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Swiss Ponder Battle Over Runaway Franc
Switzerland, the nation that hasn’t gone to war with a foreign power since Napoleon, is reluctantly debating a generational taboo: ceding monetary independence to win a battle over its runaway currency.
Swiss National Bank Vice President Thomas Jordan said the central bank is assessing “a whole range of options” to prevent the franc, which reached a record against the euro this month, from making Swiss goods prohibitively expensive. Even a cup of coffee at Café St. Gotthard in Zurich costs $8.30, with one Swiss franc buying $1.2750 at today’s exchange rate.
“The franc is catastrophically overvalued,” said Blocher, a former justice minister for the People’s Party, Switzerland’s largest. “It’s almost like economic warfare -- to wage a war, you must use all measures at your disposal, and you must win.”
Switzerland’s currency is 41 percent overvalued against the euro, based on purchasing power parity as calculated by the Organization for Economic Cooperation and Development. That’s “a headache,” according to ABB Ltd., the world’s largest maker of power-transmission gear, which responded by buying more parts from euro-region suppliers to feed its Swiss factories. Workers at Lonza AG, a Basel-based chemicals maker, are working longer hours without extra pay, while VonRoll Infratec AG, the Zug- based maker of piping systems and castings, is paying some salaries in euros.
Swiss central bank sets limit on franc's strength
In what experts called a last-ditch "nuclear option," the Swiss National Bank set a ceiling Tuesday on the value of its currency, which has skyrocketed this year as traders worldwide frantically searched for a safe haven in volatile times.
Aiming to protect Swiss exports and the country's vital tourism industry, the bank said it would spend whatever it takes to keep the Swiss franc from strengthening beyond 1.20 francs per euro. It also indicated it might take more measures to weaken it further.
Philipp Hildebrand, chair of the central bank's governing board, said that the move to counter "a massive overvaluation of our national currency" was taken to avert a recession.
"Switzerland is a small and very open economy. Every second franc is earned abroad. A massive overvaluation carries the risk of a recession as well as deflationary developments," he said in a statement, adding that the goal is "a substantial and sustained weakening of the Swiss franc."
It is now a race to the bottom. The Swiss were right to preserve their sovereignty and reject the Euro in the first place. What no one counted on was how much damage social manipulation, welfare and union thugery would cause . Euro-style socialism, practiced with a vengeance in the PIIGS, is a road to disaster that now leads through America.
With the Euro and Dollar in flight, the Franc looks good. Trouble is there aren't enough Francs to satisfy the world's demand. Therefore, they are rising in value. The Swiss think they have to debase their currency to stay competitive. They could sit back and enjoy all the cheap imports but their exports will cost 25% more in other countries and that will cause unemployment in Switzerland. They fear the unrest caused by unemployment more than they fear the inflation that will come from flooding the market with more printed money. Kind of like Owebama.
But you can't buy prosperity. The Swiss can't print enough Francs to sop up the world demand for a stable currency - the country is just too small. The race to the bottom will end with the Swiss holding tons of worthless Euros and Dollars bought with what were once valuable Francs.