Recently, Switzerland has been invaded by tax collectors [1]. This is not entirely unexpected, but it provides an ominous hint of what governments do when they suspect (not entirely without reason) that people are attempting to escape or minimize their obligations to render to Caesar what Caesar demands to be rendered to them. Nonetheless, it is a decidedly unwelcome development, probably the most unwelcome and unpleasant invasion for Switzerland since one of its soldiers accidentally invaded Liechtenstein a few years ago [2]. The invasion is particularly unwelcome, coming on the heels of pressure from the United States Treasury, given Switzerland’s risky strategy for avoiding exposure to Europe’s financial drama.

A couple of French tax agents went to the effort of pretending to be weekend tourists in order to spy out potential French tax cheats who have been hiding their money across the border in Switzerland, which is not part of the EU or the Eurozone. This comes a few months after the United States Treasury Department pressured Switzerland for information about American accounts there. It should be noted, of course, that Switzerland is not the only famous tax haven (the Cayman Islands is particularly famous, of course, and the Channel Islands also serve a similar purpose). The behavior of the French tax agents was illegal, as Switzerland has very strict laws seeking to protect the secrecy of their banking customers, which include dictators and many far more modest people.

These efforts (and similar efforts by nations like the United States to put pressure on those who use other tax havens) suggests that governments are increasingly desperate for tax revenue. For centuries Switzerland has been a respected and tolerated place for people to stash their money without question. But nations around the world are increasingly destitute, facing restive populations hostile to increased taxation in light of unsustainable spending by governments, and that means the kid gloves are coming off in dealing with tax havens, even those with the fine pedigree of Switzerland. Increased attempts to gather information on tax cheats means that governments are looking to spend a little bit of resources to increase pressure on domestic taxpayers without raising taxes.

This puts Switzerland under a great deal of pressure. After all, Switzerland’s banking sector offers few advantages in terms of financial services apart from its legendary discretion and privacy, and if that privacy is stripped, Swiss banking companies will be under huge pressures on their profits as well as on their deposits, if those deposits are threatened by vigilant tax collectors from nations in dire straits seeking money by the least politically risky means possible. After all, the ordinary “middle class” taxpayers of most nations are not able to utilize international tax shelters, which makes surveillance by nations broadly politically popular as a way of punishing the wealthy and reducing pressures to raise the taxes on the general population. Nonetheless, the attack on tax shelters does increase the pressures on the wealthy, but few are overly sympathetic to wealthy tax cheats who have prospered for years from corrupt business practices, except those who aspire to do likewise themselves.

But this is not the only pressure that Switzerland is under. Switzerland has been attempting to reduce its exposure to the pressures on the euro by divesting itself of European sovereign debt and “diversifying” its financial portfolio. These efforts place Switzerland as one of the nations that is accused (with reason) of being a currency manipulator. What Switzerland can do about these pressures for its banking behavior is unclear, but it will probably do what it can do to respond accordingly, especially as Switzerland’s finance minister is also its current president (which shows the importance of the financial sector to Switzerland’s overall financial health as a society). Perhaps Switzerland would want to have its centuries-old private banking practices left alone, but the desperation of European states and the United States is too serious to ignore. And someone will be made to pay, with governments looking to deny shelter to tax cheats when their own budgets are bleeding red.

[1] http://www.zerohedge.com/contributed/2012-11-11/flash-news-france-invades-switzerland

[2] http://nathanalbright.blogspot.com/2007/03/next-time-bring-some-chocolate.html