The 15 January decision by the Swiss National Bank (SNB) to abolish the minimum exchange rate for the franc against the euro, and the associated appreciation of the currency, have left a clear mark. Nevertheless, panic is neither justified nor helpful. For a start, dropping the minimum rate had become unavoidable given the volatile environment in Europe – it was the only economically sensible option for the central bank. Secondly, there are thoroughly acceptable ways of dealing with a strong Swiss franc.
The latest “avenir special” sums up its findings in 10 propositions:
- An independent SNB ensures stability.
The central bank’s independence is the best guarantor of stable long term monetary conditions and is one of Switzerland’s most important advantages as an investment location.
- The hard currency accelerates change.
Business, especially services, has to move towards higher value activities. Only the best quality and most innovative products and services can secure Switzerland’s long term prosperity.
- Being highly integrated into the global economy is an advantage.
Many lower value industrial products can be sourced abroad, reducing production costs.
- Access to the EU internal market is central.
Ensuring access to the EU internal market remains paramount.
- Free trade boosts competiton.
Rigorously opening the market – including that for farm products (as for instance by pushing through the so-called “Cassis-de-Dijon” principle)* and swiftly extending free trade agreements boosts domestic competition too.
- Economic stimulus packages are damaging.
Wide ranging economic stimulus measures are neither promising nor required. Switzerland’s unemployment insurance scheme and its “debt brake” (an established law limiting borrowing and deficits, ed ) are two good automatic stabilisers.
- Regulations limit growth.
Administrative costs amounting to about 5% of GDP could be saved by reducing regulations rapidly – for example via standardised charges, an independent evaluation body (to assess regulations, ed) and clear targets for reducing rules and red tape.
- Taxes on capital erode substance.
Negative interest rates and wealth taxes undermine the substance of assets and reduce the incentive to invest. Comprehensive taxation on consumption would be more sensible.
- The social security system is not sustainably financed.
The financial basis of the social security system needs attention to ensure long term social stability. The statutory retirement age should be linked to life expectancy.
- Consumers are growing richer in real terms.
Swiss residents are not just employees, they’re consumers too. As such, they’re among the winners from the strong franc, as they can afford more than before on the same salary.
The new avenir special “Staying competitve with a strong franc” also encloses a poster.*A piece of legislation designed to boost competition and lower relatively expensive Swiss prices by removing protectionist rules on labelling processed Foods.