Bloody gnomes of Zurich

The fall of France in 1940 completed the fascist encirclement of Switzerland. The small alpine republic became an isolated beacon of liberty as a new dark age of barbarity engulfed Europe. At this critical moment for the world's oldest democracy, General Henri Guisan, appointed chief of the recently mobilised Swiss army, summoned his officer corps to the historic Rutli meadow to renew their oath of allegiance. This self-conscious re-enactment of the myth of 1291, when the original three cantons rose against Habsburg tyranny and laid the foundations of the Swiss state, turned Guisan overnight into the revered symbol of Swiss defiance of the Axis powers and its collaborators.

Reality, of course, was a little different. Poor in natural resources, Switzerland was entirely dependent on its neighbours for raw materials to sustain its economy, feed its people and, above all, preserve its historic neutrality. At the very moment Guisan was stiffening the resolve of his officers, the Swiss president, Marcel Pilet-Golaz, in an infamous radio broadcast, spoke ambiguously of Switzerland's need to adjust to the political realities of the New European Order. Indeed, despite his Rutli performance, Guisan himself was secretly urging a policy of appeasement on the government.

Pilet-Golaz was not alone. Significant sections of the Swiss ruling elite were equally inclined to admire or at least adjust to the energy and power of a resurgent Germany. A group of 200 leading financiers and industrialists secretly petitioned the government to muzzle the Swiss press, whose persistent criticism of Nazi excesses they felt to be unhelpful. To the credit of the government, this disgraceful appeal was rejected. The episode is one of many that in retrospect throw light on the ambivalent attitudes and frequent tactical confusion of the political elite as it tried to deal with the pressures mounting on its borders.

Given the country's precarious position, both economically and militarily, it is hardly surprising that its wartime relationships with the Allies and the Nazis should be riddled with moral ambiguities. Supplying both sides simultaneously with war materials was an inevitable consequence of the neutrality principle which had successfully held the Swiss nation together since the early 19th century. At the same time, the vast proportion of the Swiss people were anything but "neutral" in their steadfast belief in the superiority of their native democracy in the face of fascist dictatorship. Nevertheless, to continue commercial relationships with the Nazis to the bitter end in return for coal and oil to keep Swiss industry in business required moral gymnastics of considerable sophistication.

Would Switzerland's moral standing after the war have been improved if it had imitated Argentina and Turkey by declaring war on Germany in March 1945, rather than sustaining the Nazi war effort as it was accused of doing? Would the small Jewish community in Switzerland, not to mention the many thousands of refugees and Allied personnel still protected in that safe haven, have appreciated such a boldly cynical gesture? What would have been gained if Switzerland had chosen from the outset the path of heroism and suffered the fate of Belgium?

Whether during the years of Nazi hegemony Switzerland was a prison, a beleaguered fortress or an efficient and willing workshop for Germany is a complicated question. However, what is certainly not understandable, nor forgivable, even in the context of realpolitik, was the shameful anti-Semitic refugee policy of the wartime chief of police, Heinrich Rothmund, who with the connivance of the equally disreputable Swiss ambassador to Berlin, Hans Frolicher, persuaded the Nazis to stamp the passports of German Jews with a large red J and in 1942 closed his country's borders to Jewish refugees, sending many thousands back to an inevitable fate. Nor can the circumstances of the time justify the burdens the Swiss government placed on its Jewish citizens by insisting that they pay the full costs of those Jewish refugees who were admitted.

Looking back in the late 1960s, Friedrich Durrenmatt expressed his country's performance neatly, if perhaps too benignly: "We manoeuvered our way between the legs of the dinosaur out into the open ... our escape was not an exemplary one. We stopped our victims entering the country or we sent them back across the border and thus out of our consciousness. We stuck fast to our ideals without necessarily applying them, we closed our eyes without exactly going blind. Tell raised his crossbow, but acknowledged - almost imperceptibly - the tyrant's authority. And we were spared the role of heroes."

These matters are well known. The myth of brave little Switzerland standing against the Reich has long since been dismantled like the myth of William Tell itself. Much of the credit in revealing the dark side of Swiss policy during the war, its vacillations between appeasement and resistance, is due to officially commissioned work. For example, the shocking revelations in the mid-1950s of Rothmund's activities led both to the bleak Ludwig report on the country's refugee policy, published in 1957, and the monumental history of Swiss neutrality by Edgar Bonjour (1967-76) which spared no reputations and pulled no punches. In addition, fearless journalists and scholars, such as Alfred Hasler and Alice Meyer, and writers, such as Max Frisch and Peter Bichsel, have, like their German counterparts, consistently attacked the moral amnesia of their fellow citizens.

The current controversy over the activities of the Swiss banks during the war and its aftermath has opened up a major new dimension to the unresolved arguments of Switzerland's recent history. Secrecy and duplicity in equal measure have enabled major figures in the Swiss establishment to cover up a horrendous scandal for over 50 years. Tom Bower's book follows in the footsteps of work by Swiss writers, Peter Hug and Marc Perrenound, Werner Rings and Gian Trepp. Indeed, the Swiss banking community is still reeling from the latter's devastating investigation of Switzerland's central role in the laundering of money from tax evasion and the international drug trade, Swiss Connection, published last year.

What distinguishes Bower's book from these predecessors is his narrative verve and highly personalised account of the complex issues involved. The sheer anger of Bower's writing will perturb the purist reader seeking objective information, and the novelist's trick of imputing motives and emotions to real individuals in situations of which the author can have little or no first-hand knowledge is occasionally worrying. But Bower and his team of dedicated researchers have trawled through recently opened archives in New York, Washington, London, Paris, and the Swiss National Archive in Berne with commendable thoroughness. Though the book reads at times like a breathless detective story, sources are given in scholarly detail and with numbing accuracy.

Inspired by the Republican Senator Alfonse D'Amato's campaign in the United States to get to the bottom of the Swiss banks' role during the second world war, Bower outlines in particular the convoluted fate of the Washington Accords, designed to deal with the Nazi loot lodged in Switzerland, and that of the so-called Safehaven programme set up by the Americans in 1944 to ensure that such ill-gotten gains, including money and valuables belonging to Holocaust victims, could not be used to finance any future Nazi revival.

The full implementation of the accords and the Safehaven programme itself fell victim to a fatal disunity among the Allies and the rapid onset of the cold war. For example, obsessed by the need to appease the Arab states, Britain, to its shame, actively opposed the restitution of wealth to Jewish heirs which might be used to finance further immigration to Palestine. France, on the other hand, preferred a discreet silence in view of the collaborative record of the Vichy government. Most crucial of all, America's European policy rapidly switched to containing Soviet expansion, for which purpose it saw in Switzerland a dependable anticommunist buffer. The Korean war and the need to rearm West Germany further undermined any sense of urgency in pursuing the Swiss banks and their dubious deposits.

The story Bower unfolds highlights the ruthlessness with which Swiss financiers exploited these developments in order to protect their wealth. He traces the multifarious subterfuges and morally bankrupt arguments with which they evaded their responsibilities not only to the victims of Nazism who had trusted their integrity, but also to their country whose postwar reputation owed everything to its traditions of probity and democracy.

The most emotive area of Bower's book concerns the exact origins of the Nazi gold deposited in Switzerland during the war. His research confirms beyond reasonable doubt that Swiss bankers were well aware that the high level of deposits consistently outstripped the Nazis' known reserves and that many gold bars with prewar stamps must have been looted from vanquished countries and falsely dated. However, the ghoulish likelihood that such bars also contained dental gold taken from the victims of Auschwitz could hardly have been suspected, much less ascertained, with the technology of the time.

The true scandal, and the principal source of Bower's moral indignation, is the way the Swiss banks, aided by leading government officials, over many years conspired to conceal the extent of the deposits of Holocaust victims and, in particular, their callously obstructive attitude towards those heirs who attempted to locate their inheritance. Demands for documentary proof, including death certificates of concentration camp victims, went beyond the absurdities of bureaucracy into the realm of malevolent fraudulence. The very anonymity of numbered accounts, introduced in 1934, which enabled German Jews to smuggle money to Switzerland (the myth that this new law was specifically designed to help Europe's Jews has long since been exploded) was now, with perverse irony, turned against the hapless heirs. Bower's withering account of the Banking Association leaders' arrogance, their obfuscations and apparent inability to perceive the ethical dimensions of their actions and policies makes dismal reading.

Paradoxically, the two principal weaknesses of Bower's book stem from its polemical strength. First, to sharpen his attack on the Swiss establishment, Bower appears to believe that Switzerland has enjoyed an uninterruptedly idyllic development since the war, smug in its own sense of moral superiority. This tabloid image reveals a considerable ignorance of the disruptive tensions caused by numerous political and financial scandals over the past 40 years that have undermined Swiss self-confidence and provoked a profound crisis of identity. Two recent events have crystallised the peculiar malaise helvetique - a catchword already in the 1960s - that afflicts contemporary Switzerland: the 1989 referendum to abolish the Swiss army, which attracted the astonishing support of over a third of the voters; and the cultural boycott in 1991 of the 700-year celebration of the country's foundation after the revelation that the police had been keeping secret files on over 900,000 of the country's population.

More seriously, Bower succumbs to journalistic sensationalism with an extraordinary assertion of collective guilt, claiming that "a country whose citizens, over the past half-century, boasted to their neighbours about their enviable wealth, was quite knowingly profiting from blood money". This grotesque accusation ignores historical fact and removes the guilt from where it belongs - in the secretive and mutually supportive world of bankers and politicians.

Nevertheless, Bower's work is one more crushing blow to that tight circle. Such accumulated pressure has already produced substantial results. A government-supported commission of international historians will soon start work on a definitive project to examine every aspect of Switzerland's role in the second world war. A concerted effort is at last under way to locate the missing heirs to Jewish accounts held in Swiss banks. Finally, the Swiss government's recent decision to set up a Solidarity Foundation to aid victims of persecution throughout the world, including those of the Holocaust, is a belated and tacit recognition of culpability. According to the Swiss constitution, this decision must be ratified by a national referendum. Thus the ultimate moral judgement on this murky episode of the national past is placed where it belongs: in the hands of the individual Swiss citizen.

Michael Butler is professor of modern German literature, University of Birmingham.