Many foreign hedge fund managers in Zug must feel unloved this morning. On Sunday, Swiss voters narrowly approved a resolution which requires the government to impose quotas on immigrants. The grief of expatriates ensconced in the low-tax canton will be matched by angst in Brussels. The European Union has suffered a blow just when it could most do with strong support. The last time the Swiss narrowly voted against the European vision was in 1992, when a 50.3 per cent majority rejected moving towards EU membership. Then both the Swiss government and the European authorities did their best to ignore the voice of the people. Treaties were negotiated which made Switzerland as much like an EU member as possible. One of them allowed free movement of people in and out of Switzerland.
It will be much more difficult to work around the new 50.3 per cent vote, even though the Swiss government hasn't become any keener to limit European immigration. These new residents, mostly skilled professionals, are unquestionably a net economic benefit. The 3.2 per cent unemployment rate suggests natives are not suffering. However, there is no obvious workaround for Berne, and Brussels cannot afford to be kind to countries looking for opt-outs from European rules. Suppose it lets the Swiss change one deal while keeping the others. Those post-1992 agreements have helped Swiss businesses work closely with the EU, which takes 56 per cent of Swiss exports and provides 75 per cent of imports.
If Brussels crumbled on this issue, the British would start clamouring for similar special deals. Other countries would follow. The already tough work of persuading politicians in richer Europeans countries to show solidarity with poorer and more indebted members would become almost impossible. Switzerland is not a member of the EU, let alone of the Euro zone. Its eight million people amount to less than 1.6 per cent of the EU's population. And, yet the European authorities do not feel secure enough to accommodate Swiss xenophobia. The vote and the response show that the whole European project rests on an uncomfortably weak popular foundation.
