> the bilateral are a package and the EU doesn't want CH to pick and chose
It really depends who is in power where when and if the 10mm limit is crossed. If there is a conservative in Paris or Berlin, chances are Switzerland can simply abrogate Schengen.
Unlike UK, the impact to the EU is minimum and Switzerland doesn't have leverage (if the EU still stands).
Of course if you have EU dismantlers in power anyway in FR/DE, they'll just be happy to sabotage.
Where do you pull this kind of nonsense from? This didn't work out for much bigger UK and UK isn't sorrounded by EU.
Schengen is a minor treaty about border controls. The actual issue are the Bilateral I agreements, which link free movement with many aspects of free trade. If Switzerland drops that, it needs new free trade agreements, which take many years to negotiate and ratify.