Switzerland and the European Union. Big cheese, small hole

Still a troubled relationship

IN 1946 Winston Churchill went to Zurich to launch his vision of a United States of Europe. Jean Monnet, a founding father of the European project, sought inspiration in the Swiss Alps. The mountain air did not have the same effect on locals. The Swiss have steadfastly refused to surrender sovereignty to the European Union, in its various forms. They have sought rather to prosper as the hole in the cheese.

Switzerland stands out because - unlike Norway or Iceland, say - it is not on the fringes of Europe but at its heart. It has a close linguistic and cultural affinity with its neighbours. Its three main languages are German, French and Italian. All external transport and communications links pass through the EU, which accounts for three-quarters of Swiss trade. Yet any notion of membership remains distant.

Yves Christen, a centre-right parliamentarian who heads a pro-EU movement, says that, if the Swiss ever join the EU, it will be for practical, not visionary, reasons. In a 1992 referendum, a narrow majority (50.3%) rejected the idea of joining the European Economic Area, a free-trade club embracing the EU plus Liechtenstein, Iceland and Norway that was portrayed as a stepping-stone towards EU membership. The rejection marked the rise of the right-wing Swiss People's Party (SPP), which after last year's elections increased its share of power in the government.

The anti-EU lobby, led by the SPP's Christoph Blocher, now justice minister, is strongest in the German-speaking east. It argues against handing “colonial” power to big EU capitals and utters dire warnings of the demise of direct democracy under a Brussels bureaucracy. But Switzerland's economy has faltered over the past decade, and its neighbours have caught up. Pro-Europeans now preach that more open borders and the full panoply of EU single-market rules could stimulate competition and change for the better the sheltered Swiss way of business.

Since the mid-1990s, the Swiss government has been bringing domestic regulations into line with those of the EU. In 2000 a set of bilateral accords, including free movement of workers between the EU and Switzerland, was approved in a referendum. This week, an EU-Swiss summit in Brussels adopted another set of nine accords. They include Swiss participation in Europe's passport-free Schengen zone, and a deal on the taxation of non-resident savings that seeks to preserve Swiss banking secrecy while letting EU countries tackle tax evasion. The agreement was helped by a Swiss offer of SFr200m ($155m) a year for five years towards funds for the EU's new central European members. Such an a la carte approach makes Switzerland more eurocompatible without ruffling feathers.

Yet trouble could still break out. For one thing, the new accords are likely to need approval in a referendum. The elimination of border controls under Schengen will be hard for some Swiss to accept. More generally, several EU members are fed up with Swiss cherry-picking. New member states that pay the club's full entrance fee are not keen on special treatment for Switzerland. Recently the European Commission caused a stir by threatening to tax some Swiss re-exports, and Germany stepped up controls on the Swiss border. Such measures prompted some cantons, half of which border another country, to press for EU membership to be reconsidered.

The government has commissioned a new report on the pros and cons. Yet the chances of joining seem further off than ever. And if the Swiss ever did go for it, they would pose a dilemma. How could the EU cope with a member that called referendums on many significant EU decisions and allowed voters to challenge EU legislation? Even pro-Europeans are not keen to challenge Switzerland's unique system of democracy.