What should the relationship between Switzerland and the EU look like in future, Rolf Weder?
Text: Rolf Weder
A lawyer and an economist give their views on the current state of play.
As an economist, I regard the European Union as one institution supporting economic and political integration in Europe. Central to this process are interactions within society, the economy and politics.
Economic integration within the EU comprises the reciprocal opening up of markets (in goods, services, labor and capital) between EU member countries. As exchange increases within the resulting single market, this allows for better allocation of scarce resources and what we economists call an increase in efficiency – through specialization, for example. While prosperity increases within the EU and its members, economic integration also leads to restructuring, producing winners and losers within individual countries. It is important to recognize that the selective opening up of markets to non-EU members, such as Switzerland, implies an element of disadvantage, as their operators face discrimination. It is therefore not surprising that those countries should be looking for solutions to facilitate access for their businesses and citizens through accession or special agreements.
Political integration within the EU involves member countries handing over freedoms and powers to shape economic policy to EU bodies in Frankfurt, Brussels and Strasbourg. In external trade policy (goods and services) this is a direct consequence of the economic integration that the EU is pursuing. However, that is not true of other areas of economic policy such as fiscal, monetary, social, environmental or labor market policy. Here, the question arises as to whether and, if so, to what extent the sovereignty of member states should be restricted in the interests of efficiency, and why in the EU we see a tendency to push political integration too far. This is exemplified by the euro, which has removed a key adjustment mechanism (the exchange rate) from the system as a whole and deprived individual countries of an important tool for regulating the economic cycle (monetary and interest rate policy).
As an academic, I enjoy the privilege of contributing to this development through analyses that use economic theories to produce interesting new findings. For example, I applied the “theory of contestable markets” to the EU’s decision-making system as reformed by the Lisbon treaty. Together with Herbert Grubel, I reached the conclusion that centralization in the EU is not being curbed because entry barriers for citizens are too high. And 15 years ago, Beat Spirig and I showed that Switzerland’s decision not to join the EU can be seen as entirely rational based on the “theory of irreversible investment under uncertainty”. Joining would involve substantial accession costs (especially because of the limits that it would place on Switzerland’s system of direct democracy), a high degree of uncertainty (with regard to the future development of the EU) and high costs in the event of withdrawal (consider the Brexit negotiations).
When it comes to the framework agreement that is currently being debated, economic theory highlights one benefit that is often overlooked in this discussion, namely, the arbitration panel, which would reduce uncertainty and parties’ room for maneuver, especially in the case of the more powerful partner. Given the EU’s limited capacity for reform, it is ultimately both rewarding and, in my view, important to think about alternatives to the EU in Europe and the systems competition that goes with that.
Rolf Weder has been Professor of International Trade and European Integration at the University of Basel since 2000 and Dean of the Faculty of Business and Economics since 1 August 2019. His research deals with the effects of globalization and regional integration between countries. He also looks at the implications for economic policy and business, particularly in the context of the relationship between Switzerland and the EU.
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