“When global markets are volatile, the Swiss franc normally rises because it is regarded as a safe haven,” says Peter Garnham in the FT. “Not this time.” Since early September, the franc has fallen against both the dollar and the yen; it’s down by 7% and 20% respectively. At first, that sounds odd. After all, Switzerland is the world’s largest net creditor relative to its size and runs one of the world’s largest current-account surpluses – traits that should encourage currency strength.
Unfortunately, it’s also one of the leaders in another ‘world’s largest’ competition: bank liabilities. The Swiss banking system is equivalent to almost 700% of GDP. That’s not far short of Iceland’s 900%, and is similarly concentrated in two giant banks, UBS and Credit Suisse. And UBS has been hard hit by the credit crisis. If it were to collapse, “it’s not clear if the Swiss government could amass enough money to rescue it,” says Craig Whitlock in the Washington Post. So the franc’s safe status is in doubt – and so is the future of Switzerland. At times like this, “the Swiss model of isolationism is not an advantage”, says Michael Baer on Bloomberg.com. “We can’t afford to stay outside the EU any longer,” adds politician Hans-Jürg Fuhr, on the same site. With EU backing, the pressure on Switzerland’s banks “wouldn’t be as great”.