Tuesday, February 11, 2014

Will EU Punish Switzerland With Restricted Trade?

[First another technical note: At last, blogger is functioning properly again. However, because of the high risk of this happening again, I will still probably move very soon (the next few days) to a new blogging platform.]

As you may have heard, Switzerland voted with a razor thin margin margin (50,3% to 49.7%) to restrict immigration from the EU.

Personally, I think this was a bad decision which will hurt the Swiss economy even if the EU doesn't retaliate by restricting trade. Remember, the immigration which will be restricted isn't the inflow of tax-financed asylum seekers, it's the inflow of workers who support themselves and contribute to the Swiss economy. And with Swiss unemployment at only about 4% (even lower in the German speaking parts of Switzerland), this will create labor shortages in many sectors.

Because the decision will hurt the Swiss economy, the Swiss will be punished automatically through restricted growth. So it is not necessary for opponents of the decision to try to punish Switzerland by restricting trade.

And doing so would by the way hurt EU's economy too. Switzerland is after all the EU's third biggest export market, after the United States and China, and with the EU's economy so weak, hurting it further through a trade war is the last thing it needs. And the fact that Switzerland would be hurt even more isn't any consolation to the many additional unemployed such a decision would create.

Unfortunately, there is a nevertheless high risk that the EU will try to punish Switzerland through trade restrictions, just to set a warning example. The reason is that the EU bureacrats know that if Switzerland gets away with doing this, then Britons will feel free to exit the EU without fear of trade restrictions. And after that the Netherlands, Denmark and Sweden might follow, and after that perhaps the remaining rich countries. And then the EU would only consist of poorer countries in Southern and Eastern Europe. That is a prospect EU bureacrats view as intolerable.


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