SWITZERLAND EU
European Union (EU)
The European Union is a union of twenty-five independent states based on the European Communities and founded to enhance political, economic, and social co-operation. This union is formerly known as European Community (EC) or European Economic Community (EEC) which started with only six members in 1958 and grew to 25 in 2004.
Sustainable Development and the European Union (EU)
Sustainable development is deeply rooted in the development of the European Union due to the previous commitments of the different member states to international conventions addressing sustainable development as well as the common global issues of global warming and its various effects such as flooding and change in weather patterns that all EU members face. Sustainable development as a principle surrounding the creation of the EU is fitting because the achievement of this encompassing goal requires interstate cooperation and this is achieved through the EU venue. Sustainable development issues such as the limiting greenhouse gas emissions, maintaining biodiversity and preserving forest resources are best achieved through cooperation. (., 1997; , 1997)
The Treaty on European Union or the Maastricht Treaty 1992 led to the creation of the European Union. Part of the objectives of the European Union contained in the treaty is the implementation of sustainable development in its member states. Sustainable development is an underlying principle in the creation of the European Union so that its policies, strategies and actions consider the balance between economic, social and environmental factors [Figure 1].
As the venue for the European action to achieve sustainable development the EU showed its determination to implement sustainable development in compliance with international law when it set out to develop sustainable plans embodying the objectives of the EU and determine the various areas where sustainable development is to be implemented as well determine the various strategies of achieving sustainable development in the context of the particular economic, social and environmental situation of every EU member. (., 1997)
The European Union initially established its commitment to the achievement of sustainable development in mid-2001. It was during this time that the Gothenburg European Council approved the EU Sustainable Development Strategy. In 2002, the European Commission issued a communication covering the external element of sustainable development that was endorsed by Barcelona European Council. These comprised the complete EU Sustainable Development Plan. It was determined that the sustainable development strategy would be reviewed at the commencement in office of the Commissioner or every four years. In the 2005 review, it was determined that there is a need to adopt a ore comprehensive approach focusing on economic structural changes to achieve a production and consumption level that meets the objectives set for sustainable development (, 2005).
The EU’s approach to sustainable development is expressed in four components. First is the broad vision determining what is sustainable, which is the mutually reinforcing status of economic, social and environmental factors. The strategy on sustainable development envisions the region as having a more prosperous and just society living the promise of clean, safe and healthy environment. Second is the improvement in the manner of creating policies to arrive at an informed policy decision-making through the development of clear and understandable policies explaining to the people about the goals, issues and the trade-offs involved in the policy. Third is the identification of trends proven as not sustainable such as climate change, energy use, public health threats, poverty, ageing societies, existing natural resource management strategies, and land use. Fourth is the integration of international goals to the EU sustainable development strategy in compliance with international law. (, 2005)
It is clear that the creation of the European Union is tied to sustainable development and the EU is pulling its efforts to live up to this principle as observed in the development and regular review of the sustainable development plan for Europe. As basis for the development of the sustainable development plan, environmental laws were enacted through various agreements. The Treaty of Amsterdam that became effective in 1999, provided for an encompassing perspective on sustainable development. In recognition of the fact that the achievement of the goals of sustainable development transcends borders led to the recognition of the European Union of its responsibility to look into the policies of the members of the European community to determine and address any incompatibilities with sustainable development. The Treaty of Amsterdam direct EU members to comply with the standards set for sustainable development. In 2001, the Treaty of Nice was enacted to provide a process for policy and decision-making of the EU members, covering a wide range of issues including environmental legislations, due to the recognition of the expansion of its membership and the rise of new issues (, 2005).
Why Switzerland won’t join the European Union
Joining the EU can enhance financial development, which can in turn affect growth via three channels ( 1993): (1) it can raise the fraction of savings funneled to investment, reducing the costs of financial intermediation; (2) it may improve the allocation of resources across investment projects, thus increasing the social marginal productivity of capital; and (3) it can influence households’ saving rate.
Despite the fact that the first two cases the effect is generally positive, Switzerland believes that the third one is vague. Financial development may also reduce saving, and thereby growth. As capital markets develop, households gain better insurance against endowment shocks and better diversification of rate-of-return risk, consumer credit becomes more readily and cheaply available, and the wedge between lending and borrowing rates shrinks. In connection with this case, Switzerland believes that the effect on saving and growth is ambiguous. Nevertheless, domestic investment is unlikely to affect the growth rate via changes in the saving rate especially in economies open to capital flows. It is much more likely to do so either via the first and second channel, that is, by reducing the cost of financial intermediation or by improving the allocation of capital across projects.
Switzerland also believes that financial development efforts promised by EU cannot enhance growth by reducing the cost of financial intermediation. First, financial development cannot increase the degree of competition in financial markets and thereby curtail monopoly rents to the extent that it is associated with the entry or creation of new intermediaries. The interest rate margin charged by the banks will tend to be compressed below the level that incumbents would have chosen otherwise, and the availability of credit will correspondingly tend to increase. Secondly, more developed financial systems cannot reduce the cost of financial intermediation for the reason that they can deal better with the problems of asymmetric information that are pervasive in financial markets. To further illustrate, financial systems in Switzerland may vary in their ability to prevent borrowers from using loans to their own private benefit instead of investing in productive assets, or in their ability to control the risks taken by the borrowers. Close bank relationships or efficient information production by large investors in Switzerland may mitigate such opportunistic behavior by borrowers, and in this manner allow intermediaries to require a lower return and/or increase funding.
Switzerland also does not believe in the concept of financial development to growth through the allocation of capital across alternative investment projects. They give their reasons. First, by facilitating the trading, hedging and pooling of risks there is no guarantee that a more developed financial sector will allow investors to fund highly profitable, and risky investment opportunities will still be abundant. Secondly, the EU cannot assure that funds will be allocated to more profitable projects, and the productivity of the economy will become unstable to the extent that more sophisticated intermediaries are more effective in distinguishing good and bad projects.
Another important issue that Switzerland raises is whether financial development has mainly “level effects” that is to say, allows countries to raise long run per capita output – or rather affects steady state growth. Both outcomes are possible accounting to principle depending on the nature of the growth process. Financial development and financial reform would allow countries to grow permanently faster in endogenous models. While in more traditional models with exogenously-driven technological progress, financial development would grant a transitory increase in the economy’s growth rate and a permanent increase in per-capita GDP by allowing more investment and capital accumulation.
For all of the above-stated reasons, the current consensus view among the people of Switzerland is that financial development will only inhibit investment and growth, even though opinions differ considerably about the quantitative importance of this relationship. Undeniably, a large and growing literature has documented a robust correlation between finance and growth. It shows that countries with more developed financial markets grow faster. In going beyond this mere correlation, on needs to establish if there is a causal relationship running from financial development to growth according to (1969). For this reason, any empirical analysis must control carefully for the potential reverse causation from growth to financial development. To this purpose, researchers have used economic techniques and identification strategies of increasing sophistication. The weight of the evidence is overwhelming nowadays in favor of the view that financial development is capable of inhibiting economic growth. Events that affect the degree of financial development of Switzerland, such as financial integration, may therefore be important for their subsequent economic performance. So unless EU can guarantee that these provisions can be guaranteed, Switzerland will remain outside the control of the European Union.
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Credit:ivythesis.typepad.com
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