European Union & Switzerland’s Banking Union

Question: Read the article: Charlemagne. (2014). Hail Helvetia. The Economist, 412 (8896), 39. Then, write an essay in your own words to explain the key message(s) from this article and the key lesson(s) that you draw from it. Answer: Introduction: Euro Zone is the worlds largest economic region with its currency as euro which is considered as the most liquid currency when compared with other currencies of the world. The currency of this region is developing and is widely accepted over a period of time and is taking prominent position in the various central banks of the world. It is a geographic and economic region that is composed of member countries of European Union those have adopted euro as their national currency. Here the topic of discussion is an article Some Swiss lessons for the euro zone. This article discusses about the euro crisis and how is it affecting the Germanic north and Latin south whose rift is not filled yet with the efforts of integration made since decades. Various economists and scientists have failed to solve this puzzle of crisis and each has their own say about the causes of this crisis between countries. Some of the causes suggested are patterns of industrialization, literacy and Catholic and protestant attitudes of sin and redemption. Belgium offers a sign of worry towards euro as it is becoming a dysfunctional body with its over bureaucratic policies which involves confusing and complex governments and sub governments and a situation of critical and bitter indignation had aroused between French speaking south and subsiding north (Hulme, 2009). Despite all these conditions Switzerland which had faced all linguistic and religious splits is bearing the fruits of democracy with prosperity and contentment. It is neither a part of EU nor of Euro zones ec onomic area. Switzerland is dealing with Brussels with many bilateral deals and they had a fear of being thrashed by Swiss referendum on priority basis as because of that the free movement of workers was curtailed. EU had been always been inspired by America which is a continental federation but the patterns of Swiss of bringing Catholics and Protestants together would have been studied. They even brought speakers of Germany, France and Rome together so that they can work for improving the situation. The common stereotype was broken by Swiss when the French- speaking cantons that are rich such as Geneva and Vaud paid for poor Germans like for Uri. Swiss are offering services for everyone such as high standard of living as that of Scandinavians, fiscal rigor like that of Germany , Irish tax competition, British cussedness about EU, solidarity transfers styles adopted from model of France and Luxemburg like patterns used for bank secrecy. Switzerland is having its own currency union that is successful and is without the superior orders from EU that involves everything such as deficits to labor policy, pensions and investments. It provides a lesson to all that a feasible and meaningful doctrine of sub-sidiarity that states that all the essential tasks should be performed by the government on initial levels (Thomson, 2009). Economist of Germany had also pointed out the enforced mechanism of no-bail-out-rule of Switzerland for controlling public spending. The model of Switzerland has remarked a great thing of how to be kept working in times of crisis that is by paying back debts in good times with running surpluses creates a wider scope to respond to crisis. But euro zone is putting too much austerity on troubled countries. Banking union of Switzerland uses European Unions term that is smaller the terms followed by euro zone through which it covers three banks that are operating on systematic basis (Arestis, 2001). The p owers have be given up to confederation piecemeal by Cantons for its rights of raising taxes that are reviewed periodically and are delegated to people working on lower levels of the government. The rules for a balanced budget and voters have been drafted by Cantons as they were forced by voters for the same confederations. Exceptional spending can be easily approved by Confederations for example it saved USB bank which is a big bank. With all the discussion done till yet it is clear that confederation provides a guarantee to the system. At the time of crisis in 2008 when financial crisis were at its height the interest rates slashed down by Swiss National Bank was more than it was done by European Central bank. As it was not comfortable about buying debts but had foreign assets in huge quantities for holding Swiss franc (Wallace, 2010). The main difference between Switzerlands baking union and EU is that Switzerland calls itself a confederation although it is a federation on the other hand Euro is a currency that is pretended as federal. It is having 18 national economic and fiscal policies sets. The confederal budget is 11% of GDP which is more than that of EU which is just 1% of GDP. Swiss equalization fund can be a learning example for EU because it has a system of transfers which is transparent that allows transfers from richer regions to poorer regions. This is done by reckoning payments annually according to tax base and by providing lump sum amounts instead of semi- hidden subsidies (Gabel, 2009). The freedom of action of Cantons is preserved by the system and encourages tax competition. The economy as one absorbed the imbalances between Swiss cantons and shocks that affected many others also. Conclusion: The whole discussion proves that Switzerland is doing better than EU and after centuries of political unity had passed the Swiss monetary union attained its position whereas a reverse trend was followed by euro. The political scenario of Switzerland is full of arguments about monetary matters. Even at times referendums played a role of social divisions and stroked an anti-foreigner populism. Any condition that is feasible for one country may not be feasible for the other as for most of the EU countries neutrality is not an option. Through a no-bail-out-rule for restoring the market discipline, more feasible fiscal federalism, a thought of single market and a more thoughtful budget of EU by Switzerland will help in the establishment of system that requires less bossy interference of Brussels. The system will be termed as more accountable with its own resources and with clearly defined tasks to be performed at every level of the government. Transcended political identity will be establ ished by direct democracy. EU must take steps to improve its condition and policies which are prevailing in the market so that it can retain its position of being the worlds largest economic region else it will lose its position and credibility. Economic policies must be framed in such a manner that they are suitable for the maximum number of its members and even for those who want to avail the serves of the group or even can be its potential members. References: Arrests, P., McCauley, K., Sawyer, M. (2001). Commentary. An alternative stability pact for the European Union.Cambridge Journal of Economics,25(1), 113-130. Gabel, M. J. (2009).Interests and integration: Market liberalization, public opinion, and European Union. University of Michigan Press. Hulme, P. E., Pyek, P., Nentwig, W., Vil, M. (2009). Will threat of biological invasions unite the European Union.Science,324(5923), 40-41. Thomson, S., Foubister, T., Mossialos, E. (2009).Financing health care in the European Union: challenges and policy responses. World Health Organization. Wallace, H., Pollack, M. A., Young, A. R. (Eds.). (2010).Policy-making in the European Union. Oxford university press.