European Central Bank headquartersJOHN MACDOUGALL
If you can't beat them, join them. That might be the message for Switzerland. The Swiss National Bank is trying to stop the Swiss franc being turned into the new Deutschmark as savers flee the euro zone. Why not adopt the single currency – at a suitable rate? Then, like Germany, Switzerland could have an easy ride – at least until nasty payback time.
The rich Swiss have a rather awkward currency problem. Since 2008, the central bank's balance sheet and the country's foreign currency reserves have quadrupled. The SNB has printed Swiss francs like Ben Bernanke, the U.S. Fed Chairman, on speed and bought euros in huge quantities. The new francs have kept the currency's value from rising above the 1.20 Swiss francs per euro, the level the SNB set as a maximum in September, 2011. The only exception was in April, when Greek worries became especially intense.
This policy is risky. With 51 per cent of its reserves in euros at the end of the first quarter, the SNB could suffer a big loss if it ever let the franc rise to where the market wants to take it. And the more calamitous the euro zone becomes, the more attractive the franc – and the more expensive the defence. Small wonder Thomas Jordan, the head of the SNB, has mentioned capital controls. If the zone gets worse, Switzerland will need them. But Switzerland's large financial sector would find them a big nuisance.
So why not join the euro, if Swiss voters could be persuaded? The zone would be so delighted to find some excellent taxpayers that they would probably agree to a favourable exchange rate, perhaps 1.40 francs per euro. And the Swiss fears about loss of competitiveness and growth and deflation would vanish, just as Germany's have. Swiss exports would boom – just like German ones. How lovely.
The only small problem then would be sharing in that other German angst – about the cost of bailing out all those still uncompetitive euro zone periphery economies. Like Germany, the Swiss might find it hard to get out of that one.