Seems a little crazy to start a blog about moving to Switzerland
just when dark clouds are finally appearing in the Swiss horizon, but there you
go.
Indeed, economic prospects don’t look great from lots of
angles, despite the country’s enduring safe haven status. Feel free to tell me
how I’m wrong.
To start with, the Swiss banking sector, traditional Alpha
dog of whole economy, is on its knees thanks to the triple-punch of weak global
economic prospects, increased regulation and loss of bank secrecy – the sector’s
unique selling point. Public relations may puff about the country’s fine
banking tradition, but the truth is with every passing year the financial sector
is shrinking – both in size and importance, and the smaller private banks are continuously
shutting shop.
Lost banking clients from Europe and the US also mean less
shopping on the Bahnhoffstrasse and fewer overnight stays in hotels – no need
to visit one’s money if it’s no longer there. Highly paid Swiss bankers also
support the rest of the service economy: the plumbers who drive Mercedes, the
builders who charge 100,000 francs to mend a roof. And let’s not start on the
dentists!
Given US and European government success at forcing
Switzerland to capitulate on bank secrecy, corporate taxation policy looks a
lot like low hanging fruit. Switzerland has worked very hard for the past decade
to attract highly mobile multinationals (smaller companies too) through a
combinational of low corporate taxes and laissez-faire, business-friendly
legislation. As a result, the EU has long complained that cantonal tax deals
(in a competitive race to the bottom) amount to state aid. At some point, it’s possible the EU will do
something more than just rattle its sabres. Switzerland has always been good at
negotiating, but the threat is always there.
As for the Swiss tradition of ensuring business-friendly and
rich people-friendly legislation – this too seems a bit less clear. The banking
crisis followed by the global economic meltdown has left a bitter taste, and
redistributive justice is on the political agenda, despite the reassurances
that Switzerland is always pragmatic in the end. Stiffer inheritance taxes, higher
lump sum taxes, “fat cat” salary legislation with real teeth – these are just
some of the issues being voted on. Expect the usual hysterical poster
campaigns.
There’s already a flow of commodities traders departing from
Switzerland and going to Singapore.
But Switzerland is still a lot better off than its
neighbours, and this had sent the franc soaring against the euro until the
Swiss National Bank put a stop to it a year ago. Even at the 1.20 rate (it got
down to near parity before the intervention), the strong franc has hobbled the
tourism industry and seriously damaged the very-well regarded Swiss export
sector. Companies that earn abroad but whose costs are in francs – not an
insignificant number – are particularly vulnerable. “Brand Switzerland” relies
on its high-quality image, so cutting costs isn’t a huge possibility.
The SNB didn’t have a lot of choices, and the cap is
expected to hold (some companies are so sure they aren’t even hedging.) Even with
the intervention, a euro doesn’t buy anywhere near the traditional average of
1.50 francs. And Swiss companies aren’t exactly getting rich off this rate –
they’re just pausing to take a breath.
But the perils of dabbling in the dark arts of currency
manipulation are serious. Giant exposure to a sinking, possibly disappearing,
asset and the possibility of stoking future inflation probably stops central
bankers from high-fiving each other in the corridors, even if they did manage
to make money on the trades this year. There’s also the whole “beggar thy
neighbour” issue. Defending the cap at all costs also means other currencies
must go up – not a very popular move.
The star of the Swiss export sector – the watch industry –
also looks a lot less shiny. Independent watchmakers reported at the beginning
of the year that the market in China (the industry’s bestest client by far) is
awash with watches. There was also concern – pre Bo affair – that popular outrage
at the spoiled rich would ultimately affect the watch industry. One can only
imagine how much worse the image problem is now. Numbers are still holding up
but…
Of course, all is not lost. Unemployment is below 3%,
compared to 8% in the US and 10% in the EU. And Swiss giants like Nestle are still
reporting solid profits.
With weaker prospects perhaps the franc will also lose its
sparkle -- and that may help the export sector, which already accounts for
about half of Swiss GDP. The even better
news is that Switzerland still tops the innovation indexes. The country is
awash with world leaders in high-tech niche products that cannot be easily
duplicated. While it’s not exactly a hot bed of grass roots entrepreneurial
activity, Switzerland’s universities, labs and other technology centres are not
lacking in good ideas.
Lower prices for goods and services? Well, I'll let someone else answer that one.
While Switzerland may experience some serious economic turbulence
in the coming years, it might be a really exciting time to live here as the
country reshapes socially and educationally to fit in to the new world order.
Who knows what this place will look like in 10 years.
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