The EU is threatening Switzerland’s financial sector with a  withdrawal of ‘equivalence,’ as the Swiss government has continued to resist regulatory alignment that has included a categorical refusal to endorse a framework agreement that was negotiated with the EU in 2014.

Switzerland’s refusal has led Brussels to threaten legal actions against the Swiss government, which Bern says will be reciprocated.

Brussels threat of lifting “equivalence” for the Swiss Stock Market would force EU companies to suspend their listing on the Zurich exchange and leaves Swiss lenders open to the possibility of being targeted with punitive measures.

The significance of an ongoing row between the EU and Switzerland cannot be ignored as two-thirds of Swiss foreign trade is with the European Union and nearly half a million Swiss citizens live in EU countries.

Much like the UK, Switzerland depends on the EU market for food and, to some extent, medicine. Though Brussels is ready to impose measures that could harm the relationship, the EU has said that it wants the crisis to be solved amicably as the bloc has demographic interests as well with 1.4 million EU citizens living in Switzerland, while more than 300,000 European residents commute across the Swiss border on a daily basis.

The EU has set a January 1 deadline for the Swiss to come into compliance with the regulations.

The Swiss government has refused to bow to EU pressure for a renewed regulatory alignment, with the powerful Swiss People’s Party dismissing the EU’s deadline and rejecting the unconditional freedom of movement standards that the European Union has demanded. They have also refused to allow the European Court of Justice to expand their jurisdiction or to comply with Brussels’ new rules on foreign aid.

The Swiss government – or “federal council” – says that it will launch a consultation across Switzerland on the implications of EU demands that will last until May 2019. In the meantime, Switzerland has threatened the EU with countermeasures that will pressure Swiss companies to withdraw their listing from EU financial markets.

The EU’s push for regulatory alignment predates Brexit, but negotiations with London have added political urgency to the issue

Since Switzerland refused to join the European Economic Area in 1992, the Swiss government has created a close relationship with the EU through 120 bilateral agreements. These agreements have been referenced by the UK during its negotiations over Brexit. London wants to carve out an agreement that mirrors Switzerland’s, made-to-order agreements that do not automatically abide by the ECJ’s jurisdiction.

The EU has sought to revise the Swiss model and close the door to “third parties” who want to negotiate tailor-made bilateral relations with the EU.

European Commission President Jean-Claude Juncker is expected to hold negotiations on December 11 in an effort to try and avert a standoff.

The gap, however, between Brussels and their Swiss counterparts appears to be too wide for the time being to resolve without having to reopen the negotiations. During his tenure, Juncker has been leading the EU’s talks with the Swiss but has yet to conclude a deal after more than 32 rounds of meetings.

The proposed overarching agreement that is currently on the table from Juncker covers the freedom of movement, the mutual recognition of industrial standards, agricultural products, as well as air and land transport. Swiss rules would automatically adapt to EU regulations, giving the European Court of Justice ultimate authority on legal interpretation.