Inside Europe, outside EMU – Lessons and Outlook
Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank
British-Swiss Chamber of Commerce, Geneva, 23 April 2004, 23.04.2004
Complete textPDF (240 KB)
The United Kingdom and Switzerland are both part of geographical Europe but neither is a member of the European Monetary Union (EMU). Both are nations with long-standing traditions of global integration and free trade and rely fundamentally on multilateral contractual frameworks such as the one offered by the World Trade Organization (WTO). The position of both countries with respect to a possible EMU accession is shaped by the two countries’ differing legal, political and economic traditions.
The UK managed to initiate significant domestic reforms after the crisis of the late 70s. It achieved admirable growth in recent years and is therefore reluctant to join the less dynamic EMU area. By contrast, Switzerland has never experienced a deep crisis in recent history. Structural reforms remained gradual and were conducted only in some specific sectors, with the labour market as an outstanding example.
A lesson that can be drawn from the UK experience is that it would be wrong for Switzerland to advocate an EMU accession in order to facilitate the implementation of unpopular structural reforms. With EMU membership, it would lose its monetary policy and at least to some extent its fiscal policy lever. With these compensating mechanisms no longer available, the cost of structural economic reform would be likely to rise. Moreover, the interest rate bonus gained at least partly through a long period of independent and successful monetary policy would be lost. It is therefore a mistake to link the question of domestic economic reform to EMU accession. If Switzerland is serious about boosting its growth potential and thereby safeguarding its tradition of broad social and welfare programs, it has no other alternative than tackling economic reforms directly and independently.