Switzerland Is Located in Central Europe and Is Surrounded by France, Italy, Germany, Austria

Country Profile

Switzerland is located in central Europe and is surrounded by France to the west, Italy to the south, Germany to the north, Austria and Liechtenstein to the east. Switzerland’s size is 41,290 sq. km and has no coastline. The country is completely surrounded by the European Union of which all its neighbors, except the small principality of Liechtenstein, are members. It’s southern half is made up by the Alps mountains and northern half is constituted by a plateau in which most of the population resides. In spite of its alpine natural barrier, Switzerland occupies a strategic location at the crossroads of some of Europe’s main commercial arteries linking the main Northern European nations with the Mediterranean basin. This crossroads function is facilitated by the fact that two of Europe’s most important rivers, the Rhine (flowing northward) and the Rhone (flowing southward) both have their source in the Swiss Alps.

Switzerland’s main natural resources include timber, salt and hydropower potential.

Switzerland has a population of 7.5 million inhabitants. The country’s main ethnic and linguistic groups are the Germans (65%), the French (20%), the Italians (8%), and the Romansch (1%). The languages of all these groups are official. The rest of the population is made of groups of immigrants that did not assimilate with one of the main groups. The population growth is 0.54% in 2004, which is in line to that of most of European nations. With upwards of 30,000 new arrivals in 2004, immigration accounts for 75% of the natural population growth in Switzerland. In spite of giving birth to two of the main Protestant movements, Calvinism and Zwinglianism, Switzerland still has more Catholics (45%) than Protestants (35%). The rapidly growing muslim immigrant population, which already accounts for 5% of the population, will certainly challenge the traditional composition of the Swiss ethnic mix. Immigrants account for approximatively 8% of the whole population. The Swiss are a considered a cosmopolitan population and most of them regularly speak more than one language. Although not an official language, English is widely used as a language of business. The main urban areas are Zurich, the nation’s financial center (pop. 1 million), Geneva (500,000), Basle (450,000) and Bern (250,000), the capital of the Swiss Confederation. Switzerland provides its population with excellent standards of living as well as exceptional sanitarian conditions. This translates into a life expectancy of 80.31 years at birth (77 years for males and 83 years for females) and a literacy rate of 99%. The Swiss educational systems is one of the most performing in the world. A considerable number of foreign students are attracted by its colleges and universities of which Zurich Polytechnic and HEC Lausanne are the most famous. There is no major inequality in the distribution of income as the highest 10% of incomes earn 25% of the national income while the lowest 10% earns 2.8% of it. Those figures are in line with the other European nations. These data help Switzerland rank 12 in the United Nations Human Development Index for the year 2004 while Canada is ranked fourth.

Swiss infrastructures are among the most complete and state of the art in the world. Virtually all significant town is connected to the national highway network which totaled XXX Km. The railroad system covers the Swiss territory as extensively as the highways. Worth mentioning is the St-Gothard tunnel which links Northern and Southern Switzerland through the Alps. Broadly speaking, the Swiss road and railroad network strategically links Germany (Rhine valley) with Italy (Lombardy). Swiss only port facility is located in Basel which has access, through the Rhine, to the Northern and the Atlantic areas of Europe. Switzerland has also one of the major airports of Europe in Zurich.

Switzerland is an independent nation since August 1, 1291 when the three cantons of Schwyz, Uri, and Unterwalden agreed on mutual support in upholding autonomy from the Holy Roman Empire. The XIV century saw the attempts of the Hapsburgs to control these autonomous cantons crushed by the Swiss army in 3 major battles. That century also witnessed expansion of the Helvetian Republic either by military means or by other cantons joining the confederacy which gained formal independence from the Holy Roman Empire in 1499. In the XVI century, tensions among the Swiss arose following the Reformation movement which had its leaders in Calvin and Zwingli but common interests kept the nation from falling apart. Swiss independence was officially recognized by the major European powers in the Treaty of Westphalia signed in 1648 following the 30 years wars which devastated much of Central Europe but left Switzerland almost unscathed. Swiss independence remained unchallenged, as the country did not get involved in the major European conflicts of the XVIII century, until the Napoleonic wars when the French invaded it. In 1815, the treaty of Vienna reaffirmed Swiss independence. In 1848, Switzerland could not escape a wave of uprising that affected much of Europe and underwent a brief civil war that prompted the nation to definitively embrace local autonomy. The Swiss constitution was extensively modified in 1874 to introduce direct democracy by popular referendum and allow the federal government to be responsible for defense and trade. In economic terms, the XIX century was an era of rapid economic expansion that made Switzerland one of the most industrialized nations of the world in 1850. To guarantee its independence Switzerland had established a system of mandatory military service and invested heavily in its defense prior to WWI.

The Swiss were able to maintain their neutrality and independence throughout the major conflicts of the twentieth century. While integrating itself to the free world, Switzerland was reluctant to join any international organization. It did not join the United Nations or the European Economic Community. It rather participated in a free trade agreement with Austria and the Scandinavian nations (EFTA). Only recently did Switzerland join the Bretton Woods institutions (IMF and World Bank) in 1992 and the U.N. in 2002. It still remains outside the European Union.

Political Institutions

Swiss political institutions outlines the country emphasis on consensual decision rather than individual leadership. This comes from the fact that no king ruled Switzerland since its creation and the country is basically a federation of free landlords and bourgeois people. Switzerland’s political system is a federal democracy. The country is divided into 26 cantons that enjoy wide political and administrative autonomy. The seat of the federal government is located in Bern. The executive branch of the federal government is made up by the 7 collegial members of Federal Council headed by a President elected for 1 year. The president has few prerogatives and every ministerial decisions has to be made collegially. The Federal Council is elected by the Federal Assembly which is a bicameral legislative body made up by Council of Cantons and the National Council. The Council of Cantons is composed by 46 members chosen by their respective canton. The National Council is elected once every four years in federal election using universal suffrage among citizens above 18 years old and the proportional system of voting. Both councils can propose new legislation. The judiciary system is topped by the Federal Tribunal whose functions is limited to that of an appeal court and cannot challenge the constitutionality of a law enacted by the Federal Assembly. However, any newly voted legislation is submitted to approval by referendum when fifty thousand signatures against it are collected through the country. The referendum is a widely used mechanism in Switzerland. It allows popular opinion to check the power of the executive and legislative branch. The Swiss legal system owes much to the Civil Code. The main political parties are the Swiss People’s Party (SVP), the Social Democratic Party (SP), the Free Democratic Party (FDP), and the Christian Democratic Party (CVP). The SVP is a populist right wing party with strong support in German speaking rural areas while the SP is a socialist party that tends to be more extreme than the average left wing movement in Europe. The FDP is a moderate, right-of-center party with a pro-business stance while the declining CVP is a conservative party with strong support from Catholics. The party most represented in the Federal Assembly is the SVP, followed by the SP. The current president of the Federal Council is Christoph Blocher (SVP) who strongly advocates for a drastic reduction in federal spending and for limiting the number of immigrants admitted to the country. The ministers of Economic Affairs and of Foreign Affairs are Joseph Deiss (CVP) and Micheline Calmy-Rey (SP) respectively. The current political agenda tends to focus on reduction in government spending and a slower integration to the European Union.

International Relations

Although not a member of the European Union or NATO, Switzerland is a member of some of the most important organizations operating at a European scale, such as the European Tree Trade Agreement (EFTA, which includes Norway, Iceland, and Liechtenstein), the OSCE (security), and some important scientific cooperation agreements like ESA (space) and CERN (nuclear research). The EFTA is the only significant regional multilateral structure the Swiss are involved in. Switzerland is above all actively involved in many worldwide organizations, including the United Nations and its agencies (UNESCO, FAO, UNHCR, WHO, etc…), the OECD, the G-10 (central banks), the BIS (banking), the IMF, the World Bank, the Paris Club (debt rescheduling), and the World Trade Organization (WTO). The Swiss are much more active in economic or trade organizations than in political ones that might mitigate their sovereignty.

Relationship between Switzerland and Canada dates back to the seventeenth century when Swiss colonists settled in eastern Quebec. Formal relationship began in 1875 with the opening of a Swiss consulate in Montreal. However, only in 1957 did Canada and Switzerland officially exchange ambassadors. Nowadays, official relationship between the two countries is considered excellent and without any significant dispute. Regular high-level contacts are being held between the two countries whether in a bilateral or a multilateral setting. Bilateral agreements include the mutual validation of trials in pharmaceutical, medical, and telecom materials (signed in 1998). An agreement on double taxation was also signed in 1997. Although the scope of this relationship is limited, it is articulated by the involvement of both nations in the International Forum of Federations and in the Human Security Network which helped setting the ground for the signature of the Convention for the Elimination of Landmines. Both nations are also actively involved in the Francophonie, the organization of French speaking nations. Beyond institutional relations, as many as 35,000 Swiss citizens now live in Canada, making it the home of the fifth largest Swiss community abroad.

Economy

Switzerland is one of the most developed nations in the world. In 2003, its GDP per head is US$ 35,732 which make it the first in Europe and the third in the world. When adjusted to the Power Purchasing Parity, this figure stands at US$ 32,700. This is explained by the high cost of living in that country. This exceptional performance in per capita income allows the 7.5 million Swiss to generate an annual GDP of 268 billion dollars in 2003. This enables Switzerland to rank in the twentieth place worldwide in terms of absolute GDP. This is the only country with less than 10 millions people to rank among the top twenty worldwide.

In 2003, agriculture contributed 1.5% to the Swiss GDP while industry accounted for 34% of it. The remaining 64.5% is generated by the service sector. The agriculture sector, traditionally strong in dairy products, supply about 60% of the national consumption and its production is subsidized at around 70%. This makes Swiss agriculture one of the most subsidized in the world, above the EU (40%), the U.S. (18%) and even Japan (58%). Switzerland’s most significant industrial output are provided by machinery, precision equipment, chemicals, pharmaceuticals, metals and electronics. The country enjoys a worldwide reputation for the quality of its industrial and manufacturing productions. The service sector is dominated by a very efficient financial services industry. This includes banking and insurance. In these areas, Swiss companies, such as UBS, Credit Suisse, and Winterthur achieved worldwide recognition. Financial services is considered a strategic sector in Switzerland and heavily influences the country’s economic policies. In addition to the financial sector, engineering, tourism, and consulting play a significant role in the economy. Swiss firms in these sectors possess a unique international expertise that allows them to be very competitive in many parts of the world, including Europe, the Far East, Africa, and the Mediterranean basin.

The GDP growth rate has averaged 0% between 1991 and 1997. Afterwards, Swiss’ growth picked up and peaked at 3% in 2000. In 2001, it dropped to 0.9% and in 2002, to 0.1%. The year 2003 actually saw a decline of the nation’s GDP by 0.5%. Swiss’ GDP is expected to have recovered in 2004 with a 1.7% estimated growth rate. For 2005, the growth rate is expected to remain constant at 1.7% In the last 15 years, Switzerland had one of the weakest GDP growth among OECD nations. This is partly explained by its close integration with the Euro zone, its main export market, which had an anemic average growth. This modest growth has also its roots in productivity growth, as measured in terms of GDP per hours worked, which stalled at 1.4% between 1994 and 2003 in Switzerland. This same figure for the EU and the OECD is 1.7% and 2.0% respectively. With a rather strong investment rate of 20.1% of the GDP in 2003, Switzerland still ranks 14 worldwide although it struggles to increase its competitiveness. Switzerland’s national saving rate was 32.3% in 2003 while households saving rate stood at 18.6% of their disposable income. The public deficit takes away a significant portion of national savings. The national public debt represented 57% of the GDP and the public deficit stood at 2.8% of the GDP in 2004. In the same year, government expenditures represented 51.6% of the GDP while its revenues stood at 48.6% of the GDP. These figures outline the excessive importance of public spending in the economy. In spite of public spending pressure, the inflation rate remained low at 0.2% in 2004 but is set to increase to 0.9% in 2005. That will still be half of the expected inflation rate of 1.8% in the EU for 2005. Over the past decade, Switzerland has experienced a major recession and an uncertain recovery. These data affect the unemployment rate which reached 4.1% in 2004, the highest level in 20 years. This is still considerably less than the Euro zone average, which stands at 9% but significantly more that what it used to be 10 years ago where it was below 2.5%. The structure of workforce distribution in the economy might explain some of these structural problems. 26.3% of it is employed in industry while 69.1% is active in the service sector. The heavily subsidized agriculture sector still employs 4.6% of the total workforce. Swiss productivity could be greatly improved if internal trade regulations were lifted. The important subsidies given to agricultural producers distorts resource allocation is Switzerland. Public utilities, such as water supply, railroads, and power distribution are also heavily regulated and more expensive than in most of European nations. Stiff regulation (often at cantonal level) for a wide range of professional services impedes the free flow of service workers within Switzerland. For instance, regulations make it easier for a German lawyer to work in France than for his Swiss colleague from Zurich to practice in Geneva. The worrying trend shown by the important increase of public spending and deficit since the early nineties contributes significantly to the decrease in Swiss competitiveness. However, Switzerland enjoys one of the most sophisticated business regulations and investments are well protected by a well defined commercial law. Swiss formal institutions are remarkably solid and generally provide a high level of transparency. As a result Switzerland is one of the least corrupt nations in the world. This was evidenced by Transparency International annual report which ranked Switzerland as the eighth least corrupt nation in the world in 2003.

International Trade

Switzerland’s has traditionally maintained an equilibrium in its balance of trade. Swiss exports totaled US$ 110 billion in 2003 (41% of GDP) while its imports amounted to US$ 102 billion (38% of GDP). The resulting trade surplus was US$ 8 billion. In 2002, the surplus was US$ 4 billion and in 2001 there was a deficit of US$ 2 billion. Swiss trade balance alternates moderate surplus with moderate deficits. Swiss exports grew by 8.91% in 2003. In 2002, the value of Swiss exports decreased by 1.42% after increasing by 1.82% in 2001 and 12.67% in 2000. Swiss imports follow a similar trend. Imports grew by 5.68% in 2003, following a 8.24% decrease in 2002 which was preceded by a 1.78% increase in 2001. Swiss imports and exports grew dramatically since 1995 when the value of both amounted roughly one-third less than in 2005. That growth is less spectacular since 2000.

Swiss exports are mainly made up by machinery and electronics (27.3%), chemicals and pharmaceuticals (26.4%), precision instruments and watches (15.1%), and metal products (8.0%). Its main markets for exports are Germany (20.8%), the United States (11.3%), France (8.7%), Italy (8.3%), the United Kingdom (5%), and Japan (4%). The EU absorbs up to 70% of Swiss total exports. Swiss most important import items include chemicals and pharmaceuticals (21.0%), machinery and electronics (20.0%), vehicles (9.9%), food and agricultural products (7.6%), and metal products (7.2%). Its main suppliers are Germany (32.3%), France (10.8%), Italy (10.7%), US (5.5%), and the Netherlands (5.0%). In 2003, Canada’s imports from Switzerland totaled $CAN 490 million, which represents less than 1% of both the Canadian exports and Swiss imports. That figure is up 11% compared to 2002. The main components of Canadian exports to Switzerland are vehicles (including aircraft), which amounted to 21% of exports, machinery (18%), agricultural products (15%), and paper products (14%).

Swiss exports to Canada amounted to $CAN 1,416 billion in 2003. This represented an 8% decrease from the previous year. Canadian imports from Switzerland were mostly made up of pharmaceuticals (40%), machinery (18%, including precision equipment), and chemical products (16%). Canada absorbs 1.1% of Swiss exports. Despite cyclical variations bilateral trade between Canada and Switzerland tended to remain constant over the last five years. Switzerland ranks 18th among US trading partners. The value of Swiss exports to the US was US$ 11.8 billion in 2002 while that of its imports was US$ 5.9 billion. The US are Switzerland’s fourth supplier and second export market. Swiss trade with Mexico remains marginal.