so much in recent years, "Switzerland would be ill-advised to restrict the influx too much," he said.
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 neighbouring 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.
Given the increase in economic and political uncertainty, companies "may delay any investments plans," said UBS AG (UBSN) economist Reto Huenerwadel, adding that he had expected such spending to be a big driver of growth in the next two years.
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.
"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.
Skilled Foreigners
Even though immigration is a contentious topic in neighbouring 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.
"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."
Watered Down
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.
"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 cancelled," Buehlmann said. "Not that much will be happening that quickly."
