Introduction and overview

The strategic environment of Liechtenstein is in flux. There are many reasons why the Principality might be well served by a thorough reflection about these actual and potential changes. There is no doubt that Liechtenstein’s European integration strategy of the last quarter century has been successful, perhaps even more successful than expected at the time. The paramount question today is whether this success can be taken for granted in light of the dynamics of the country’s strategic environment.

The present chapter discusses eight actual or potential changes that (may) affect the future positioning or indeed the predicament of Liechtenstein in the medium- to long-run. Chapter 5 will present a range of scenarios and, on this basis, discuss a spectrum of options for addressing these challenges, ranging from relatively technical to more disruptive ones. We hope that this analysis can be helpful for Liechtenstein to set out a future European integration strategy in its best interest.

Liechtenstein’s future European integration strategy is and will remain inextricably linked to the EU, directly as well as indirectly. The EU has developed into a kind of European ‘hegemon’, so far broadly a ‘benign hegemon’ as an economic and civil power, not a military one. The most important recent change for Liechtenstein is therefore that the EU has recently gone beyond the 18 years routine of daily EEA affairs and taken stock of the working of the EEA – which can be analysed on the EU-27 side (see 4.2) and on the EEA EFTA countries’ side (see 4.3) – and its relations with Switzerland (see 4.4), the possible accession to the EU by Iceland and the repercussions for the EEA (see 4.5) and finally the future economic integration with three small-sized states which are not part of the EEA (Andorra, Monaco and San Marino) (see 4.6). All of these aspects are of clear interest to Liechtenstein. The stocktaking has begun with the EU Council conclusions in December 2010, in which it makes a number of important policy statements and ‘encourages’ a review of the EEA on the

EU side. This review was submitted to Council on 7 December 2012. The present chapter will also venture into two more far-fetched and so far only potential changes in the near future that might be of strategic interest to Liechtenstein: a new ‘solution’ for Turkey, one option of which might be membership of the EEA (see 4.7) and, in the longer run, EEA membership of one or more relatively advanced countries now under the European Neighbourhood Policy (ENP) (see 4.8). Finally, the EU itself is transforming rapidly, prompted by the financial and economic crisis, and this is likely to have repercussions for Liechtenstein as an EEA-3 country (see 4.9).

In December 2010 the Council of the European Union published its conclusions on its relations with the EFTA states.¹³⁴ The main message concerning the EEA is a very positive one. In the words of the Council:

the EEA: functions properly so long as all Contracting Parties incorporate the full body of the relevant EU acquis relating to the internal market into their national law. The Council welcomes that the EEA countries have demonstrated an excellent record of proper and regular incorporation of the acquis into their own legislation and encourages them to maintain this good record to ensure the continued homogeneity of the internal market. The Council notes with interest that Norway and Liechtenstein have launched work for an in-depth review of their experiences with the EEA Agreement. The Council encourages a parallel exercise on the EU-side and looks forward to an exchange on findings with the EEA EFTA countries in due time.¹³⁵

Section 4.3 will focus on a possible amendment of the EEA Agreement. The reason is simple. The two EEA-3 countries remaining in the EEA in case Iceland might join the EU, Norway and Liechtenstein, have themselves reviewed the EEA, the benefits they enjoy and the costs incurred, be it political (especially Norway) or administrative (especially Liechtenstein). Both reports are quite favourable and provide few, if any, reason for major initiatives on their part. However, this does not mean that amending the EEA Agreement is excluded, because both countries surely have specific desires for amendment. First, the EEA Treaty has never been substantially amended (except for an extension of the membership base as a consequence of EU enlargements) and the experience of 20 years of EEA

134 Council conclusions on EU relations with EFTA countries, 3060^th General Affairs Council meeting, Brussels, 14 December 2010.

135 Ibid., paras 3 and 4.

(18 years with respect to Liechtenstein) has given rise to a number of suggestions on how to improve the EEA. Liechtenstein could make an inventory of suggestions for amendment. The enthusiasm for a new version of the EEA Treaty is tempered by the risk of opening a Pandora’s box.

However, the EU has a tradition of distinguishing a relatively modest, technical and ‘controlled’ treaty change from a genuine rewrite of the treaty. The former need not open a Pandora’s box. A prerequisite for sticking to a modest treaty change is presumably that a rather precise negotiating mandate is first formulated by the 30 political leaders, (perhaps even) helped by a proposal of the Commission after extensive consultation with the EEA-3. One key issue is whether some currently excluded and sensitive policy areas (like fisheries or agriculture) would be covered, which is (probably) inconsistent with pursuing a modest and ‘controlled’

amendment. A few suggestions for EEA amendments and improvements will be made in chapter 5.

The Swiss-EU relationship did not get such a positive evaluation from the European Council (see 4.4). In surprisingly straightforward wording, the Council stated:

in full respect of the Swiss sovereignty and choices, the Council has come to the conclusion that while the present system of bilateral agreements has worked well in the past, the challenge of the coming years will be to go beyond this complex system, which is creating legal uncertainty and has become unwieldy to manage and has clearly reached its limits. In order to create a sound basis for future relations, mutually acceptable solutions to a number of horizontal issues, set out below, will need to be found.¹³⁶

In short, for the EU, the bilateral and sectoral approach to Swiss-EU economic relations is exhausted. The EU will seek a solution providing for an institutional framework for the taking over of new EU acquis, the surveillance of its implementation and a tribunal to secure homogeneous interpretation and legal certainty. Obviously, the future of Swiss-EU economic relations is critical for Liechtenstein.

A fourth possible change in the strategic environment of Liechtenstein’s European integration is the application for EU membership by the EEA EFTA state Iceland (see 4.5). If Iceland accedes to the EU, the EEA would be left with just two countries on the EEA EFTA side of the

136 Ibid., para 6.

agreement. This gives food for thought both on technical and legal solutions as well as on the nature of future cooperation between the two remaining EEA EFTA partners.

A fifth change may follow from a renewed interest in European integration on the part of three countries ’with small territorial dimension’, namely, Andorra, Monaco and San Marino (see 4.6). San Marino is openly playing with the wish of full EU membership, while Andorra is seeking a deep association possibly of an EEA-like kind, which is also the second-best scenario for San Marino. Monaco, on the other hand, is very reluctant when it comes to any kind of deeper market integration, although – or because – it is already involved profoundly via France. However, it too is engaged, with the other two in this process of reflection. In the view of the Council of the EU,

a similar assessment (as concerning the EEA) should also be undertaken concerning the relations of the EU with the European countries of small territorial dimension, and more in particular the Principality of Andorra, the Principality of Monaco and the Republic of San Marino. Their current relations with the EU are extended but fragmented, with large parts of the acquis related to the internal market not introduced in their legislation and therefore not applicable.¹³⁷

In November 2012, the Commission published an options paper as the basis for further debate and later decisions ¹³⁸

A sixth element of possible change in the medium run concerns Turkey (see 4.7). Despite its official status as a candidate country, Turkish membership seems further away than ever.¹³⁹ On the one hand, there are national and European debates, mainly concerned with the shift to a more Islamic civil society in Turkey; on the other hand the Cyprus conflict and the very slow progress of acquis adoption under official pre-accession are increasingly frustrating the prospect of Turkish accession.¹⁴⁰ Irregular and

137 Council conclusions on EU relations with EFTA countries, para 8.

138 European Commission (2012c).

139 Böhler, Pelkmans & Selçuki (2012b).

140 Commission Staff Working Paper, Turkey 2012 Progress Report, accompanying the Communication from the Commission of the European Parliament and the Council, Enlargement Strategy and Main Challenges 2012-2013, COM(2012) 600 final.

informal suggestions (even by Chancellor Merkel) about a ‘privileged partnership’ have been heard for at least a decade or more, without ever defining what such a partnership would consist of. Given the mutual interest in ‘deep’ economic integration between the EU and Turkey, and remaining frictions on issues related to the political Copenhagen criteria,¹⁴¹ it seems to be just a question of time and opportunity until EEA membership of Turkey might politically be suggested as a (politically) convenient alternative.¹⁴²

Seventh, in the longer run, the EEA model might perhaps also become interesting for the more advanced countries falling under the ENP and wishing to be part of the EU internal market (see 4.8). Some of them cannot become an EU member (as they are not a European country), and others might not be ready for all the Copenhagen criteria.

The eighth challenge comes from the EU itself (see 4.9). The EEA is quite a resilient arrangement, having accommodated no less than three EU treaty renewals without major problems. Also, the start of the eurozone in 1999 has so far not given rise to any particular EEA issues. What is new today is the deepening and widening of the EU’s economic integration as a result of the financial and sovereign debt crisis and the transformation of the eurozone that goes considerably further. In particular, the degree of centralisation acceptable to EU member states seems to be shifting up and this is likely to create challenges inside the EEA.