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Neighbouring regions back Switzerland in row with EU over draft bilateral deal

The heads of nine German and French regions bordering Switzerland have used a letter to call for the de-escalation of tensions between Bern and Brussels over a stalled draft deal on the future of bilateral relations between Switzerland and the EU.

Neighbouring regions back Switzerland in row with EU over draft bilateral deal
Baden-Württemberg state premier Winfried Kretschmann was the driving force behind the letter to the EU. Photo: Silas Stein/dpa/AFP

In the carefully-worded letter addressed to the President of the European Commission Jean-Claude Juncker and his soon-to-be successor Ursula von der Leyen, the heads of regions in Austria, France, Germany and Italy described recent developments as “a cause for great concern”.

They noted the current draft Swiss–EU deal was “just and fair” and said the EU’s decision in June to not extend recognition of the regulatory equivalence of Switzerland’s stock exchange threatened to derail relations between Switzerland and Brussels.

READ ALSO: What you need to know about the draft Swiss–EU deal

The move from the EU has had little practical impact after the Swiss government rolled out measures to protect its exchange. But it does constitute a ramping up of EU pressure on Switzerland to sign the draft deal on bilateral relations which is currently on the table.

Negative economic for neighbouring regions

The regional leaders said a downward spiral in Swiss–EU relations could see the deal rejected by Swiss voters in a referendum, which would in turn have negative economic impacts for regions along Switzerland’s borders.

They called on the EU to act with prudence and caution and give Switzerland time to get all social groups involved – essential if the draft deal is going to win the backing of Swiss voters.

The letter from the heads of the regions of Vorarlberg and Tyrol in Austria, Auvergne-Rhône-Alpes, Bourgogne-France-Comté and Grand Est in France, Baden-Württemberg and Bavaria in Germany and Val d'Aosta and Trentino -Alto Adige in Italy is a rare show of support for Switzerland from its EU neighbours.

Switzerland has 'few friends'

As former Swiss government minister Doris Leuthard noted in a sneak preview of an upcoming interview with Swiss national broadcaster RTS published on Wednesday, Switzerland does “does not have many friends” because it is neutral and “is not a member of the EU or Nato”.

The draft Swiss–EU deal, which was years in the making, was unveiled late in 2018. The EU has consistently pressured Bern to sign the deal designed to streamline and update bilateral relations between the bloc and Switzerland as quickly as possible.

But the Swiss government has argued it needs time to build political consensus before any deal goes before voters under Switzerland’s unique system of direct democracy.

In June, Bern called on Brussels for several clarifications including on the major sticking point of whether the deal would threaten Switzerland’s wage protection measures designed to protect the county’s high salaries.

Negotiations on this issue failed to bear fruit over the summer, according to government sources quoted by Swiss newspaper NZZ recently.

Fake news

Last week, Swiss Finance Minister Ueli Maurer appeared to suggest the deal with the EU was dead in the water. However, the minister – a member of Switzerland’s anti-EU Swiss People’s Party (SVP) – later declared this was “fake news” and said he had merely been reiterating the position of the Swiss government that the deal in its current form would fail to win the necessary support in a referendum.

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How European countries are spending billions on easing energy crisis

European governments are announcing emergency measures on a near-weekly basis to protect households and businesses from the energy crisis stemming from Russia's war in Ukraine.

How European countries are spending billions on easing energy crisis

Hundreds of billions of euros and counting have been shelled out since Russia invaded its pro-EU neighbour in late February.

Governments have gone all out: from capping gas and electricity prices to rescuing struggling energy companies and providing direct aid to households to fill up their cars.

The public spending has continued, even though European Union countries had accumulated mountains of new debt to save their economies during the Covid pandemic in 2020.

But some leaders have taken pride at their use of the public purse to battle this new crisis, which has sent inflation soaring, raised the cost of living and sparked fears of recession.

After announcing €14billion in new measures last week, Italian Prime Minister Mario Draghi boasted the latest spending put Italy, “among the countries that have spent the most in Europe”.

The Bruegel institute, a Brussels-based think tank that is tracking energy crisis spending by EU governments, ranks Italy as the second-biggest spender in Europe, after Germany.

READ ALSO How EU countries aim to cut energy bills and avoid blackouts this winter

Rome has allocated €59.2billion since September 2021 to shield households and businesses from the rising energy prices, accounting for 3.3 percent of its gross domestic product.

Germany tops the list with €100.2billion, or 2.8 percent of its GDP, as the country was hit hard by its reliance on Russian gas supplies, which have dwindled in suspected retaliation over Western sanctions against Moscow for the war.

On Wednesday, Germany announced the nationalisation of troubled gas giant Uniper.

France, which shielded consumers from gas and electricity price rises early, ranks third with €53.6billion euros allocated so far, representing 2.2 percent of its GDP.

Spending to continue rising
EU countries have now put up €314billion so far since September 2021, according to Bruegel.

“This number is set to increase as energy prices remain elevated,” Simone Tagliapietra, a senior fellow at Bruegel, told AFP.

The energy bills of a typical European family could reach €500 per month early next year, compared to €160 in 2021, according to US investment bank Goldman Sachs.

The measures to help consumers have ranged from a special tax on excess profits in Italy, to the energy price freeze in France, and subsidies public transport in Germany.

But the spending follows a pandemic response that increased public debt, which in the first quarter accounted for 189 percent of Greece’s GDP, 153 percent in Italy, 127 percent in Portugal, 118 percent in Spain and 114 percent in France.

“Initially designed as a temporary response to what was supposed to be a temporary problem, these measures have ballooned and become structural,” Tagliapietra said.

“This is clearly not sustainable from a public finance perspective. It is important that governments make an effort to focus this action on the most vulnerable households and businesses as much as possible.”

Budget reform
The higher spending comes as borrowing costs are rising. The European Central Bank hiked its rate for the first time in more than a decade in July to combat runaway inflation, which has been fuelled by soaring energy prices.

The yield on 10-year French sovereign bonds reached an eight-year high of 2.5 percent on Tuesday, while Germany now pays 1.8 percent interest after boasting a negative rate at the start of the year.

The rate charged to Italy has quadrupled from one percent earlier this year to four percent now, reviving the spectre of the debt crisis that threatened the eurozone a decade ago.

“It is critical to avoid debt crises that could have large destabilising effects and put the EU itself at risk,” the International Monetary Fund warned in a recent blog calling for reforms to budget rules.

The EU has suspended until 2023 rules that limit the public deficit of countries to three percent of GDP and debt to 60 percent.

The European Commission plans to present next month proposals to reform the 27-nation bloc’s budget rules, which have been shattered by the crises.