The financial world is so upended that even Switzerland is starting to slide awkwardly. Debts, public and private, keep increasing all around the world, negative rates are being used everywhere – as is money printing – and currencies are becoming more and more volatile. And, with this unnerving and uncertain picture, a country with a sound economy – because of freedom and low taxes – which has always benefited from an excellent reputation and had balanced public accounts, is affected just like the others, by contagion. It cannot remain in its ivory tower, as it is experiencing serious imbalances.
For a long time Switzerland, with its banks and its money, has been considered the best place for safely holding assets, but this time is gone and other mishaps are likely to happen. First, there was the end to banking secrecy – to fight against dirty money or money from tax evasion. But behind this stated goal, what we saw, above all, has been the retaking of control of the Swiss banks by the Anglo-Saxon financiers. Case in point, Anglo-Saxon law allows the creation of companies with nominees, which helps greatly in hiding a fortune... As a matter of fact, even the United States has a fiscal paradise on its land, the state of Delaware. Dirty money just keeps changing places.
Another threat is looming over Switzerland and, paradoxically, is the result of its health and attractiveness: funds are attracted to the Swiss franc’s good standing and, more globally, by a very sound economy and solidly established property rights. Consequently, the Swiss franc tends to appreciate, which the Swiss National Bank (SNB) tries to counteract in order to keep exporting companies from being penalised by too strong a currency.
Let’s recall that the SNB had kept the Swiss franc pegged at 1.20 euro for a long time, before changing course, to everyone’s surprise, on January 15, 2015, which provoked a spike in the currency. But since then, the Swiss franc hasn’t been floating freely; the SNB is trying to maintain a relatively stable exchange rate, at the cost of a considerable accumulation of reserves. The SNB’s balance sheet keeps growing at levels rarely seen on the planet: more than 500 billion Swiss francs, or 80% of the country’s GDP! For the ECB, it’s “only” 35% (by comparison with the Euro zone countries’ GDPs).
We also find these imbalances in personal debts (125% of GDP) and companies’ debts (85% of GDP), as well as in large banks (500% of GDP!) – mainly UBS and Crédit Suisse. These numbers, all of a sudden, are very scary, and with good reason. If a crisis were to affect one of those two banks, it could seriously de-stabilise the Confederation.
Switzerland remains a very good vault... for physical gold or artwork. With regards to its money and its large banks, though, the future is far more uncertain. The contagion of bad finance spares no one.
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.