For centuries, the Alps were Switzerland’s great barrier against foreign aggressors, helping the small nation protect its independence. But now, not even their might can ward off the threat of coronavirus.

As elsewhere, the priority has been to ‘flatten the curve’ – to reduce the peak incidence of the disease and lower the pressure on increasingly stretched public health services. Social distancing rules have been introduced and tightened progressively, culminating in restricted access even to those admired mountains.

But, unlike a physical conflict, the soaring alps offer scant protection against the economic repercussions of the pandemic. Switzerland stands out from many of its neighbours in the soundness of its public finances, relatively low level of state debt compared to gross domestic product and relative prosperity of its people. The preponderance of defensive manufacturing industries, notably pharmaceuticals, chemicals and foodstuffs, also helps. But while such factors may mitigate the severity, they offer scant support against a truly global crisis.

Economic damage is inevitable

No surprise, then, that growth forecasts for 2020 and 2021 have been slashed and the Swiss National Bank has reversed its predictions of gently rising prices in favour of further price deflation this year. Inflation may return in 2021, but significantly more modestly than first predicted.

No one can say accurately how severe the impact will be, given the unpredictability of the spread of the virus and the effectiveness of protective measures. Much will depend on the extent of government rescue programmes, but also how long restrive measures remain in force. Early signs are that lessons have been learned from the financial crisis of 2008 and that purse strings will be generously opened, even in countries, like Germany and Switzerland, where balanced budgets and surpluses are seen as symbols of moral rectitude.

What should be done

But a preliminary attempt at reading the crystal ball has just been made by Avenir Suisse. In Economic Policy Responses to the Corona Crisis, seven of the think tank’s experts have assessed the Swiss economy’s exposure and drawn key policy conclusions.

The study highlights the structure of the Swiss economy and accepts the hit to gross domestic product will be severe. Most revealing are the policy recommendations made. Paramount among them are providing adequate liquidity to the economy.

Compensating for short time working, or for employees left entirely idle, is essential to prevent a massive rise in unemployment. Coverage should be extended beyond manufacturing to all sectors of the economy, as well as the self-employed.

Boosting liquidity is also essential. That can come through federal and cantonal loan guarantees, as well as by the social security authorities, to postpone tax, social security and other payments. Measures will also be necessary to boost liquidity in the financial sector – while stopping well short of a full blown state investment programme.

Labor market rules should also be made more flexible, at least temporarily, and information flows to small and medium sized businesses, and larger corporations, improved, say the authors. That could include hotlines for companies in difficulties. But any specific bailouts or rescues of companies already in trouble before the crisis should be avoided.

Finally, customs duties should be eliminated unilaterally – a step currently under discussion for industrial goods. Radical proposals, such as renationalisation of some former state owned groups, let alone the introduction of a universal basic income, should be rejected wholeheartedly.

Swiss exceptionalism?

Such ideas reflect liberal economic thinking in many European countries and offer reassurance of support against any nationalistic backlash. Yet might Switzerland also betrays some peculiarities, despite so many similarities with its neighbours.

Few, for example, can boast such a high degree of industrialisation against a comparatively small size and population. That leaves the Swiss particularly dependent on international trade. Likewise the country’s comparatively very big financial sector leaves Swiss banks and insurers more intertwined with foreign counterparts and global markets than many peers abroad. The picture of parked jets, with all but six of Swiss’s nearly 100 strong fleet currently on the tarmac, speaks louder than words.

Such images highlight Switzerland’s particular exposure to any longterm protectionist or nationalistic responses among its main trading partners once the epidemic is over. Not even the mighty alps can ward off a reaction against globalization and open markets if those prove to be among the consequences of the corona crisis.