Swiss markets hold up despite vote clouding EU links

PARIS: Swiss financial markets took a shock vote restricting immigration with the European Union in their stride yesterday although analysts warned it could have a major impact on the economy.

The weekend referendum vote throws into question other economic agreements with the EU, which is Switzerland’s biggest trading partner. The Swiss franc, which the central bank held down at the height of the eurozone debt crisis, firmed slightly to 1.2236 to the euro from 1.2239 late on Friday before the weekend vote.

The yield, or interest indicated, on traded 10-year Swiss debt bonds rose slightly to 1.023 percent in afternoon trading from 1.012 percent on Friday. A sharp rise in the yield would have been a sign of perceived sharply increased risk for the Swiss economy in view of the referendum vote. The main stock market index in Zurich was up 0.06 percent in late afternoon trade. The referendum vote, carried with a majority of 50.3 percent, narrowly backed restricting immigration from European Union countries, but it also reopens other economic agreements with the bloc. Brussels said it will now scrutinize all EU-Swiss relations as a result of the vote, although Switzerland is expected to first make its proposal how to implement the quotas and it has three years to put them into place with legislation.

Credit Suisse bank said in a note for clients: “The free movement of labour between Switzerland and the EU is now in question ... The short-term effects on growth are probably limited, but the medium- and longer-term growth potential of Switzerland could be seriously affected.”

The bank said that this “should in principle” weaken the Swiss franc. The bank noted that Switzerland had been trying to extend bilateral treaties with the EU but it was now unclear what progress could be made, including on free trade in services and financial services.

The bank said that the vote “has increased economic uncertainty in Switzerland with immediate effect.” At Natixis bank in Paris, stock strategist Rene Defossez took a more cautious view.

“There is little reason why this news should have a big effect on the markets in the short term.” The effects of the vote were limited in the short term because the decision did not affect the free movement of goods and capital. But the effects could be felt further down the line depending on how the EU responded, he said.

Vote poses ‘grave threat’

The European Commission was quick to say that it regretted the outcome of the vote, and said it would study how it affected all of Switzerland’s relations with the EU. Chancellor Angela Merkel of Germany, Switzerland’s largest trade partner in the bloc, said she foresees “considerable problems”.

Defossez said: “If there are retaliatory measures, such as a reduction of the movement of goods and capital, automatically that would have negative effects in the longer term on growth and the markets.” This aspect was highlighted by senior economist Christian Schulz at Berenberg finance house in London who said: “The vote poses a grave threat to the Swiss economic model.

“With its special role as an off-shore financial centre under global pressure, it may be about to cut off another of its economic legs, if it loses preferred access to the market of 506 million EU citizens.” Swiss pharmaceutical giant Novartis expressed yesterday its concern about immigration limits “because the success of Novartis is substantially built on the availability of a qualified workforce.” — AFP