Swiss President Hans-Rudolf Merz (pictured left) says the government is ready to renegotiate tax agreements with other countries despite a war of words with the Germans. The federal cabinet met on Thursday to discuss reaction to the country's decision to soften sections of banking-secrecy laws to avoid being blacklisted as an uncooperative tax haven. So far the United States, France and Japan have reacted warmly to promises to add some transparency to Swiss banking. Those countries have already asked to sit down with the Swiss to go over accords regulating double taxation and ways to bring them in line with international standards. "The government will continue its efforts to prevent a blacklisting of Switzerland by the Group of 20," Merz said at a news conference in Bern. "Once we agree on the general conditions, negotiations (on double taxation) will begin quickly, certainly not a matter of months. – Swiss Info
Dominant Social Theme: And so progress comes to Switzerland?
Free-Market Analysis: it is very interesting to see all this play out. The Swiss, at the top, are certainly spooked by the idea of a blacklist. At the same time, the leadership seems to have moved the dialogue away from the courts for the time being (at least in America) and back into the realm of political dialogue. The chances are that the Swiss desperately want to get past the G20 meeting in early April when considerable damage might be done at one swoop. After that, it would seem the Swiss will get down to negotiating a bit more forcefully. They have survived thus far, in the near term, by speaking in a generally conciliatory way, and by taking certain actions.
The Swiss have much at stake. For the Swiss, banking secrecy is indeed an economic boon. It is only too bad that the Swiss elite seems to have made a decision that there is more profit to be made by adopting, at least to a degree, the Western fiat model of banking and putting their own asset-based private banking model at some risk. This does not mean that the classic Swiss banking model does not survive – it doubtless will – but the Swiss have made their job harder with their dalliance with the Anglo-Saxon formula.
One also observes with a bit of cynicism that the Swiss are being subject to quite a bit of pressure here while the United Kingdom's various tax haven communities seem to be garnering little or no attention. Britain might be seen, in this go round, as being quite content to help punish Switzerland – in order to provide a competitive advantage for its own tax advantaged regions.
The problems of the Swiss are compounded by the truculence of Germany which has its own reasons for wanting the Swiss model shut down or at least pared back. Germany's wretched tax system is so invasive that the Swiss model stands as a kind of permanent reproach to what is going on in the Fatherland. The Germans and Swiss share a common heritage and plenty of Germans find the Swiss republican system quite attractive by comparison. As Germany continues to move down the road toward socialism, the presence of such an attractive low-tax, low-maintenance society becomes more than a minor nuisance.
Conclusion: As we stated before, the Swiss leadership abandoned to a degree the private banking system and the asset-based currency that had made Switzerland the envy of the Western world. They did this to encourage UBS and Credit Suisse, among others, to become world spanning banks. But in doing so, they miscalculated. The franchise is damaged and the damage threatens to spread. Additionally, the Swiss themselves are split as to how to react, and how they want their society to look in the years to come. Private banking, along with appropriate bank secrecy, will continue to flourish in Switzerland, no doubt, and the Swiss will rebound. But the cost of "modernizing" the banking structure of its most elite institutions has been steep indeed.
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