Switzerland: In the Limelight
Stratfor Today »
September 22, 2009 | 1606 GMT
Summary
Throughout the 20th century there existed a tacit agreement between Europe’s great powers that the Continent needed a neutral, out-of-the-way place where diplomacy and espionage could be conducted in a civilized manner and financial assets could be safely sheltered. Thus Switzerland became a hub for back-channel interchange. But the global financial crisis has put pressure on Bern to identify banking clients who owe taxes to cash-strapped governments, and Bern is providing names.
Analysis
On Sept. 22, Russian President Dmitri Medvedev wrapped up a two-day visit to Switzerland, his first stop in an event-filled week during which he met with Swiss President Hans-Rudolf Merz. Elsewhere, high-powered heads of state and ministers will be meeting this week to discuss a range of topics, including the economic crisis at a G-20 meeting in Pittsburgh and Iran’s nuclear program during a session of the United Nations General Assembly in New York.
Considering the gravity of the issues being discussed this week, Medvedev’s visit to usually inconspicuous Switzerland may seem out of place. It is not at all strange, however, considering Switzerland’s long-standing tradition as the world’s meeting place outside of normal channels. But this tradition may be changing because of the economic crisis and the pressures it has placed on Bern.
Switzerland’s neutrality is often explained by its geography (its protective mountains), its determination to defend itself against more powerful neighbors and its financial system, in which all sides want to preserve their assets during times of conflict. These assumptions — though based on real geographical and cultural aspects of Switzerland — are not the key contributing factors to Switzerland’s geopolitical importance. What makes Swiss neutrality a reality is the acquiescence of its powerful neighbors, particularly France, Germany and Italy, to Bern’s status as a country that falls within no one’s sphere of influence.
Because Switzerland is centrally located, it is a perfect meeting place for political, business and cultural interests on the Continent. As a transit route between northern and southern Europe, however, it is not so well suited; there are other more convenient ways to traverse this distance. And its mountains do not offer complete protection. Switzerland’s industry and agriculture are actually located in relative lowlands in the northern part of the country, easily accessible from both France and Germany.
Throughout the 20th century there existed a tacit agreement between Europe’s great powers that the Continent needed an out-of-the-way place where diplomacy (and espionage) could be conducted in a civilized manner. Bern’s guarantors likewise sought to maintain the country’s neutral status as a safe place to keep assets and capital. With so much capital pouring into the small country from abroad, Switzerland essentially gained a national resource (foreign money) that has fueled its growth.
But letting Switzerland exist without interference and outside of spheres of influence has come at a price for various world powers. Switzerland had become a hub for wealthy individuals seeking to invest their funds without having their own governments staring down their backs (and often to avoid domestic tax laws). Foreign governments have tried to curb this activity at various times to force Switzerland to partially relinquish its role as everyone’s favorite tax haven. But it wasn’t until the onset of the world financial crisis that governments, losing tax receipts, turned collectively against tax havens, including Switzerland.
Germany, Russia and the United States have all applied strong pressure against the Swiss government to release the names of banking clients in order to identify nationals who should be paying their fair share of taxes at a time when tax revenues are dwindling. Thus far at least one bank, UBS, has succumbed to the pressure and provided American authorities with thousands of client names. But STRATFOR has learned that Switzerland has likely given up more than that. Indeed, this is probably one reason Medvedev visited Switzerland this week. Long faced with the persistent problem of having its oligarchs hide massive wealth in Switzerland, Russia now wants help from the Swiss government to gain access to Russian client lists.
Medvedev certainly has bigger issues on his plate — Iran, for one. Medvedev’s most pressing task in Switzerland was to ensure that Swiss-based energy companies with links to Russian interests remain free of any impending U.S.-led sanctions. Vitol, Glencore and Trafigura have all been identified as likely targets of U.S. sanctions, since these companies have been linked to gasoline sales to Iran and have deep ties to Russia.
Indeed, it is in Russia’s interest to gauge Bern’s level of commitment to defend the right of companies headquartered in Switzerland to conduct business with Iran. But considering that Bern has provided the United States with client information from its banking system, the most important part of the Swiss economy, it is not likely to put up much of a fight regarding sanctions on Iran.