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Swiss Government Welcomes Action On Franc

by Ulrika Lomas,, Brussels

12 September 2011

Switzerland’s Federal Council has welcomed the recent decision by the Swiss National Bank (SNB) to set a minimum exchange rate as part of efforts to weaken the Swiss franc. It also reaffirmed its intention to examine various macro-prudential measures designed to mitigate the effects of the rapid rise of the Swiss franc as a matter of urgency, underlining that low interest rates pose a considerable risk of overheating of the Swiss mortgage market.

Determined to protect the Swiss economy and to avoid the risk of a deflationary development arising from the "massive overvaluation of the Swiss franc", the SNB announced its decision on September 6 to set the minimum exchange rate at CH1.20 per euro.

Defending its decision, the SNB explained:

“The Swiss National Bank is therefore aiming for a substantial and sustained weakening of the Swiss franc. With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.”

It added: “Even at a rate of CHF1.20 per euro, the Swiss franc is still high and should continue to weaken over time. If the economic outlook and deflationary risks so require, the SNB will take further measures.”

According to the Swiss Federal Administration, the Federal Council is determined to complete its examination of macro-prudential measures as quickly as possible, noting that a working group has already been set up and tasked with the role, led by the Federal Department of Finance (FDF), working closely alongside both the SNB and the Confederation’s financial market regulator, FINMA. The banking sector will also be involved in the preparatory works, the administration added, noting that any anti-cyclical provisions would be applied from January 1, 2012 at the earliest.

The Federal Council is also determined to ensure that the SNB is able to gain better access to banking information that is not available from FINMA.

On August 17, the Federal Council unveiled plans to swiftly introduce a CHF2bn (EUR1.8bn) package of measures targeting affected businesses, to mitigate the effects of the rapid rise of the Swiss franc, to support the Swiss economy and to strengthen Switzerland as an industrial centre.

Eager to prevent rising unemployment and to avoid an exodus of businesses abroad, the Swiss federal administration confirmed at the time Federal Council plans to submit to parliament in the autumn a series of concrete measures designed to support companies affected by the strength of the franc, providing for a temporary reduction of costs, for a strengthening of innovation, and for improved economic framework conditions in Switzerland.

Measures to support export and tourism, as well as research and innovation and consumers and infrastructure are currently being examined and will rapidly be implemented, the administration revealed.

The proposals include plans to temporarily exempt or to reduce social security contributions for those companies most affected by the crisis, expected to reduce the burden on companies by around CHF1.3bn. According to the federal administration, the Federal Department of Finance has also been tasked with proposing a revision of the Confederation’s existing law on cartels.

Dwindling investor confidence in other currencies, prompted by concerns over the eurozone debt crisis and by signs of a slowdown in the US, has led to massive increases in the Swiss franc, a 'safe haven' currency, over the past few months. The appreciation in the franc has particularly affected the competitiveness of businesses in Switzerland, faced with lower margins, particularly businesses selling their products abroad.

According to the administration, the Federal Council aims to provide for the necessary resources to implement the measures within the framework of an ad hoc 2011 supplementary budget. Part of the funds will probably be deferred until next year, the administration pointed out.

TAGS: business | law | banking | forex | budget | offshore | unemployment | social security | Switzerland | currency

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