Some of these are “left-overs” from the first bilateral agreements, some are new issues which have been raised by either the EU or Switzerland. The EU wanted the adoption of anti-fraud measures and the creation of a tax system in Switzerland which would allow the EU to adopt a regime of exchange of information between tax authorities. On their side, the Swiss sought an improved cooperation in the areas of internal security and asylum policy. The negotiations on seven out of the ten issues have now been substantially completed. We hope that this second round of negotiations will be concluded this year, provided that the right balance can be struck in the overall package. You may well be asking yourselves: why doesn’t Switzerland simply join the EU instead of following the bumpy path of bilateral agreements ? The reason is that there is still no consensus in Switzerland on the question of EU membership. Winston Churchill used to say to his chauffeur: “Drive slowly. We are in a hurry”. These words could apply to Switzerland’s policy on Europe. Eleven years ago the Swiss people voted “no” to entry into the European Economic Area, because many saw this as a first step towards EU membership. Two years ago a referendum aimed at speeding up the process towards EU membership was likewise roundly rejected. Since any further moves would clearly lack political support within the country, EU membership is not on the Swiss agenda at the present time. There are many reasons for Switzerland’s scepticism.
In a boom phase such a policy will tend to have a restrictive effect and in a cyclical downturn it will tend to have an expansionary impact. ·  The second element is an inflation forecast. We publish a quarterly forecast of medium-term inflation. Not only does our forecast provide extremely valuable information on the future effect of monetary policy; it also plays a key role in explaining the central bank action to the public. ·  The third element is the publication of a target range for the three-month interest rate. The target range sets the parameters for day-to-day implementation of monetary policy. Our experience with the new approach is positive. We have been able to enhance the transparency of monetary policy and to simplify lines of communication with the market. How do we take account of the fact that Switzerland is now fully surrounded by the euro zone? Indeed, the introduction of the single European currency at the start of 1999 has profoundly changed the environment for our monetary policy. But the fears that were expressed when the euro was introduced four years ago failed to materialise. In particular, the Swiss franc is no more volatile against the euro than it had previously been against the D-mark. Immediately following the introduction of the euro it remained remarkably stable for more than a year. This was due in part to the fact that the economies of Switzerland and the euro area were strongly converging and that both central banks were pursuing a similar monetary policy.