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The Six Swiss Exchange AG in Zurich, Switzerland. Photographer: Bloomberg

Switzerland Plays for Time in Stock Market Standoff With EU

*Government announced consultation process on framework deal * Swiss stock market risks losing equivalence under MiFID II

WT24 Desk

In its game of brinkmanship with the European Union, Switzerland is playing for time, Bloomberg reports. Bern didn’t say yes to a hotly contested agreement with Brussels on Friday, taking the gamble that its equity market won’t get cut off from EU investors. The government didn’t say no either, announcing a national debate on the draft of the treaty instead.

That shifts the focus to Dec. 11, when the European Commission is due to discuss the matter. Switzerland and the EU are battling over a “framework” agreement to supplant the amalgamation of 120 treaties that now govern relations. The EU has made clinching an accord a prerequisite for further recognition of the Swiss bourse under MiFiD II. The pact is politically unpopular in Switzerland.

For its part, the EU, which is dealing with Brexit, is in no mood to grant Bern any concessions. The bloc has urged a “swift” consultation period.

Battle Ahead

The new treaty would affect how Bern adopts elements of EU law, and it has run into an unholy alliance of opposition within Switzerland: The euro-skeptic nationalists oppose it on the grounds that it impinges on their country’s independence, while labor unions fear it will erode high local wages.

Worker association Travail.Suisse reacted to the government’s announcement by comparing the treaty’s hollowing out of labor market protections to an Emmentaler cheese with lots of holes. The nationalist Swiss People’s Party said it was dismayed that the government hadn’t rejected the draft treaty out of hand.

Even if Bern manages to clinch an agreement with Brussels, the framework treaty can be torpedoed via a referendum. Calling one requires the signatures of 50,000 adult citizens in the country of 8 million.

Switzerland’s equivalence status for its exchanges under the EU’s MiFiD II rules, which allows banks and brokers within the 28-country bloc to trade there, runs out on Dec. 31.

For the Swiss general public “the question of wages is much more central” than the stock market “side show,” said Cedric Wermuth, a member of the Social Democrats in parliament’s lower house. Brussels had to be aware that bids to pressure the Swiss into agreeing to the accord “won’t have a positive impact.”

Elmar Brok, a member of the European Parliament, said he couldn’t understand Switzerland’s objections to the labor-market provisions. He threatened reprisals in areas including “energy and the stock market,” according to the SonntagsBlick newspaper.

To prevent its bourses from suffering a plunge in volume once equivalence expires, Bern has found a loophole that it hopes will guarantee trading remains in Switzerland. The move met with wide approval in Switzerland, including from the association of multinational corporations, whose members including stock-exchange heavyweights Roche, Nestle and Novartis.

SwissHoldings welcomed the government’s announcement on the framework deal too, saying any agreement needed to lessen political tensions between the two parties and prevent “pinpricks” by the EU that hurt the economy.

“The country is very divided; and I wonder whether implicitly what they’re saying is ‘look, you’re going to have difficulty getting this through the people and we’ll demonstrate this by going to consultation,’ ” said Clive Church, professor emeritus of European studies at the University of Kent. “Then the EU will know where it stands.”

“The Swiss economy relies on stable relations with the EU,” it said.

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