Breaking the Banks Switzerland Ponders a Future of Clean Money
Part 2: Cracks in the Swiss Fortress
Of course, exaggeration has always been Ziegler's trademark. It isn't quite true to say that nothing has changed. The first cracks started appearing in the Swiss fortress in the 1980s. A period of self-examination began after the scandal surrounding the fortune of the late Philippine dictator Ferdinand Marcos, which he had deposited in Swiss banks. Switzerland enacted a strict money-laundering law in 1997 which makes it far less attractive for potentates. During the Arab Spring, Switzerland was the first country to freeze the assets of the overthrown regimes.
The abundance of money that was being hidden in Swiss accounts to avoid paying taxes, on the other hand, was not publicly discussed in Switzerland until recently. Everyone knew that it existed, but it only became an issue when other countries started running out of money during the debt crisis. Banking secrecy has been under pressure since the end of the Cold War, but it wasn't until the crisis that the European Union, the Organization for Economic Cooperation and Development (OECD) and the United States did everything in their power to destroy it.
Fears of Job Losses
Nowadays, bankers and lobbyists seem as uncertain about the future as the rest of the country. There is talk of job loss, shrinking salaries and the "hundreds of billions of francs" that UBS says could flow out of the country in the coming years, to places like Singapore or the US state of Delaware. What does this mean?
According to the Swiss Bankers Association, Swiss banks managed about 2.7 trillion francs in foreign assets at the end of 2011. A study by financial services provider Helvea estimates that half of this money comes from EU countries and that 80 percent of it is untaxed, possibly amounting to 1 trillion francs in illicit funds. Of that total, an estimated 90 billion francs comes from Germany.
Rudolf Strahm, an economist who is critical of banks, was a Social Democratic member of the Swiss parliament in Bern for 13 years, as well as the head of the country's pricing regulatory agency. He has earned respect for his knowledge of the field, even from some of his adversaries.
Strahm sharply opposes the claim that the Swiss owe their wealth to the banks. "In 2007, the banking sector, not including insurance companies, accounted for about 8 percent of total economic output, and after the crisis it was only about 6 percent. The banks' share of economic activity is constantly overestimated."
Cultivating a Myth
Strahm tells the story of how he once spoke with a senior official at the German Finance Ministry in Berlin, back when Peer Steinbrück was finance minister. "He said to me: You Swiss subsist on the banks. He estimated that the banks make up 30 percent or more of the economy. When I corrected him and started to list other companies, like ABB, Sulzer, Nestlé and Swatch, he said: Oh, right, one doesn't really talk about that."
Strahm says that that "the banks and, with them, the political elite deliberately cultivated" the myth that the banks made Switzerland wealthy. In his book, "Why We Are So Rich," Strahm writes that the country owes much of its wealth to small and mid-sized companies, many of which are involved in the export trade.
In addition to multinational corporations, the country has small companies like Maxon Motor AG from the town of Sachseln in central Switzerland, which supplied NASA with the motors for the Mars Rover. Another outstanding example is the EMS Group, which produces fine chemicals for the world market. Switzerland ranks far ahead of Germany -- which is generally regarded as a champion exporter -- in terms of exports per capita.
Bankers and their lobbyists say that this is naïve, that the true importance of the banks is much greater, and that if all business activity that is indirectly associating with financial services is included, banking accounts for 15 or even 20 percent of economic output.
"That's nonsense," says Reiner Eichenberger, a business professor who teaches at the University of Fribourg. "If everyone applied that sort of math, retail would also account for 20 percent, and all sectors combined would account for well over 100 percent."
But it is true, Eichenberger notes, that Switzerland is much richer than its neighbors. Its per capita gross domestic product is almost twice as high as Germany's. And if purchasing power is taken into account, he adds, the Swiss are more than 15 percent better off than the Germans. The true affluence gap between the two countries, says Eichenberger, is probably somewhere between those two figures.
"The reason is simple," says Eichenberger. "Switzerland pursues better policies. It provides better incentives than France or Germany. This is because of its functioning federalism, in which cantons and municipalities are financially autonomous. A canton that gets into too much debt first has to raise its own taxes."
Eichenberger believes that Switzerland's system of direct democracy leads to thriftier policies and lower taxes, because citizens have a voice in how much money is spent. While other countries have massive debts, says Eichenberger, Switzerland's national debt is only about 49 percent of GDP, and its pension system will impose far less of a burden on government finances in the future. For this reason, he explains, future taxation will be lower while other European countries will have to raise taxes.
Too Much Power
And the illicit funds? "That's negligible," Eichenberger claims. If a trillion francs in illicit funds are deposited in Swiss bank accounts and the banks collect 1 percent a year, this amounts to a gross annual profit of 10 billion francs, and half of that after all costs are deducted. It's a lot of money for the private banks that are supported by these profits, but it's still less than 1 percent of GDP. "You can compare it with agriculture," says Eichenberger. "It doesn't make much sense economically, and yet it's politically significant."
The problem, according to Eichenberger, is that the banks have too much power. This is also the point bank critic Strahm is trying to make: "We are a true democracy, but as far as the banks are concerned, we're an oligarchy. Nothing works in politics without the support of Bahnhofstrasse," he says, referring to the Zurich street where many of Switzerland's banks, including UBS and Credit Suisse, have their headquarters. "When it wants something, the government toes the line." One of the reasons for this is that banks are the major donors for most Swiss political parties, Strahm says: "It's this political dependency, on the one hand, and the conflicts of interest among the banks, on the other, that has brought the country into its current situation."
The Americans recognized much earlier that they could achieve far more by putting a stranglehold on a bank than negotiating with the government, says Strahm. It was UBS that urged the government in Bern to allow it to provide US authorities with the names of 4,450 American tax evaders with Swiss bank accounts. Credit Suisse was looking for a similar deal before being stopped by a Swiss court. The bankers were acting out of fear of being indicted in the United States.
"Switzerland never voluntarily cleaned up the banking industry," says Strahm. "It only did so in response to external pressure, just as it did in the 1990s, when it was a question of the dormant assets of Jews."
Unshakeable as the Mountains
Banking secrecy was once as unshakeable as the mountains, and together with independence, neutrality and direct democracy, it constituted one of the fundamental elements of the Swiss national myth. It was part of the Sonderfall, Switzerland's self-perception of being a "special case" in world history. Literary scholar Peter von Matt refers to it as Switzerland's "arcadian self-representation": the feeling of being chosen, combined with the idea that God himself had given Switzerland its mountains for its protection.
"The old national anthem called it a 'wall bestowed by God,' even though Switzerland isn't actually located within a circle of mountains and is actually quite vulnerable because it is located around the mountains," writes von Matt. In an interview, he added: "In a sense, banking secrecy has to do with the fundamental fantasy of being an impregnable rock fortress."
This explains, at least in part, why Switzerland is so loath to abandon banking secrecy. It isn't just the money that's at stake, but also the country's self-image.
When banking secrecy was introduced in 1934, it was intended to protect Jewish assets, or at least according to the official explanation offered by bankers for a long time. But Switzerland had already developed into a refuge for assets after World War I. In World War II, it became a financial hub for all sides in the conflict. This guaranteed its survival, but it also subjected Switzerland to heavy criticism later on. The German Reich obtained hard currency in return for gold, and the Jews used Swiss banks as a safe haven for their assets. In the Cold War, Switzerland developed into the world market leader in international private asset management.
- Part 1: Switzerland Ponders a Future of Clean Money
- Part 2: Cracks in the Swiss Fortress
- Part 3: Dismantling Banking Secrecy
© SPIEGEL ONLINE 2012
All Rights Reserved
Reproduction only allowed with the permission of SPIEGELnet GmbH