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WORLD ECONOMIC FORUM: DAVOS

EUROPEAN UNION

‘Europe missed chance to fix economy’: Weber

Europe has squandered three years of opportunity to carry out badly needed economic reforms, former Bundesbank chief Axel Weber said in Davos on Wednesday, warning the ECB against taking too much action to compensate for governments' failure to act.

'Europe missed chance to fix economy': Weber
Former Bundesbank chief Axel Weber. Photo: AFP/File

The European Central Bank has come to the rescue of the eurozone on several occasions since Greece nearly dragged down the bloc with its debt, with the bank unleashing an arsenal of unconventional measures since late 2011 to calm jittery markets.
   
However, growth remains sluggish, unemployment is stubbornly high and the eurozone is now in danger of sliding into deflation, forcing the ECB to consider deploying yet another unusual measure — this time the massive purchase of sovereign debt.
   
"The real issue is the ECB has continuously bought time for European policy makers to fix the issue," Weber said.
   
But "they didn't do that" in the past few years.
   
"Now Europe's not back, the problems are back. Now you have to (carry out the reforms) under the scrutiny of the international financial markets.
   
"Europe has lost the good opportunity to do many necessary things they could have done in a more benign environment."
   
Weber also urged European central bankers to consider if it is time to pull the plug on aid to boost growth in the bloc, saying that governments should not pass the buck.
   
"The ECB can only be part of a fix in Europe. In my view they shouldn't go too far because the more they do, there is the incentive for governments to do less.
   
"And the problem is if you continue to buy time and the time is not used for reforms, you have to ask yourself if more of the same is the best recipe," he said.
   
The ECB was modelled after the once mighty Bundesbank, reputed for its unflinching anti-inflationary stance.
   
But as the eurozone crisis unfolded and deepened, the Bundesbank's imprint on the institution began to fade.
   
Weber quit in 2011 because of unease over the bank's looser monetary policies.

Clash of views

But not everyone shares his views.

Adam Posen, the former central banker who sat on the policy committee of the Bank of England for three years, told AFP the threat of deflation was too great to be ignored any longer.
   
"What's dangerous are the people who oppose QE, who I think are wrong, are trying to make sure QE fails," said Posen, who was a major proponent of QE at the BoE.
   
"We are very late in the game and I'm very concerned that Germany is going to keep the QE from as being as aggressive as they need it to be," Posen said.
   
Germany's aversion to the plan was also borne out in remarks by the ECB's former chief economist, who also resigned angrily after the bank accepted unconventional measures.
   
The European Central Bank "wants to drive down the refinancing costs of individual countries," Jürgen Stark told the business daily Handelsblatt.

"That is very different from traditional monetary policy." 

To placate Germany's opposition, reports from Berlin say the ECB has devised a bond-buying programme that will cater to their deep reservations about QE.
   
The news magazine Der Spiegel reported on Friday that ECB chief Mario Draghi presented this scheme to Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble aimed at allaying such concerns.
   
Under the revised scheme, only national central banks will be allowed to buy the sovereign debt of their respective countries.
   
Crucially, Germany, Europe's paymaster, will not be on the hook to bail out another country, the magazine said.
   
Kenneth Rogoff, the IMF's former chief economist, said if confirmed this step was politically necessary but would falter in the longer-term.
   
"Even if (the ECB) makes the national banks hold debt I think they'll see it doesn't work as well and they'll go to something else," Rogoff told AFP.
   
"I think it is part of a long process to get (QE) to work and it's a major step," he said.

"It's the first vague step towards the mutualization of debt."

Germany is increasingly singled out on the global stage for its resistance to looser monetary policy, with even China's top central banker lending his support to Draghi.
   
"I agree with Mario Draghi," said Zhou Xiaochuan.

"Monetary policy may create room, a time period for other policies to come out, to be implemented."    

While a policy such as QE "is not a panacea . . . it is still useful," he said.

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EUROPEAN UNION

Why any deal between Switzerland and EU lies in the hands of the Swiss

The newly resumed round of negotiations between Switzerland and the European Union is now underway. But even if agreements are signed, stamped, and sealed, this doesn’t automatically mean they will go into effect.

Why any deal between Switzerland and EU lies in the hands of the Swiss

EU chief Ursula von der Leyen and Swiss President Viola Amherd launched negotiations in Brussels on Monday on “a broad package of measures to deepen and expand the EU-Switzerland relationship”, the European Commission said in a statement. (Read more about what’s at stake, below).

“Today is the beginning of a new chapter in our relationship with Switzerland based on a renewed trust and engagement between partners and neighbours,” she added.

This is a positive development after Switzerland suddenly walked away from more than a decade of negotiations in May 2021 due to the EU’s refusal to budge on Swiss demands to exclude key issues relating to state aid, wage protections and freedom of movement. 

The move angered Brussels and strained the relationship between the two sides.

But after nearly three years of tiptoeing around each other, the two parties finally got back to business on Monday.

What does Bern hope to accomplish during the talks?

In a nutshell, these are some of the issues Switzerland will bring to the negotiating table:

Immigration

The majority (1.4 million)of foreign nationals living in — and still coming to — Switzerland are from EU states, so immigration is a hot-button topic.
Wage protection
“The objective of ensuring wage and working conditions by maintaining the current level of protection sustainably will be reaffirmed,” the government pointed out.

Electricity

Swiss government therefore wants to negotiate an agreement with the EU, in order to allow full access for Switzerland to the single market for electricity and “ensure cooperation in this sector with the EU in the future”.

Transport

In parallel with the opening  of international rail passenger transport, the Federal Council will seek to maintain Switzerland’s prerogative to allocate slots on its own territory.

“The controlled opening up of international rail transport must not affect the quality of public transport in Switzerland,” the government said. 

Swiss sovereignty

The government wants to ensure that Switzerland will always be able to decide autonomously whether or not it wishes to adopt European law.
Its direct-democracy system of referendums must also remain intact.
In the event of a dispute, Switzerland and the EU will be equally represented in an arbitration tribunal, which will have to decide.

READ ALSO: What is Switzerland’s deal with the EU?

If both sides agree on these, and other points that are being negtioted, when will new treaties come into effect?

It may take a while, but a better question to ask is: will these agreements be enforced at all?

That’s because when it comes to implementing new laws — regardless of whether they were hatched in Bern or in Brussels — the people will have the last, decisive, word.

Chalk it down to Switzerland’s famous, unique brand of grassroots (or direct) democracy.

Under this system, any new legislation to which any group of Swiss citizens opposes, will come to a referendum.

To do that on a federal level, opponents must collect 50,000 valid signatures within 100 days of the publication of the new legislation. The law will only come into force if it is accepted by a majority of the voters. (Only Swiss citizens over 18 can sign the petitions and vote in national referendums).

READ ALSO: How Switzerland’s direct democracy system works

Do Swiss citizens always vote against closer ties with the EU?

No.

In May 2000, for instance, 67.2 percent voted in favour of the first package of bilateral agreements with the European Union.

And in 2005, 56 percent of voters approved the extension of the agreement on the free movement of persons.

However, in terms of actually joining the EU, the voters have been overwhelmingly against this move.

In 1997 and 2001, more than 74 percent had rejected popular initiatives seeking EU membership.

What about the latest round of negotiations?

It is too early to say, but the opposition to any further links with Brussels is gaining momentum, especially among the right wing — historically a driving force against the EU.

The populist Swiss People’s Party (SVP) is speaking against “the EU submission treaty,” while its sister group, Pro Schweiz, has collected enough signatures to launch a vote on reinforcing Switzerland’s neutrality and, by extension, rejecting anything that smacks of cooperation with the European Union.

It is therefore certain that either or both groups will launch a referendum to stop the government from implementing any more pro-European policies.

This doesn’t mean however, that the Swiss, who are mostly a pragmatic lot, would reject the new agreements at the ballot box — since the majority had already accepted the treaties mentioned above.

Either way, Blick newspaper reported that “it is the Swiss people who will decide whether  the bilateral agreements between Switzerland and the European Union will be finalised.” 

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