Switzerland fears euro fallout – because its currency is too strong

Influx of investors seeking safe haven may send franc to record high and hit nation's high rollers

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.

Central bankers in Berne were eventually forced to step in and the currency rise was halted only after the Swiss National Bank intervened to peg its value against the euro at a floor of 1.20 per franc.

But there are concerns that Switzerland will be struck by another wave of foreign currency if Greece decides to leave the eurozone after its forthcoming general election. This could drive up the franc yet again – presenting a fresh headache for Swiss politicians and businessmen alike. 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. In recent weeks it has been trading within a fraction of the floor set last year.

Attention is turning to capital controls on foreign deposits, a weapon that Berne'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. But the curbs failed to halt the rise of the franc. The currency was brought under control only after it was pegged to the then German currency, the Deutschmark. Moreover, 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 such a move, the head of the Swiss National Bank, Thomas Jordan, raised the prospect of capital controls this week. His words count: this year, Berne set up a task force, led by Mr Jordan and finance minister Eveline Widmer-Schlumpf, to work out contingency plans in the event of a eurozone collapse.

The challenge facing the Swiss was underlined yesterday, with minimal market reaction to the possibility of far-reaching capital controls. The franc retained its value despite Mr Jordan's warning, indicating that traders were inclined to continue holding the currency despite the regulatory threat.

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.

Start your day with The Independent, sign up for daily news emails
Voices
Barn owls are among species that could be affected
charity appeal
Sport
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricketEoin Morgan reportedly to take over ODI captaincy as ECB finally wield the axe
Arts and Entertainment
a clockwork orange, stanley kubrick
film
News
news... you won't believe how bad their skills were
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Finance Director

£65000 - £80000 per annum: Recruitment Genius: Finance Director required to jo...

Recruitment Genius: Medico-Legal Assistant

£15000 - £25000 per annum: Recruitment Genius: This is a unique opportunity fo...

Ashdown Group: (PHP / Python) - Global Media firm

£50000 per annum + 26 days holiday,pension: Ashdown Group: A highly successful...

The Jenrick Group: Quality Inspector

£27000 per annum + pension + holidays: The Jenrick Group: A Quality Technician...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas