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 
 
------- 
Summary 
------- 
 
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. 
 
------------------------------- 
New Step in Longer Pro-EU Trend 
------------------------------- 
 
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. 
 
--------------------------------------------- ---- 
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. 
 
-------------------------------------------- 
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. 
 
---------------------------------------- 
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. 
 
------------------------------------------- 
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