Switzerland: In the EU or Not?

Switzerland: In the European Union (EU) or Not?

So the big news on Friday, June 24 while we were in Zurich, Switzerland was the vote by the people of the United Kingdom (UK) to leave the European Union.  I learned about the result of the vote while presenting a seminar at ETH University in Zurich titled, “Valuation of Ecosystem Services Provided by Wetlands and Rivers in the United States and Europe” (you all didn’t think I was just playing over here in Europe, did you?).  At the beginning of the seminar I was talking about United States (US), European Union (EU) and other policies at various levels of government that provide incentives and directives for restoring wetlands and rivers back to a more natural state.

The benefits of restoring wetlands and rivers include re-establishing healthy functioning wetland and rivers ecosystems that provide valuable goods and services to people such as clean drinking water, habitat for commercially valuable fish species, and opportunities for recreational swimming, fishing, boating and wildlife observation – how to put a dollar values on these kind of natural resource and environmental goods and services has been the stuff of my university research for the past 30 years (and there is still much to learn about the topic)!

Anyway, when I started talking about EU policies for restoring and protecting wetlands and rivers in Europe, it reminded me of Brexit and I asked the seminar audience about the result of the referendum.  A bunch of people responded with just one word, “out”!  I guess I was not as shocked as many other people around the world, mainly because I’ve been around long enough to know that we never can predict human behavior with certainty.

In fact, in economics we are taught that when it comes to predicting human behavior (for example, predicting consumer behavior in the marketplace), uncertainty is the rule rather than the exception – that is why there are not more rich economists (including yours truly) since if we could be more certain about predicting human behavior, we could all make a lot of money, say, in the stock market.

Because this blog is a “partisan-politics free zone” I will not address the political issues swirling around the Brexit vote – I, of course, have my own personal opinions which I would be happy to chat with you about over coffee or a beer outside of this Virtual Chautauqua – I tell my students the same thing at the University of Georgia when they ask in class about my personal opinion of some political issue that is not really relevant to what I am teaching (expect for the beer part)!

So, wearing my professor of economics hat, I’ll make few observations about economic implications of Brexit.  One obvious implication is changes in international currency exchange rates.  On Friday I was having lunch with my ETH University hosts who commented that they suddenly felt wealthier – why?  Because Switzerland has never been part of the EU (they have a “neutral” international stance) and their currency is not the “single market” Euro (the official common currency for 19 EU member countries) – it has remained the Swiss Franc.

On Friday the value of the Swiss Frank went up relative to the Euro, meaning that the purchasing power of my ETH hosts who are paid in Swiss Frances went up relative to the Euro – in other words, one of their Swiss Francs can now buy more goods and services in 19 of the 28 EU member countries that use the Euro as their official currency – these 19 countries are: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, and Spain.

Thus, it is now a good time for Swiss citizens to take a holiday in neighboring Austria or Germany or one of the other 19 EU member countries where the Euro is the official currency.  On the other hand, it has now become more expensive for citizens of these 19 EU member countries to travel to Switzerland for a holiday.  On another other hand, it is probably now cheaper for everyone to take a holiday in the United Kingdom as the value of the British pound has gone down – however, by the time you read this blog, it may have gone up again.  That’s another thing about the economics of things – it’s dynamic and always changing.

The above, albeit very simplistic examples, illustrate a fundamental principle in economics that professors beat economics students with – any action by anyone involves tradeoffs.  In fact, economics is sometimes defined as the “study of tradeoffs”.  Thus, just like the Brexit vote will make international vacations or holidays more less expensive for some people and more expensive for others (depending on where you live and where you are traveling), the exit of the UK from the EU will have many economic tradeoffs over the years – some people will gain and some will lose.  In other words, every policy change involves economic benefits and costs.

Because economics is dynamic and uncertain, at the end of the day (or night), no one really knows for sure how Brexit is going to impact the UK, EU, US and rest of the world over time.  We’ll have to wait and see!  In the meantime, I am going to have another beer since I am in Austria now and the price of a beer has gone down for me, at least for a while!