Brexit and Its Consequences
Beware of excessive optimism: It would be risky to assume that the Swiss financial center will automatically benefit from Brexit. The situation according to Urs Rohner, chairman of Credit Suisse Group.
In the aftermath of the Brexit vote in summer 2016, experts' views on its short- to medium-term cross-border impact were ambivalent. The initial analysis of its expected impact on Switzerland's bargaining position vis-à-vis the European Union (EU) was also characterized by considerable uncertainty.
Most players in Switzerland assumed that it would have both political and economic advantages. At the political level, it was hoped that – following its exit from the European Union – the UK would become a new ally for Switzerland outside the EU. Despite visits by some high-ranking government officials since the "Brexit" vote, this has not been borne out: Evidently, the assumptions had probably been too optimistic. In fact, with the UK's exit negotiations taking priority, Switzerland's position has probably worsened in terms of both timing and content.
For the EU, the Brexit negotiations clearly take precedence: The outcome of these discussions (particularly regarding the recognition of the equivalence of foreign regulatory and supervisory frameworks) is expected to apply as a yardstick for other third countries – even though Switzerland has demonstrated a very pragmatic attitude toward the EU in recent years, notably in the implementation of the mass immigration initiative. At an economic level, the "Brexit optimists" were firmly convinced that the Swiss financial center would directly benefit from Europe's political turmoil owing to its status as a "safe haven". But this view ultimately proved to be unrealistic – owing not least to the Swiss National Bank's forex interventions aimed at countering a further appreciation of the Swiss franc. After last year's vote and also in the wake of the US presidential election, German government bonds and gold acquired the function of a safe-haven investment instead.
With regard to the Brexit negotiations between the UK and the EU, the economic interdependencies that had been formed over decades must be borne in mind.
Energy supply is a good example. Four of the six largest corporations that supply the UK with electricity and gas are owned by foreign companies (France's EDF, Germany's E.ON and RWE, and the Spanish Iberdrola). The UK's ties with Europe in terms of trade relations are even more conspicuous. The EU is the UK's biggest export market worldwide, accounting for almost 50 percent of its total exports. Imports from the EU are also currently close to 50 percent. A clear advantage of this intertwinement is the fact that, at both the institutional and the legal level, the UK's status as a former EU member state enables it to effectively implement EU Directives and thus almost automatically ensures a very high level of future equivalence.
Switzerland Caught in the Middle
For the Swiss financial center, Brexit mainly implies an extended period of uncertainty with regard to the future shaping of Switzerland's relationship with the EU. As already mentioned, it means first and foremost that the negotiations will not be concluded for a very long time. But it's safe to assume that there will be further consequences. From my perspective, it would be unrealistic to assume that any considerable volume of financial transactions will migrate to Switzerland. Rather, we should assume that in addition to New York, where there is a particular risk of clearing activities being transferred, other EU financial centers such as Paris and Frankfurt (for investment banking) or Luxembourg and Dublin (for funds) and Berlin (for FinTech) will benefit from an exodus of business out of London. It is therefore also to be expected that representatives of these financial centers will increasingly incorporate their interests into the negotiations.
The belief that we will benefit from uncertainties in our environment without more ado is clearly a thing of the past. To meet the challenges of the future – which include, but are not limited to, the consequences of Brexit – we in Switzerland need a comprehensive strategy that contributes to preserving our locational advantages over the long term.