Swiss Await EU Stock Market Verdict After Rejecting Isolationism

(Bloomberg) -- Switzerland faces a week of reckoning with the European Union, despite voters’ clear “No” to isolationism in Sunday’s plebiscite.

While the electorate resoundingly rejected a plan that would probably have made already testy relations with Brussels even worse, a question mark still hangs over the Swiss stock market, the fourth biggest in Europe. Its recognition under EU regulation expires at the end of this year and the government in Bern has set itself a Dec. 1 deadline for deciding whether to enact an emergency plan to protect it.

The EU has made its continued recognition of the Swiss stock market under MiFID II financial market regulations contingent on progress on long-running talks about a political accord. That will replace the complex web of around 120 bilateral agreements that now govern relations.

But talks got bogged down over a dispute about Swiss labor market access, and there’s also the matter of Brexit. EU leaders just endorsed a divorce agreement with the U.K. and there’s the risk that any lenient treatment of Switzerland will set a precedent for Britain’s future relations with the bloc.

Tough Choice

The Swiss government now faces the prospect of choosing between two evils: agree to the EU framework deal only to have it torpedoed by voters in a referendum, or renege on the treaty and risk reprisals from Brussels that hurt the economy.

While their rejection of the anti-immigrant party’s “self-determination” by a margin of two-thirds showed that voters wanted to retain international ties, “it’s too early to say automatically there’s a majority for a framework deal,” said Michael Hermann, a political scientist and head off Zurich-based research institute Sotomo.

While a “Yes” vote could have forced Bern to try to renegotiate its international treaties, in his view the “No” doesn’t necessarily make the EU any more amenable to Switzerland.

“The EU has realized that being nice to Switzerland just leads to the can being kicked down the road and that things only change when it hurts,” Hermann said.

Foreign Minister Ignazio Cassis, in charge of the framework deal negotiations, will meet trade union and business leaders on Tuesday in what is likely to be an unsuccessful bid to convince them to support the deal, newspaper SonntagsZeitung reported on the weekend, without saying where it got the information.

Current System:EU-based traders may buy and sell Swiss stocks on the Swiss exchange
If equivalence expires: EU would forbid its traders to access the Swiss exchange, causing a major decline in trading volumes for SIX
Bern’s countermeasure (to be enacted only if the EU doesn’t at least commit to extending equivalence): EU-based traders would prohibited from trading Swiss shares within the EU, which would re-route volumes back to Switzerland.

The multi-party government is due to issue its ultimate verdict on Friday, according to media reports. The two biggest political parties -- the anti-immigrant, euro-skeptic Swiss People’s Party and the left-of-center Social Democrats -- both oppose the framework deal.

Relations with Brussels took a turn for the worse in 2014, when the Swiss voted in favor of reimposing quotas for EU immigrants. And there is a popular initiative in the pipeline to mandate those quotas after parliament came up with a plan in 2016 to circumvent them in a bid to protect Swiss business.

SIX Swiss Exchange Warns of Market Rupture Without EU Deal

Although the campaign against the anti-immigrant party’s “self-determination” was a success, “I’d say euphoria is a bit misplaced,” said Christian Wasserfallen, a member of parliament for the pro-business Free Democrats. “It’s still going to continue with the discussion about the framework deal” and the anti-immigration measure.

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