Switzerland is now engaged in the battle of a lifetime as it pertains to the future of privacy and her gigantic private banking industry. If Swiss private banking, home to an estimated one-third of all offshore deposits, falters then it’s highly unlikely this great Alpine enclave will survive on two major drug companies (Roche and Novartis), Swatches and chocolate. Without private banking, Switzerland’s economy would be severely compromised.

The United States, which recently won a $780 million dollar settlement with UBS regarding a widely publicized tax fraud case, is now attempting to go for the jugular seeking the names of 52,000 Americans with accounts at the once venerable Swiss icon.

UBS, or Union Bank of Switzerland, has been a magnet for bad news across almost every facet of its business model since the outbreak of the credit crisis 19 months ago; lawsuits, huge investment banking losses, a partial bailout from the Swiss National Bank and significant investor account closures have damaged the bank’s global reputation. Last week, UBS appointed a new Chairman to boost its battered image.

Switzerland refuses to divulge any information relating to accounts held by U.S. citizens at UBS or any Swiss bank for that matter. That’s because Swiss private banking guarantees anonymity and privacy; unlike most other jurisdictions, the Swiss don’t consider tax evasion a crime. The odds are very low or almost impossible that the Swiss will co-operate with the U.S. Justice Department. Any co-operation with American authorities would be a violation of Swiss private banking laws and would immediately require the arraignment of UBS personnel.

If UBS does reveal the names of its American clients in Switzerland then that’ll mark the end of its private wealth management unit (the only profitable segment of its business) while probably destroying Swiss private banking in the process. Revealing names would mark the endgame for Switzerland.

The United States, of course, is not alone in its relentless pursuit of taxpayer information. The Germans, Switzerland’s largest trading partner, has been vocal over the last several years trying to pry its doors open to reveal German taxpayer information. The Germans have even threatened trade sanctions because Switzerland, though not an EU member, is part of the EEA or European Economic Area and enjoys certain trade privileges.

Yet, to be fair to Switzerland, the country already co-operates with the EU by imposing a withholding tax on non-declared EU deposit accounts. Still, that’s not enough for the world’s largest economies.

As far as Switzerland is concerned, foreign governments would not have to worry about tax evasion in the first place if they reduced income tax rates. That’s definitely true. Yet meanwhile Switzerland has very few allies in this environment as global governments continue to put the squeeze on this great country.

One nation, however, continues to benefit from Switzerland’s misery. Singapore, which also provides privacy and numbered accounts, has been a major beneficiary of an exodus of Swiss-based assets since 2002. Singapore is not particularly enthused about raising U.S. assets; instead, private banks in the city-state target affluent Chinese, Indian and Australian investors. In fact, most Singapore banks won’t even accept U.S. clients.

Singapore might be safe for now. But at some point the United States, Europe and the rest of the OECD will turn their sights on Singapore – inevitable as the world continues to attack safe havens and privacy since 9/11.