Monday 9 December 2019

Tony Paterson: Swiss franc feeling the pressure of uncertainty in Greece

Tony Paterson

The promenades of Geneva and Zurich may seem a world away from the protests and turmoil plaguing the streets of Athens. But with the European sovereign debt crisis going rapidly from bad to worse, concerns are growing about the economic impact on Switzerland if the Greeks ditch the euro.

The biggest fear is over the ever-reliable Swiss franc. Last year, the mayhem in the 17-member euro area drove up the value of the Swiss currency, threatening the country's economy. Increasing pressure on the franc adversely affected Swiss exports and led to a marked decline in tourism.

The currency rise was only halted after the Swiss national bank intervened to peg its value against the euro.

But there are now concerns that Switzerland will be struck by another wave of foreign currency if Greece decides to leave the eurozone after its forthcoming general election.

Already, fears about the situation in Greece and the possibility of widespread eurozone instability have caused the value of the franc to rise again against the euro.

Against this backdrop, attention is turning to capital controls on foreign deposits, a weapon that Bern's policymakers haven't used since the 1970s when Switzerland attempted to temper the influx of oil money from the newly rich Middle East.

Back then, the government banned foreign investments in Swiss securities and property, and introduced negative interest rates on foreign deposits.

Regulating foreign deposits, rather than merely pegging the exchange rate, would require intervention by the Swiss government, as well as the banks.

In a sign that policymakers were preparing for just such a move, the head of the Swiss Central Bank, Thomas Jordan, raised the prospect of capital controls earlier this week.

The challenge facing the Swiss was underlined yesterday, with minimal market reaction to the possibly of far-reaching capital controls.

The crux of the issue, currency experts said, was whether the Swiss national bank was prepared to risk "massive intervention" to defend the exchange rate.

Much like the possibility of a Greek exit from the euro, only time will tell. (© Independent News Service)

Irish Independent

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