echo-interview with Heinz Karrer, Chairman of the Board of Directors of economiesuisse, Swiss Business Federation

elipsLife echo: Mr Karrer, economiesuisse is the umbrella organisation of the Swiss business sector, representing around 100,000 companies with two million employees. What is its core task?

Heinz Karrer: We represent the interests of the business sector in the political process. Our goal is to foster the best possible environment for Swiss companies and for Switzerland as a business hub.

As a non-EU member, Switzerland has a rather isolated position in Europe, particularly since the adoption of tighter immigration controls. How much isolation can the country handle, or put in another way: how much does the country need to open up?

I wouldn't say the country is isolated. In fact, it's the world's most networked country, even as a non-EU member. Switzerland ranks 94th in the world measured by the number of inhabitants. But in economic terms, it ranks 19th. Of our exports, 56% go to EU countries, and 75% of all imports come from them. This highlights the importance of our relationship with this group of nations. We call this relationship the "bilateral agreements". And up to now, they have worked very well and we want them to continue. The second pillar is the free trade agreements with other non-EU countries. For example, Federal Councillor Schneider-Ammann has set an important milestone in this connection with Switzerland's new free trade agreement with China.

The abandonment of the euro peg caused a stir in many business circles. What's the sentiment in your Federation about this move one month after the decision?

When talking about the scrapping of the euro floor, we have to look a bit further into the past. We come from a time when we still paid CHF 1.60 for a euro. In other words, the Swiss economy has had to face many challenges in the past five years. Adjustments were needed, at the structural as well as the corporate levels. The pegged exchange afforded security when it came to exchange rate fluctuations. All of this ended suddenly on 15 January with exchange rates inevitably going through the roof. This was a shock for many companies, in particular those that mainly export to the eurozone. For many it will be very difficult to master the current exchange rate situation. Of course, this is not true for the economy as a whole, as companies that are broadly diversified in geographic terms are less affected. But every firm is affected to some extent, at least. There is also uncertainty about where the exchange rate will finally stabilise. From our point of view, this is a long-term issue characterised by much volatility. Finding the right way to handle the situation is going to be tricky.

Did some businesses rely too much on the euro peg floor?

I wouldn't say that was the case. I should point out that the Central Bank had always made it crystal clear that the pegged exchange rate was not going to be a permanent measure. Everybody knew this. The only question was when the peg would be abandoned.

After the euro peg was scrapped, the business associations demanded the introduction of cost-cutting measures. Some companies reacted by increasing working hours, and there were also rumours of lower salaries. Isn't this going to undermine good labour relations?

The problem is a cost shock rather than a lack of demand. It has to be down to each individual company to decide for itself which measures it deems suitable to address this challenge. When it comes to adjustments to employees' working conditions, the Federal Council introduced an immediate measure in the form of short-time working. Many companies are trying to improve their flexibility by adjusting working hours. But as collective labour agreements are in force in many sectors, this will mean sitting down with employee representatives. The same applies to salaries. Healthy labour relations are very important to us since it is one of the advantages Switzerland offers as a business location.

What are the priorities when it comes to coping with the strong Swiss franc, in your view?

As I've already pointed out, in the short term, companies will have to work out their own survival strategies. This will also include negotiating with all affected stakeholders. In the long term, and this is where economiesuisse comes in, it is shaping the right kind of general business environment which must take priority. And this has to do taking measures to maintaining Switzerland's international competitiveness as a business centre. I am thinking, for example, of the current revision of company law which might herald stricter regulations again. I believe we should always take a hard look at the benefits new regulations are supposed to generate.

How important are the bilateral agreements with the EU?

Given the economic importance of our relationships with the EU, the bilateral agreements are the most important issue overall. Yes, we have to respect the will of the voters regarding management of immigration. But at the same time, we also need to secure the bilateral agreements. Even the backers of stricter immigration controls concede that the bilateral agreements have to be protected. We must do everything possible to ensure that this happens.

Which factors currently favour Switzerland as a business location?

There are many. When you ask people why they chose Switzerland as their business location, you hear answers such as good governance and financial and political stability – even though we Swiss might see that a little differently now. The education system and the country's culture of innovation are also cited. Switzerland is still a very attractive business location, there's no doubt it. All the more reason, therefore, to do everything we can to make sure the country remains attractive, both tomorrow and into the foreseeable future.

You used to be a top-class handball player. Did your experience as an athlete help you achieve entrepreneurial success later in life?

I am sure there are parallels between the two worlds. I believe that entrepreneurial success is based on a sense of personal responsibility, the willingness to perform, openness and entrepreneurial freedom. Switzerland has always been synonymous with these values. Indeed, our society and business environment were shaped, and our constitution and laws written, to reflect these values. We are an export nation which has always maintained trade relationships with other countries. The prerequisites for entrepreneurial success are also part and parcel of our dual education system and good infrastructure. It is the combination of these factors that makes Switzerland a model of success.

What importance do you think is given to retirement provision in a rich country such as Switzerland?

Retirement provision is one of the most important topics in this country. The AVG 2020 (reform of the retirement system) has already begun. It has to be possible to secure a financially sustainable and dignified retirement for all citizens. The major challenge along this road is the ageing population.

Switzerland has a well developed retirement provision system, the three-pillar system that combines state and private retirement provision. The first and second pillars, however, are facing difficulties. Will the three-pillar system prove its worth in future?

Our three-pillar system is immensely important. We must do everything possible to retain this model. The current situation for the AHV, Switzerland's pension system, is relatively good, but we know that serious funding shortfalls are on the cards. According to the Federal Council's estimates, the AHV will experience a funding shortfall of around CHF 9 billion per year by 2030. Federal Councillor Berset presented what we believe is a good analysis and forecast a possible trend. We have tabled our proposals for discussion and believe that the retirement age will have to be progressively raised. The first step will be the harmonisation of the retirement age for men and women. Moderate additional funding in the form of a VAT increase will also be necessary. We know that the parameters for the second pillar have changed, and this fact should be taken into consideration. It is particularly important to adjust the conversion rate. As the goal is to protect the current level of pensions, moderate compensation measures are needed. If this should work, we are confident that the three-pillar model can be maintained.

Pension funds find themselves in stormy waters, mostly because of low interest rates and the greying of the population. Will the pension funds – and therefore all of us – become victims of unfundable benefit promises?

Benefit promises have to take account of changing parameters, and some adjustments will probably have to be made. If it becomes necessary, the government should introduce a balanced package of measures based on democratically supported solutions. This will have to be discussed by parliament in the coming months and years. And then the voters will have the final say of course.

With the AVG 2020 (reform of the retirement system), the options for withdrawing a lump sum from the retirement account to finance residential property or start an own business will be reduced. Does this step by the state erode the trust of the insured, or do you think that this regulation is necessary?

We should ask if it was the right thing to do for the state to establish incentives to reroute personal retirement assets to the real estate sector. I think it is still too early to talk about individual measures. The challenge should be approached and accepted holistically. Acceptance of the fact that we will have to start working longer is at the forefront. We also need compensation measures and additional funding. The packages of measures that are likely to meet with acceptance, both in parliament and in a national referendum, only become important in a second stage. We have already had frustrating experiences where revision programmes failed at the ballot box. This is not just about the right or wrong answer to this question. We also need a solution that is accepted by the majority of the population.

Do you think pensioners should be involved in the rehabilitation of the pension system – or are vested pension rights taboo?

We have seen major changes in the past 50 or 60 years. In the middle of the last century there were still six employees for each pensioner, but today there are only three. In 20 to 25 years there will only be two employees per pensioner. This development highlights the enormity of the challenge. Modest additional funding will probably be needed. If this is done by increasing the value added tax, the pensioners will automatically participate and help to stabilise the pension system. Participation in this form is acceptable as it adds some balance and seems sensible.