Perhaps the Swiss should just join the euro?

May 29, 2012

By Ian Campbell

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

If you can’t beat them, join them. That might be the message for Switzerland. The Swiss National Bank is trying to stop the Swiss franc being turned into the new Deutschmark as savers flee the euro zone. Why not adopt the single currency – at a suitable rate? Then, like Germany, Switzerland could have an easy ride – at least until nasty payback time.

The rich Swiss have a rather awkward currency problem. Since 2008 the central bank’s balance sheet and the country’s foreign currency reserves have quadrupled. The SNB has printed Swiss francs like Ben Bernanke, the U.S. Fed Chairman, on speed and bought euros in huge quantities. The new francs have kept the currency’s value from rising above the 1.20 Swiss francs per euro, the level the SNB set as a maximum in September 2011. The only exception was in April, when Greek worries became especially intense.

This policy is risky. With 51 percent of its reserves in euros at the end of the first quarter, the SNB could suffer a big loss if it ever let the franc rise to where the market wants to take it. And the more calamitous the euro zone becomes, the more attractive the franc – and the more expensive the defence. Small wonder Thomas Jordan, the head of the SNB, has mentioned capital controls. If the zone gets worse Switzerland will need them. But Switzerland’s large financial sector would find them a big nuisance.

So why not join the euro, if Swiss voters could be persuaded? The zone would be so delighted to find some excellent tax-payers that they would probably agree to a favourable exchange rate, perhaps 1.40 francs per euro. And the Swiss fears about loss of competitiveness and growth and deflation would vanish, just as Germany’s have. Swiss exports would boom – just like German ones. How lovely.

The only small problem then would be sharing in that other German angst – about the cost of bailing out all those still uncompetitive euro zone periphery economies. Like Germany the Swiss might find it hard to get out of that one.

Comments

This is the classic architecturally perfect article that spends most of its length flying a kite only to blow it out of the sky in the final short paragraph.

Yes, we can all find hypothetical reasons why the Swiss would benefit from joining the Euro. But ultimately the Swiss public won’t agree to it because the burdens of Eurozone membership would be very obvious and completely intolerable.

Remember that even the Germans, with their entirely different history that makes them naturally strong supporters of an integrated, unified European polity, struggle to accept the requirement that the Euro clearly places upon them to bail out other member states. Whether the German people will eventually acknowledge this fact and get out their chequebooks remains as yet unclear. But it’s desperately hard to contemplate providing permanent large tax subsidies to other countries as a condition of Euro membership, even for Germany.

Given that the Swiss people don’t bear the uniquely difficult historical inheritance of the Germans and the powerful sense of obligation that it provides for Germany to be particularly generous to other parts of Europe, I simply don’t see the Swiss accepting the economic and moral equation by which they would have to pay significantly higher taxes in order to provide structural support for Greek or Portuguese public spending.

And that’s before you even start to think about the additional political constraints brought by having also to be in the EU if you join the single currency: for a proudly-independent people with a deep-rooted tradition of active democracy, why would handing over their sovereignty to an unresponsive external government, run essentially in the interests of the French and the Germans by an instinctively anti-democratic nomenklatura in Belgium, appeal to men and women who value a local politics founded on direct accountability and regular referenda?

Posted by ada013 | Report as abusive
 

This is the classic architecturally perfect article that spends most of its length flying a kite only to blow it out of the sky in the final short paragraph.

Yes, we can all find hypothetical reasons why the Swiss would benefit from joining the Euro. But ultimately the Swiss public won’t agree to it because the burdens of Eurozone membership would be very obvious and completely intolerable.

Remember that even the Germans, with their entirely different history that makes them naturally strong supporters of an integrated, unified European polity, struggle to accept the requirement that the Euro clearly places upon them to bail out other member states. Whether the German people will eventually acknowledge this fact and get out their chequebooks remains as yet unclear. But it’s desperately hard to contemplate providing permanent large tax subsidies to other countries as a condition of Euro membership, even for Germany.

Given that the Swiss people don’t bear the uniquely difficult historical inheritance of the Germans and the powerful sense of obligation that it provides for Germany to be particularly generous to other parts of Europe, I simply don’t see the Swiss accepting the economic and moral equation by which they would have to pay significantly higher taxes in order to provide structural support for Greek or Portuguese public spending.

And that’s before you even start to think about the additional political constraints brought by having also to be in the EU if you join the single currency: for a proudly-independent people with a deep-rooted tradition of active democracy, why would handing over their sovereignty to an unresponsive external government, run essentially in the interests of the French and the Germans by an instinctively anti-democratic nomenklatura in Belgium, appeal to men and women who value a local politics founded on direct accountability and regular referenda?

Posted by ada013 | Report as abusive
 

Dear Ian

Please do your homework before writing about Switzerland and the Euro. Switzerland is not in the European Union. There might be countries that are in the Union and still have their own Currency. However, there is no country not in the European Union but in the Currency Union. Looking at the disastere in Europe the Swiss people certainly do not want to join the EU. Not even the leftists would like to join. Switzerland can still decide on its own what it wants to do with the currency. Harder measures can be taken once the Untergranze can not be defended anymore. Ever heared of negative interests in the seventies? So beware when bringing your money to Switzerland. In the future you might have to pay for this service.

Posted by manties | Report as abusive
 

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