Switzerland Goes Rogue

Is it still possible for a country to be neutral?

No place in Europe has clung to an anachronistic, airbrushed image longer than Switzerland. The country's oddly entrenched reputation for pristine and inviolable "neutrality" has left it ostensibly so removed from the normal give-and-take of international politics that for many Americans the place could pretty much be summed up with the sugary, beyond-politics appeal of Nestlé chocolate.

In fact, however, the myth of Swiss exceptionalism is increasingly tattered these days. The unraveling of the legend began in the postwar period, accelerating in the 1990s, as more and more stories came out on the Swiss banks' involvement in helping the Nazis and their stubbornness about concealing that role. It didn't help matters that right-wing Swiss political parties continued to make periodic gains, with the Radical Party signaling a turn to the right in the 1983 parliamentary elections, for example, by drawing more votes than the Social Democrats for the first time in 58 years.

Recent months have brought Switzerland into a vortex of unwelcome international publicity, much of this brought on by a flinty, proud brand of Swiss independence that looks less and less charming to the outside world. Burt Neuborne, a New York University professor who served as counsel to Holocaust survivors in wrangling with the Swiss, went so far last year to charge in a widely read Los Angeles Times op-ed that it might be time to dub Switzerland a "rogue state."

Here's how things got this far:

  • The Swiss tossed their reputation for tolerance out the window last November with a nationwide referendum to ban minarets. Analysts cited raw fear of an encroaching Islam, but that seemed a far-fetched rationale given that there are an estimated 400,000 Muslims in the country, but a grand total of four minarets.
  • Switzerland has found itself in a bizarre war of words with Libyan leader Muammar al-Qaddafi, who responded to the jailing of his son on assault charges in Geneva by expelling Swiss diplomats, calling for an anti-Swiss jihad, and even proposing to the U.N. General Assembly that the country be abolished.
  • Film director Roman Polanski showed up in Zurich last September to accept a lifetime achievement award at the Zurich Film Festival, and the longtime French citizen was promptly arrested on a warrant dating back to 1978. Given how squeamish most are about the deeply disturbing Polanski case, dating to his 1970s admission of having sex with an underage girl, the untimely Swiss arrest did the seemingly impossible and generated some sympathy for an admitted sex criminal.
  • German Chancellor Angela Merkel, whose leadership style is built on unflashy pragmatism and a dislike of headline-grabbing, grabbed headlines in February as word surfaced that Germany was considering making a deal with known thieves to purchase a CD containing information about German tax evaders with Swiss bank accounts, a move that, as the German news weekly Der Spiegel noted, "risk[ed] a falling-out with Switzerland." Later came word that officials in the German state of Baden-Württemberg planned to buy a second CD.
  • The huge Swiss bank UBS was forced to make a deal with the United States to provide information on the banking history of thousands of wealthy U.S. citizens implicated in possible tax evasion, rather than risk U.S. legal action, a move that continued to erode the reputation of Swiss banks.
  • The controversial euthanasia organization Dignitas has taken advantage of Switzerland's liberal assisted-suicide laws to make the country the world's most popular destination for "suicide tourism." Widespread media coverage of the organization throughout the continent has not done wonders for Switzerland's image.

Tempting as it might be to write off some of the controversy as mere sensation, the confluence of events serves to raise deeper questions not only about Switzerland but about how long it takes for ancient assumptions about countries to get an update. Switzerland established its neutrality at the Congress of Vienna in 1815 and has not fought a war since, making it second behind Sweden as the longest-standing neutral country. But in Europe this is, to say the least, old news.

For having such a small country, the Swiss have unquestionably made an outsized contribution to world culture, notably through such admired writers as Max Frisch and Hermann Hesse (born in Germany, but the Swiss claim him). As Berlin correspondent for in the 1990s, I wrote multiple stories about a puckish group of Zurich-based Internet artists called etoy who took on a California toy company ( in a name-domain war, a decisive struggle of the early Internet age that at the time John Perry Barlow, of Electronic Frontier Foundation (and Grateful Dead) fame, referred to as "the battle of Bull Run."

But the etoy boomlet was an exception to a general sense of Swiss culture's best days being behind it. As Frisch mused wearily in his 1954 novel Stiller (published in English as I'm Not Stiller), looking back on Switzerland's halcyon days in the middle of the 19th century, "At that time they had a plan. At that time they wanted something that had never existed before, and they looked forward to tomorrow and the day after tomorrow. At that time Switzerland had a historic present. Do they have that today? Homesickness for the day before yesterday, which governs most people in this country today, is oppressive."

An oppressive longing for a yesterday that never existed -- and the xenophobia that often goes with it -- clearly lay behind the anti-minaret vote. Anti-immigration sentiment has been rising in Switzerland, as elsewhere in Europe, though the most openly resented immigrant group in Switzerland actually tends to be the Germans.

It's clear the old definition of Swiss neutrality, dating to the country's 19th-century origins, but gaining wide currency in the Cold War period, has become largely irrelevant in an era when globalism and economic interdependence now set the tone. Is it even possible to be "neutral" in any serious sense of the word in a globalized world?

"It's always had this status, but I think it's becoming pointless in this time of globalization when you have to cooperate on all levels," said Albrecht Metzger, an expert on the convergence of Europe and Islam who writes regularly for the weekly Die Zeit.

"You talk about fighting international crime. You have to cooperate. You talk about fighting drugs. You have to cooperate. It's all interconnected. You have to ask yourself: Where is neutrality?"

Why not go further and lump Switzerland together with other countries dubbed "rogue states"? That was the argument Neuborne made. "Swiss bankers cannot manufacture bank secrecy on their own," Neuborne wrote. "They need active cooperation from the Swiss government designed to stymie legitimate efforts by other governments to obtain information needed to enforce their laws. Some rogue states export terrorism or drugs; Switzerland exports a virus -- bank secrecy -- that eats away at the fabric of law in the rest of the world."

Even Neuborne, seeking to make a point, was careful to avoid coming right out and labeling Switzerland a "rogue state" directly, and for good reason: Such a claim would not pass the laugh test. However, for too long the Swiss reputation for a pristine neutrality has clouded observers to the more complicated reality of a country that never was and never could be an island apart. Recent months of controversy may not have amounted to Switzerland's being yanked into international courts for its banking practices, but it's clear we've reached the point where no country gets a free pass on being above the rules and norms of a highly interconnected 21st-century world. The chocolate is still good, though.



Tapped Out

Why Hugo Chávez's friends can't save his petrostate.

When Hugo Chávez announced late last year that Chinese energy companies had been awarded access to oil reserves in Venezuela's Orinoco River basin, it seemed the mercurial strongman had moved one step closer to achieving his vision of a "new world order." President Chávez seeks a United States -- el imperio, in his terms -- with its ambitions severely curtailed and hemmed in by "[stronger] new poles of world power." In a 2009 visit to China, Chávez gushed: "No one can doubt that the center of gravity of the world has shifted toward Beijing.... A new world is being born,... the multipolar world that we have all dreamed about for a long time."

The charismatic Venezuelan leader has long envisioned his country's vast natural resources fueling the emergence of that "multipolar world." Unable to unseat the United States alone, Chávez plans to combine his country's hydrocarbon might with the economic and military strength of China. In return for access to energy supplies, China has agreed to loan billions of dollars to Venezuela, accepting repayment in oil. Unmentioned are the additional inducements likely accompanying these deals. Last year, Venezuela sent its first communications satellite into space and acquired three JYL-1 aircraft radar systems, all with Beijing's generous assistance.

And it is not just China that has been active in the Latin American country. Caracas also granted Russian companies blocks in Orinoco in February, with Chávez acquiring $2.2 billion in Russian tanks and anti-aircraft missiles on credit. Since 2005, Venezuela has spent $4.4 billion on Russian weapons, including fighter jets, combat helicopters, and 100,000 Kalashnikov assault rifles. The two countries recently held joint exercises in the Caribbean, bringing the Russian navy there for the first time since the Cold War. After calling this part of a strategic alliance with Russia, Chávez snickered, "Go ahead and squeal, Yankees."

But Chávez's plan is not quite working out as he hoped -- indeed, he has discovered it takes more than handshakes and public displays to get oil out of the ground and onto the market. Venezuela's decaying oil industry and mounting domestic problems have prevented the Chávez government from effectively tapping the country's reserves, even with Chinese and Russian help. And they have forced Chávez to invite back the private energy companies he pilloried as the "overthrowers of governments" just three years ago.

Venezuela's oil industry is in crisis. Mismanagement and lack of investment have caused production to fall from a high of 3.5 million barrels per day in 1998 (when Chávez was elected) to 2.5 million barrels today. With oil trading at half its peak 2008 value, el presidente's profligacy has emptied the state coffers. Blackouts are common; violent crime is rampant; and inflation is high and rising, forcing the currency's devaluation. In an ironic bit of timing, the power went out during one of Chávez's interminable televised speeches on Feb. 25, just as he started to lambaste former U.S. President George W. Bush. It flickered back on to reveal a stern Chávez glaring and being served a cup of coffee. Far from negotiating from a position of strength, Chávez needs investment and hard currency to stay in power.

The roots of his current predicament go back nearly a decade. In 2002, a coup attempt briefly removed Chávez from power. Less than a year later, in an effort to force the president to call early elections, thousands of managers and employees at PDVSA, the state oil company, shut down production and went on strike. Chávez responded by firing nearly 18,000 of them, replacing them with loyalists who swore oaths of allegiance to his government. The replacements sorely lacked the decades of experience working Venezuela's tricky oil systems that their predecessors possessed, leading to a critical shortfall in expertise.

Human capital is particularly important in Venezuela because of the nature of much of the remaining oil found there. Unlike the light, sweet crude found in West Texas, the North Sea, and Saudi Arabia, Venezuela's shallow Orinoco oil belt holds what's known as "extra-heavy oil" -- crude full of sulfur, coke, and metals. Special on-site refineries have to strip the minerals from the viscous, tarlike oil and dilute it just to make it soft enough to move via pipeline from the wellhead to a second refinery, which heats and treats the oil to remove the remaining contaminants. Only then -- after an expensive and energy-intensive upgrade -- is the oil ready for export and sale.

Maintaining and running this "upgrader" system requires human capital, technological know-how, and constant reinvestment. But most of the replacement workers Chávez hired after the strike lacked those skills and knowledge. Moreover, PDVSA's politicized management hobbled the company, which employed excess workers, for instance. Yet Chávez's vindictiveness has prevented him from rehiring much of the talent that was fired, including the expert-trained petroleum engineers.

Despite firing most of the competent managers and engineers at PDVSA, Chávez was able to temporarily stave off trouble for several years, thanks to rising oil prices and the continued work of foreign oil companies, which possessed skilled workers and generally maintained the upgraders. Perhaps intoxicated with ever-increasing revenues, however, Chávez soon decided to take aim at the private companies. Empowered to rule by decree in early 2007, Chávez announced that six foreign oil companies had to either cede control of their Orinoco operations to the state or renegotiate their contracts, even referring to executives at one company as "imperialist bandits" and "white-collar criminals."

As the companies pulled up stakes or reluctantly trudged back to the negotiating table, Chávez began trying to mitigate the loss of capital and expertise by enticing state-owned oil companies from countries he thought would bolster him against the United States with access to Venezuela's vast oil reserves -- countries such as Belarus, China, Iran, and Russia. But those countries lacked the technological know-how to run the upgraders as well. Beijing and Moscow were nonetheless eager to get their stake. But instead of ponying up cash in the spirit of anti-imperialist solidarity, they insisted on attractive commercial terms and sovereign guarantees against expropriation. Notwithstanding the bluster about a "new world order" coming out of Caracas, Chávez has allowed China to opt for a safer state-to-state deal guaranteeing it access to supplies. And Russia has insisted on recourse to outside arbitration in the event of an investment dispute, an especially biting condition because ExxonMobil is seeking at least $5 billion in damages through the World Bank's arbitration body, a forum Chávez suspects is inherently biased against him.

Conceding that these state-owned companies cannot reinvigorate Venezuela's oil industry on their own, Chávez held competitive auctions on Feb. 10 for the more prolific spots in Orinoco. Many of the world's largest private international oil companies attended the auctions, the first to take place since Chávez took power more than 11 years ago. But, unlike the heady days of early 2007, when Chávez demanded that foreign oil companies renegotiate or leave, his tone was quite different. A chastened Venezuelan leader explained, "Foreign oil investment is absolutely necessary to develop our reserves.... We can't do it alone."

If anything, the willingness of international oil companies to dive back into Venezuela only three years after Chávez kicked them out and politicized the oil business is a sign of the global oil supply picture today and for decades to come. The vast remaining reserves of untapped oil in the world today lie in three types of settings: in a handful of countries where development is off-limits to international energy companies, such as Saudi Arabia and Kuwait; in unstable or unfriendly countries, like Iran, Iraq, and Libya; and in technically challenging and expensive environments, such as the Arctic Ocean seabed and Canada's Alberta tar sands. The "easy oil," the enormous undiscovered or undeveloped oil fields open for competitive commercial development by the most efficient technologies, is likely gone forever.

Venezuela, despite its real issues and the cost of extraction, is one of the few places companies can still book real reserves and add significant production figures. The fact that the geological, or below-ground, risk is so low means it is worth the political, or above-ground, risk for many international oil companies. That is why both the international oil companies and Venezuela are eager to dance again.

For all the bluster in Caracas, commitments of billions in assistance, arms, and oil, and excited pronouncements of global realignment, the basics of the oil business are immutable. It takes advanced technology to produce oil in Orinoco. For now, it is the private international oil companies that have it, forcing Chávez to shelve illusions of geopolitical grandeur and pragmatically take the necessary steps to produce his country's heavy, sulfuric crude.