Cablegate: Swiss Electorate Reaffirms Ties with Eu; Approves $800

VZCZCXYZ0025
RR RUEHWEB

DE RUEHSW #2122/01 3321616
ZNR UUUUU ZZH
R 281616Z NOV 06
FM AMEMBASSY BERN
TO RUEHC/SECSTATE WASHDC 3461
INFO RUEHZG/NATO EU COLLECTIVE

UNCLAS BERN 002122

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: PGOV EAID EUN SZ
SUBJECT: SWISS ELECTORATE REAFFIRMS TIES WITH EU; APPROVES $800
MILLION CONTRIBUTION TO NEW EU MEMBERS

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Summary
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1.(SBU) In what may be seen as a victory of pragmatism over
enthusiasm, the Swiss electorate on November 26 approved a Swiss
Government proposal to contribute one billion Swiss Francs (about
$800 million) to the 10 new member states of the European Union. In
a nation-wide referendum, 53.4 percent of voters accepted the
"Eastern Europe Cooperation Act," which entitles the Government to
spend one billion Swiss Francs on projects in primarily Central
European states over the next ten years. Switzerland had pledged
this contribution to share the burden of the EU's eastern expansion
in order to facilitate the conclusion of the second set of bilateral
negotiations with the EU. The government and the media welcomed
Sunday's referendum outcome as evidence of voter "pragmatism": a
majority of voters clearly wished to avoid antagonizing Brussels in
spite of limited enthusiasm for the proposal at hand. The
right-populist Swiss People's Party (SVP), which prompted the
referendum, was disappointed, but pleased that it mobilized a 47
percent opposition. End summary.

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New Step in Longer Pro-EU Trend
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2.(U) The Eastern Europe Cooperation Act gives a new legal basis for
Swiss aid to countries in Eastern Europe. The Act has a ten-year
term and replaces the former federal Law on Aid to Eastern Europe,
which came into force in 1995. Since the fall of the Berlin Wall,
Switzerland has spent SFr 3.5 billion on about 1,000 aid projects in
Central and Eastern Europe to help countries in the region transform
into market economies.

3.(U) To date, Switzerland has agreed to 16 bilateral treaties with
the European Union, encompassing also the ten countries which joined
in 2004. The treaties cover a wide range of issues including trade,
labor, transport, security, customs, and taxation. Deals on
electricity and a free trade agreement on agriculture have also been
proposed. The Swiss cabinet in 2004 pledged to provide SFr 1
billion to ten new EU member states, primarily Central and Eastern
Europe, in order to facilitate conclusion of the second set of
bilateral treaties with Brussels.

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Money for Eastern Europe, but under Swiss Control
--------------------------------------------- ----

4.(U) Sixty per cent of the SFr 1 billion is to come from the budget
of the departments of foreign and economic affairs, mainly from cuts
in aid programs in other parts of the world. The remaining 40
percent will be taken from the regular budget of the federal
administration. The funds, to be spent over the next ten years, are
to be used on projects chosen by Switzerland and focusing on
education, trade promotion, environment, and internal security. The
money is paid directly to the projects and does not go the EU
Cohesion Fund in Brussels. (Comment: Cohesion fund recipients
Spain and Greece originally wanted a share of the Swiss
contribution, but were rebuffed by the Swiss. End comment.)

5.(U) Switzerland has no formal agreement with the European Union.
Instead, there is a Memorandum of Understanding that sets out the
general conditions of the Swiss commitment to the ten new EU member
states. Under the MOU, almost half of the funding will go to Poland.
Hungary will benefit to the tune of SFr 131 million, while the
Czech Republic will receive SFr 110 million. A majority in
parliament endorsed the contribution last March and three of the
four main parties have also come out in favor. However, the SVP
challenged the decision and forced a nationwide referendum by
collecting the necessary signatures.

--------------------------------------------- --
Government's "Yes" Campaign: "Good Investment"
--------------------------------------------- --

6.(U) The government launched its campaign supporting closer
cooperation with Central Europe at the end of September, calling the
SFr 1 billion pledge a "good investment" benefiting not only the new
EU states but also Switzerland. Foreign Minister Micheline
Calmy-Rey described the contribution as an investment in the success
of bilateral talks and an important condition for an effective
policy towards the EU. Finance Minister Rudolph Merz said the
government had solved the tricky issue of financing the contribution
without imposing new taxes or running up additional debt. He
acknowledged that negligible cuts would have to be made to
Switzerland's development aid, but assured that the poorest
countries would not be affected.

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SVP "No" campaign: Financial Slippery Slope
--------------------------------------------

7.(U) The right-populist SVP, which forced the nationwide vote on
the issue, raised the specter of financial pressure from the EU.
SVP Party President Ueli Maurer warned that the payment could prompt
further financial demands from the EU and obligate Switzerland to
incur unforeseen costs. He said the Swiss contribution meant
wasting money abroad while getting little in return. Maurer argued
that his party, which is known for its anti-EU stance, was not
against the contribution in principle. However, he insisted that
the SFr 1 billion had to be compensated fully from the budgets of
the foreign and economics ministries. The SVP also wanted
assurances that any possible Swiss payments to future EU members,
including Bulgaria and Romania, were automatically put to a
nationwide vote.

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Other Referenda: Child Allowances et al
----------------------------------------

8.(U) Meanwhile, in a separate referendum, 68 percent of Swiss
voters also approved a new Federal Law on Family Allowances, which
harmonizes cantonal child allowance policies and introduces national
minimum child benefits. Proponents of the law saw the tally as a
clear mandate in support of families, whereas opponents deplored the
extra cost of the new scheme, estimated at around 600 million Swiss
francs annually, to be paid mainly by employers. There were also
numerous cantonal and municipal referenda throughout Switzerland,
including approval by the citizens of the cantons of Uri, Aargau,
and Zug to lower corporate taxes considerably, with an eye to
attracting foreign investment.

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Comment: Pragmatism Rather Than Enthusiasm
------------------Q----------------------Q.(S BU) The approval of the "billion for the East" was indeed a sign
of voter pragmatism and an endorsement of the government's policy of
bilateral negotiations with the EU. After the vote on the first set
of bilateral agreements (Bilaterals I) in May 2000 and the two
separate votes last year on the extension of the free movement of
people to the ten new EU members and Swiss participation in the EU's
Schengen and Dublin accords, it was the forth consecutive victory
for the Government's policy towards the EU. Although the Eastern
Europe Cooperation Act is not legally linked to the Bilaterals II,
the Swiss Government's pledge to contribute SFr 1 billion was the
lubricant that helped break the deadlock in the negotiations and get
Swiss business unfettered access to the potentially lucrative
markets on the EU's eastern fringe. Consequently, both the
government and media commentators rightly called the referendum
outcome a vote of pragmatism rather than an expression of real
enthusiasm. For a majority of Swiss voters, the danger of
antagonizing Brussels, losing EU goodwill for further agreements,
and stalling EU member state ratification of the Bilateral II
package seemed too unpleasant to contemplate.

10.(SBU) For all the pragmatism, the percentage of Yes-votes was
smaller than in the previous referenda on bilateral relations to the
EU, and a closer look at the outcome at district level reveals large
swathes of rural Switzerland that remain deeply skeptical of closer
relations with the EU. This is all the more remarkable since the
SVP, the only serious political force opposing the Eastern Europe
Cooperation Act, undertook only limited campaigning to undo the
deal. The SVP ascribed its reticence to a lack of funds, all the
while running aggressive newspaper ads to kick-start its campaign
for the fall 2007 elections. A more plausible explanation is that
the SVP launched its referendum campaign mainly to burnish its
anti-EU credentials and did not really want to win, for fear of
putting off the business community so soon before the 2007 federal
elections.

11.(SBU) Bilateral negotiations remain the only feasible way for
Switzerland to deal with its neighbor and most important trading
partner, the EU. Sunday's vote showed that the bilateral path is
not a highway but a rocky road. Negotiations in view of the pending
accession of Bulgaria and Romania could well turn out to be
troublesome, and reaching an agreement on open markets for
electricity and agricultural goods are likely to be protracted.
Furthermore, the EU commission has repeatedly made clear that it
considered the generous tax codes on corporations of some Swiss
cantons as an unfair subsidy to foreign companies, and thus a
violation of the 1972 Free Trade Agreement, whereas Switzerland
considers itself fully compliant. On that score, the Sunday votes
in cantons of Uri, Aargau, and Zug -- which all voted to lower tax
rates in a new round of the increasingly fierce tax competition
between Swiss cantons -- did nothing to defuse the potential for
conflict.
Coneway

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