The Hypocritical Swiss Economy
The people of Switzerland made history in a series of referendums that took place between 2003 and 2005, permanently bringing their nation into economic alignment with the EU and allowing for work migration. The reaction was out of character given the escalating concerns of the times.
Inflation in Switzerland fell to 1.3% per year in March 2003. A sign of impending deflation, it has gone from being reason for celebration to cause for concern. There has been a prolonged period of below-trend growth. Capacity sits idle while demand continues to decline. We have skyrocketing national debt and high tax rates.
Interest rates were cut by half a percentage point in March 2003, causing them to be extremely low. Unaffected by these monetary games, however, the Swiss franc is trading at its highest level against the dollar in five years. More than half of Switzerland's GDP comes from exports and tourism, the country's lifeblood. There is no benefit to the trade balance from the mighty currency.
Symbols of national economic power are falling all over the place. Swiss International Air Lines (Swissair's faltering successor, Andre Dose) pleaded with the government and banks in an interview with the daily Blick to grant them tax breaks, reduced insurance premiums, the elimination of airport fees, and lenient loan terms and subsidies. In 2002, the airline incurred losses exceeding $700 million.
Agrarplattform is a group that represents farmers, processors, and retailers. They recently released a study that disproved the long-held belief of the Swiss that their beloved agricultural sector, especially milk, potatoes, and meat, is profitable. Companies specialising in indigenous weapons technology, like the state-owned Ruag group, had their profits cut when anti-war demonstrators besieged their headquarters.
The pharmaceutical company Roche, the banking institution Credit Suisse, the human resources firm Adecco, and the financial services provider Zurich all announced record-breaking losses and layoffs in 2002 and 2005.
Bird flu and Severe Acute Respiratory Syndrome are two more examples. There have been ten cases of the former suspected in Switzerland. Because of the new pandemic, it cancelled flights, increased airport inspections, and set aside money for research. Roche, a pharmaceutical company based in Switzerland, developed a diagnostic kit by the year's end 2003.
The slump has affected every industry. The United States government and a dedicated group of European countries are cracking down on Swiss banks, which have come under fire in recent years for allegedly aiding in money laundering.
Swiss banks started returning over $670 million that had been stashed there by the late dictator Sani Abacha to Nigeria in 2002. Following a similar move in 1990, the government once again frozen $368 million worth of Iraqi financial assets in the lead-up to the Iraq War.
These days, tax evaders, terrorists, scammers, crooked politicians, and mob bosses seek sanctuary in Cyprus and Lebanon, or even in the United States, the United Kingdom, Austria, or Luxemburg. The credibility of Switzerland as a secure financial sanctuary is severely damaged.
The banking industry has been hit hard recently, and this is just the most recent setback.
Credit Suisse and UBS, two of Switzerland's largest banks, agreed in August 1998 to establish a $1.25 billion fund to compensate Holocaust survivors and their families in response to intense public pressure from Jewish organisations and a backlash that was barely disguised as anti-Semitism. The Swiss government, looking embarrassed, contributed $210 million. It would appear that the banks were not in a rush to locate the beneficiaries of the dormant accounts holding billions of dollars that belonged to the Jewish victims of the Holocaust.
After the Swiss National Bank was threatened with legal action and public opinion and lawmakers in the US shifted against Switzerland, a settlement was finally reached. This includes either the current or future owners of dormant accounts, slave labourers, and 24,000 out of 110,000 refugees who were forcibly returned to certain death at the Swiss border.
After inspecting 350,000 accounts at an outrageous cost of $400 million—borne by the furious banks—a high-level international commission, led by Paul Volcker, a former chairman of the Federal Reserve Board, found 54,000 accounts opened by victims of the Holocaust. Swiss banks extended interest-free loans to the Axis powers, according to the Bergier Commission, which was established in 1996 by the Swiss parliament and came to light in March 2002. This further complicated matters.
An additional setback was dealt by Wall Street to Swiss financial intermediaries and their brokerages in the United States. The company recently reached a settlement with US regulators regarding allegations that they provided biassed stock recommendations and analyses. This, however, was insufficient to avert charges of obstruction of justice and destruction of evidence against Frank Quattrone, a former prominent investment banker with Credit Suisse First Boston. Swiss companies of all sizes are pulling their money out of the corrupted financial markets.
Swissinfo, the news website of Swiss Radio, states that in April 2003, Swiss National Bank (SNB) chairman Jean-Pierre Roth cautioned against excessive optimism during the SNB's annual meeting. A combination of weakening trade conditions, flat consumer spending, and reduced government spending has increased the "risks of a renewed worsening of the situation... Compared to the previous year, conditions for our companies have worsened."
Bureaucracy and anti-competitive groups continue to be obstacles for the nation. He did concede that growth in 2003 was below what the Bank had predicted even as recently as five months ago. We are in agreement with the OECD. The outlook expressed concern that the country's recovery could be hindered by foreign conditions that are subdued and by the franc's relentless appreciation.
The gross domestic product increased by a negligible 0.6% in 2003 and 1.9% in 2004. More optimistically, the International Monetary Fund (IMF) predicted a 0.3% increase in 2003 and a 2.4% increase the following year. The expansion of the economy came to a halt in 2002. The unemployment rate in February 2003 was 3.9%, which was a record high.
However, there is some good news. Infineon, a German semiconductor manufacturer, is thinking about moving to Switzerland. To "gain access to the multi-trillion dollar financial markets in Europe," San Diego-based Netrom's Tempest Asset Management opened a currency trading centre in Zurich in April 2003. Companies all over Switzerland are experiencing record sales and soaring profits, from gourmet bakery Hiestand to computer peripherals manufacturer Logitech.
Despite only being one third as large as it was in January 2000, the UBS Index of Investor Optimism rose 61 points in March 2003, according to the Gallup Organisation and the Swiss behemoth bank UBS. Among the general public, 50% anticipate an economic recovery, and 25% think job opportunities will improve.
The beautiful but expensive isolation that Switzerland had been enjoying was forced upon it by globalisation. After decades of resistance, it finally decided to join the UN in March 2002. New York City hosted the two-month Swisspeaks festival in April 2003.
The national exhibition in Neuchatel, Expo.02, drew ten million people. In June 2003, seven pacts with the EU went into effect. Surprisingly, Switzerland is almost ready to become a member of the Schengen agreement, which will abolish internal borders between Switzerland and the European Union. In accordance with directives from the Union, banking secrecy will be partially lifted.
Among the wealthiest nations on the planet, Switzerland is home to 7 million people, with one fifth being immigrants. There is an income of over $38,000 per capita. The economy's vulnerability, which is its openness, is also its strength. Because of this, Switzerland is able to be very adaptable and resilient.
Despite being on the front lines of both world wars, the country managed to emerge unscathed. In the process of its transformation, it went from being an archaic, rural, landlocked kingdom to a modern, globally powerful financial cum engineering empire. As usual, it will come out even stronger and prepared to take on anything comes its way.
