EU-Swiss relations start to unravel

Good morning and welcome to Europe Express.

Big news broke yesterday afternoon when the Swiss government pulled the plug on negotiations over the stalled EU-Swiss framework agreement.

The plight of sectors such as the medical device industry, which we flagged yesterday, seems to have made no difference in convincing Bern to keep talking. We will explore the consequences of this Brexit-esque moment and ask if the two sides can limit the damage.

Also, as on every Thursday, we bring you a profile of someone worth watching. This week, it is Gergely Karacsony, the mayor of Budapest, who has taken on the daunting task of challenging Prime Minister Viktor Orban in next year’s Hungarian elections. More on him below.

Swiss dominoes fall

Brussels has long viewed its labyrinthine web of agreements with Switzerland with profound frustration, which explains its laborious efforts to convince Bern to sign an overarching framework agreement to manage relations, write Sam Fleming and Mehreen Khan in Brussels.

But EU ambassadors were left to pick through the wreckage of that seven-year effort last night, after Switzerland pulled the plug on a deal citing “substantial differences” with the bloc. 

Brussels did nothing to disguise its disappointment. The EU wants to rebalance a relationship that allows Switzerland to enjoy far-reaching access to the single market while remaining outside the bloc’s formal structures. No one else enjoys the same “privileged” terms, one EU official observed.

The breakdown is a diplomatic failure for Brussels after years of intensive political engagement both by Jean-Claude Juncker, the former European Commission president, and his successor Ursula von der Leyen. 

But the Swiss are demonstrating Boris Johnson’s ability to put a positive gloss on an economic rupture (see below).

Much like the UK, the sharpest consequences are likely to be felt in Switzerland given the relative sizes of the two economies and Brussels’ ability to wield its regulatory power over neighbouring states. 

The existing network of 120 agreements governing their relationship will not suddenly disappear. But as the European Commission warned, it will begin to wither as elements become obsolete, superseded and simply fall away. 

At stake for the Swiss is co-operation across a range of essential economic sectors. For example, access to the single market for agricultural produce may be hampered as current arrangements will not automatically adapt to new EU rules. The spat is also stymieing co-operation in areas such as healthcare and electricity market integration, and will throw more doubt on Swiss participation in the EU’s prized Horizon research programme.

Another sector caught in the crossfire is medical devices, after the two sides failed to agree a deal to extend EU recognition for Swiss-made equipment such as dialysis machines and eye surgery tools that is used across Europe.

“Bit by bit, the economies will decouple,” said Georg Riekeles at the European Policy Centre think-tank. “Switzerland might have to fundamentally rethink its relationship with the EU.”

The rupture is an unwanted annoyance for Brussels but not a surprise. Bern’s rightwing government has long threatened to quit the talks. A deal would also have needed to be approved by a referendum and Ignazio Cassis, Switzerland’s foreign minister, told journalists he did not believe polling which suggested widespread popular support for it.

Ultimately, Bern seems to have chosen to walk away from the table rather than risk a defeat at the ballot box.

Chart du jour: Long road ahead for green cars

Environmentally-friendly vehicles bucked the general downward trend for trade in 2020, with exports from the EU almost doubling compared with 2019, writes David Hindley in London, who dug up these Eurostat figures for us. While the increase shows the electric vehicle market is growing, it has a long way to go until it can compete with petrol and diesel which still make up the bulk of EU car exports.

Hungary’s Mr Christmas

When Gergely Karacsony set out to become Budapest mayor in 2019, pollsters did not rate his chances highly. But the bespectacled political science lecturer overturned the odds to beat the incumbent who was backed by Viktor Orban’s ruling Fidesz party. The victory gave the beleaguered Hungarian opposition a much-needed shot in the arm, writes the FT’s central Europe correspondent James Shotter.

Karacsony is hoping to repeat the trick on the national level. The 45-year-old liberal politician has declared his intention to become the prime ministerial candidate for an alliance of six opposition parties that hopes to unseat Orban in parliamentary elections due next year. And this time, polls are turning his way. 

I would like to serve the cause of reuniting Hungary.

Karacsony is the favourite to emerge from the opposition’s primaries as their candidate, according to the polls. They also put the united opposition — which brings together Socialists, Greens, liberals and even the formerly hard-right Jobbik party — within touching distance of Fidesz, which has dominated politics for a decade.

Orban’s government has overseen rapid economic growth but it has also been accused of eroding democratic checks and balances, tightening its grip on cultural institutions and putting a squeeze on independent media groups. The changes have caused frequent clashes with the EU, culminating in so-called Article 7 disciplinary proceedings against Hungary.

Karacsony — whose surname means “Christmas” — has pitched his candidacy as a chance for a reset. “I have made this decision because I feel that my country is in big trouble,” he said as when he confirmed that he would run.

The big question is whether he can repeat his 2019 success outside of Hungary’s grand Habsburg metropolis. On the day Karacsony won the race to become mayor, Fidesz still won more votes than the opposition in municipal elections across the country.

In a bid to broaden his appeal, Karacsony launched his campaign in the village where he grew up and has directed his pitch to the “99 per cent” of less-affluent Hungarians.

Peter Kreko, director of Political Capital, the Budapest-based think-tank, said Karacsony has the best chance of the five main politicians vying to be the opposition’s prime ministerial candidate to beat Orban, pointing to his consensus-building style as the best means of combating the incumbent’s more confrontational approach.

But Kreko warned that this same style might make Karacsony’s life harder in the opposition primary this autumn. “I think he’s still the most likely candidate to win the primaries. But for some hardcore opposition voters, this political style may be a bit too soft,” he said. “So in the primaries I think other candidates with a more confrontational character . . . can have visible success as well.”

Two things to watch today

1. EU and Japan leaders tune in for a virtual summit

2. Foreign affairs ministers meet for an informal council in Lisbon

Notable, Quotable

The interest served with the reduction obligation outweighs the Shell group’s commercial interests

• Royal Dutch Shell has lost a landmark case brought by environmental campaigners. A Dutch judge ordered the company to slash its emissions more drastically than planned, in what could set a precedent for other fossil fuel companies.

• The economy ministers of France, Germany and the Netherlands have criticised proposed EU tech regulation in a paper seen by the Financial Times. They want Brussels to strengthen scrutiny of mergers, particularly when it comes to big technology companies buying start-ups. (More here)

• Italian authorities arrested three managers of a cable car company after one of its cars crashed on Sunday killing 14 passengers. (WSJ)

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