(Flickr Commons) On February 9th, the Swiss people decided, by a small majority of 50.3 percent, to reintroduce quotas limiting the number of yearly immigrants from the European Union. The vote shocked both European governments and business elites alike. On previous occasions, steps towards the liberalization of Switzerland’s immigration policy had always achieved a majority. In 2009, for example, 60 percent of Swiss voted to remove the immigration quotas for the new EU member-states of Bulgaria and Romania.

The unrestricted, cross-border flow of EU citizens into Switzerland was previously guaranteed by the Free Movement of Persons (FMP) treaty between Switzerland and the EU, which has been in place since 2002. Initially projected to result in an increase of around ten thousand net immigrants to Switzerland per year, net immigration from the EU-27 alone reached eighty thousand from 2007 to 2009 (see figure below). This amounts to a yearly one percent increase in the total Swiss population. As a result, the general public has become more skeptical about the alleged advantages of cross-border migration in recent years. What is behind this shift in Swiss opinion?

Net immigration to Switzerland, 1991-2012 (© Reto Foellmi)

Switzerland’s overwhelming appeal is the underlying culprit. The country has a safe political climate, solid economic policies, excellent infrastructure, and a well-educated population. Some Swiss politicians have argued that the high rate of unrestricted immigration permitted under the FMP may undermine these strong national features. Indeed, the FMP-induced immigration spike has been blamed for higher congestion, the loss of green areas, and rising rental fees in city centers, all of which led to a popular referendum limiting the construction of once-desirable vacation homes. Concerns have risen further because, while immigration increased the growth rate of national GDP, the growth rate of per capita income ultimately remained unchanged. Hence, there is widespread belief that the boom has done little to benefit the existing population in terms of raising the standard of living.

Switzerland already has immigration quotas for non-EU citizens in place. The February 9 referendum on immigration now extends this policy to EU citizens as well, a return to the pre-2002 regime. However, the referendum does not specify exact immigration quotas, stating only that quotas shall be set according to Switzerland’s “general economic interests” (gesamtwirtschaftlichen Interessen). This flexibility provides the Swiss government with the ability to resolve the issue in a pragmatic and adaptable manner if the nation’s “economic interests” evolve over the long-term.

Despite this flexibility, the new immigration restrictions have put Switzerland in a difficult position with regard to the EU. Although it is not a member-state, Switzerland is closely linked to the EU economically through more than one hundred different treaties. In particular, the 2002 FMP policy is linked to other treaties such as the Mutual Recognition Agreement and the Free Access to Civil Aviation Markets policy passed in the same year. If quotas for EU citizens become binding, the so-called “guillotine clause” may trigger and terminate these and other linked treaties as well. This domino effect would result in severe negative consequences for the small, open Swiss economy, which currently conducts more than 60 percent of its trade with the EU. Furthermore, some international companies based in Switzerland might consider relocating because of this political uncertainty.

Is restricted immigration to Switzerland, no matter the timeline, ultimately realistic? The current agreement on FMP between Switzerland and the EU already has an upper limit on immigration—the so-called “valve clause,” which activates under extraordinary circumstances. Although exceptions have been made in the cases of Liechtenstein (where a labor contract does not imply the right to settle) and Turkey (where the EU has not sought to apply FMP), FMP is one of the cornerstones of the European common market. Thus, Switzerland would have to make huge concessions in other areas of its bilateral negotiations, such as corporate taxation, to get the EU to agree to extend the valve clauses or re-introduce quotas.

The flexibility of the referendum, however, could help ease these tensions between Switzerland and the EU generated by the recent vote. Immigration quotas in the first years could be set such that they are not binding and FMP is not violated. This gained time could be used to negotiate with the EU and, possibly, to reduce Swiss-made pull factors that have incentivized immigration into Switzerland (one recent example of which is the large job growth in government services. To ease the potential economic fallout of its return to immigration quotas, Switzerland, which ranked third among the EU’s most important export partners during trade surpluses, must highlight the win-win nature of free market access in goods and services. This free exchange for goods and services will be mutually beneficial even if immigration quotas are put in place. Further economic recovery in the Eurozone would also help relax the problem.

Two issues may complicate the EU’s ability to reach an acceptable agreement with Switzerland, however. First, the Swiss vote points to the need for an internal debate within the EU about the durability of FMP itself. In many other countries, especially the UK, FMP is under fire. This discord will make it difficult for the EU to concede to Switzerland without prompting similar demands from other member-states. Second, the EU legitimacy crisis partly stems from a lack of direct democracy. The size of the Eurozone has never been voted upon, nor have the principles of the common market ever been put to a referendum. When left to the vox populi, EU treaties have often been rejected. This lack of a popular mandate undermines the legitimacy of the central pillars of the EU’s common market policy and leaves them vulnerable when individual countries start to hold single-issue referenda on FMP.

Markets in Motion