MacroScope

So the debt crisis is back (did it ever really go away?) but it’s not yet anything like as acute as it was late last year.

Spain is coming under real market pressure, and dragging Italy with it to an extent, but there are good reasons to think it won’t fall over; banks well funded for now and the government’s savvy move to take advantage of benign early year conditions to shift almost half its 2012 debt issuance in three months.

Madrid faces another key test with a Thursday bond auction. Two weeks ago, it suffered its first wobbly debt sale for some months. The turning point is pretty clear – Prime Minister Mariano Rajoy’s decision to rip up Spain’s agreed deficit target for 2012 without consulting his partners. Since then, Spanish borrowing costs have soared though given the amount of debt Madrid has already shifted, that might not be as damaging as it was.

Aside from the auction, Rajoy is holding talks with his powerful regional leaders about where the axe should fall on health and education spending. The consensus so far is that having bitten this bullet, he is deadly serious about cutting debt and reforming the economy. Any backsliding in the face of regional recalcitrance could be taken very badly by the markets.

Aside from Spain, everything builds to the big IMF meeting in Washington at the back end of the week, which hopes to make some headway on boosting the Fund’s crisis-fighting resources.

Amid the storm of Europe’s sovereign debt crisis, investors have found a safe harbor in the Swiss franc. Attracted by its low levels of inflation and stable debt-to-GDP ratio, traders have pushed Switzerland’s currency up 15 percent against the euro in 2010 and 6 percent so far this year. This has been a boon to the Swiss government’s ability to finance its operations — Switzerland’s 10-year benchmark bond is currently yielding just 1.53% — as well as Swiss tourists, who are enjoying huge discounts on trips abroad thanks to their favorable exchange rate.

Swiss exporters, though, are not so thrilled with the franc’s rally. Nearly half of the Swiss corporate executives that the central bank surveyed earlier this year admitted they “experienced negative effects” due to the currency’s strength. But it’s the chairman of the Swiss National Bank, a former hedge-fund manager named Philipp Hildebrand, who may be come out as the biggest loser from these events. In an effort to contain the franc’s upward climb early last year, Hildebrand spent 147 billion francs — nearly 25% of the country’s GDP — buying mostly euros, U.S. dollars, and British pounds sterling. The central bank reported a book loss of nearly $21 billion last year as the franc continued its ascent.

Now Hildebrand, like his American counterpart Ben Bernanke, is facing heat at home for his unorthodox monetary maneuvers. Reuters Zurich bureau chief Emma Thomasson wrote an illuminating profile of Hildebrand last month that nicely captured his opponents’ gripes.