ECON 365 Term Paper Matthew Podsiadly Switzerland

A common symbol of vast wealth is the ownership of a Swiss bank account. From the 14th century to today, the reputation of secrecy and privacy granted to account holders has developed into an economy with a strong emphasis on low taxes and the ease of doing business. To accommodate businesses, the Swiss National Bank and Swiss Parliament support an environment of low inflation, low taxes, and non-interventionist foreign policy. According to the International Monetary Fund, Switzerland had the 4th largest GDP per capita in 2010 (valued in terms of market rates converted to US Dollars)i. Current macroeconomic conditions in Switzerland and in Europe have continued to uphold Switzerland as a safe haven from global economic stress. Uncertainty regarding the future of the European Monetary Unit and trade patterns built from the creation of a single regional currency has left many Europeans and global money managers paying extremely large premiums for the safety offered by the Swiss economys stability in times of crisis. After choosing not to join other nations in adopting the Euro has a national currency, The Swiss Franc has appreciated to all-time highs against the Euro, US Dollar, Japanese Yen, and British Poundii. This unprecedented strength defines the current state of Swiss affairs, and likewise economic trends and conditions. Swiss producer and consumer prices have fallen throughout 2011 on the strength of the Swiss Franc against it largest trading partner, the Eurozoneiii. Perceived overvaluation of the Swiss Franc is the most pressing issue facing Swiss fiscal and monetary policymakers. Unlike other financial assets, strength and value are not always great traits for global currencies. Policymakers tend to not complain about the overvaluation of domestic equities, low yields on debt issuances, or high prices for commodity exports, but an overvalued currency can cause many imbalances that can retard domestic economic growth and artificially redirect global

trade patterns. In spite of an extremely strong currency, Swiss output grew by 2.3% in real currency terms on a year over year basis. Public and private consumption made up for declining export values in all major Swiss industries. Over the past ten years, Swiss private consumption has grown steadily, in times of global growth and contraction, between one and two percentiv. Only briefly in 2002 did private consumption slow down. Public consumption patterns have followed a traditional Keynesian approach, increasing spending when national income is stagnating or decreasing, and decreasing spending during times of economic expansion. It is important to note that Switzerlands debt issuances in terms of real output remain beneath 40%, allowing them to spend public funds without risking their reputation of fiscal prudencyv. Domestic fixed investment has also lagged over the past ten years as a result of two major themes in Europe. Since the Swiss National Bank has kept interest rates beneath 3% since August 2001, lenders and investors have looked to southern Europe and Eastern Europes emerging markets in order to capture a larger interest rate on their investmentsvi. Commonly, referred to as the carry trade, businesses would conduct operations in countries that had higher interest rates in order to earn a premium on their investments simply by swapping into another currency. For example, if three month interest rates in Switzerland are priced in the short term interest rate market at 2%, and in Turkey the interest rate for the same duration is 10%, barring all changes in foreign exchange valuations, there is an 8% premium on doing business in Turkey instead of Switzerland. There are many risks to the carry trade, including fluctuating currency values, fluctuating values of forward interest rates, and lastly the amount of debt, or leverage used when engaging in currency transactions. Starting in 2005, this was very common in the mortgage markets of Europes developing economies, explaining most of the decrease in domestic investmentvii.

Switzerland GDP Y/Y Output and Consumption Patterns

6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% -2.00% -3.00% -4.00% GDP Private Consumption Public Consumption

Q2 2008

Q1 2009

Q3 2001

Q2 2002

Q1 2003

Q4 2003

Q3 2004

Q2 2005

Q1 2006

Q4 2006

Q3 2007

Q4 2009

Q3 2010

The value of the Swiss Franc has not caused any issues in real output as of the third quarter in 2011, but consumer and producer prices reflect a much different picture that are likely to hurt Swiss exporters. The concern for deflation has also become a very large concern for domestic financial services, as multi-national Swiss banks have underperformed their European and American peers in the wake of the strong Francviii.

Switzerland M/M Price Changes

8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% -6.00% -8.00% -10.00% -12.00% Apr-02 Apr-04 Apr-06 Apr-08 Aug-01 Aug-03 Aug-05 Aug-07 Aug-09 Dec-02 Dec-04 Dec-06 Dec-08 Apr-10 Dec-10

Q2 2011

Headline CPI Core CPI Producer Prices Import Prices

Export driven growth has been a tough policy to pursue as import prices have rolled into negative territory for the first time since the global trade slowdown that came with the financial crisis and corresponding recession. In addition to industry, tourism is also responsible for 1.5 billion CHF of direct economic activity every yearix. Generally, strong domestic currencies tend to drive away tourism and hurt the vacation and hospitality sector of the economy, as foreign currencies cannot purchase as many local goods as before. Other price levels like consumer prices remain flat at the core rate of inflation measured by the Swiss National Bank, as well as total consumer inflation (equivalent of headline inflation in the United States). Low inflation has been likely driven by lower import prices as opposed to immediate concerns over growth. Moodys economic forecasting service does not predict Switzerland will see a contraction in output for the rest of the yearx. Swiss unemployment is a product of a rare set of circumstances regarding immigration law. Currently, over 20% of workers in Switzerland are foreign bornxi. An increasing number of these workers come from European Union nations, like Germany and Italy, as the model of putting quotas on cheap labor from Poland and Yugoslavia have been phased outxii. Currently, there is a three tier system of labor immigration in Switzerland. The most desired is that of permanent residence, which grants any employee with this distinction the same rights as natural born citizens as long as they are employed. Next is a five year residency, which grants workers the rights to stay for five years and work legally before they must leave Switzerland or re-apply. The last form is simply cross-border employment, where workers will ride trains from European Union nations into Switzerland for the day, and then leave when work is done. The

small population of Switzerland mixed with a notable ease of doing business has caused a labor shortage that has been filled by foreign born workers. This creates a lower natural rate of unemploymentxiii.

Unemployment Rates
12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% August-01 April-02 December-02 August-03 April-04 December-04 August-05 April-06 December-06 August-07 April-08 December-08 August-09 April-10 December-10 Swiss Jobless Rate US Unemployment Rate

A quick examination of Switzerland shows that it is being choked by its own success. The Swiss economy has shown remarkable resilience in the wake of the global financial crisis of 2008 and the ensuing recession. Switzerland is being rewarded with incredible capital flows into domestic assets due to its fiscal prudence and ability to act as a true safe haven for people and institutions with large amounts of cash. As a result of the failure of Europes fixed exchange rate bloc, the Euro, and the United States inability to correct long term fiscal imbalances while using political gravitas, the Swiss Franc has served as a point of refuge from global chaos. Policymakers are feeling pressure from domestic sources to combat these massive capital inflows; and the battleground will be in the foreign exchange marketxiv.

In 1992, Switzerland refused and rejected its potential membership to the European Economic Area. Switzerland did not participate in the Exchange Rate Mechanism in the years

prior to 1992, indicating that Switzerland wanted no part in a monetary, fiscal, or trading union between itself and the rest of developed Europe. Instead, Switzerland has arranged multiple bilateral agreements with the European Union in order to guarantee free trade and ease of access to markets within the European Union. Joining the European Union would put its direct democracy voting system at risk, which is domestically seen as a large risk to national sovereigntyxv. After the breakdown of the Exchange Rate Mechanism in 1992, economists began to refer to the program as the Eternal Recession Mechanismxvi. In the United Kingdom, the date of the British Pound depreciating against the Deutsch Mark was formerly known as Black Wednesday. Years after the clear failure of the Exchange Rate Mechanism, it was renamed White Wednesday. The Pound and Swiss Franc chose to not participate in further European monetary experiments, including the Euro. The economic concept of an Optimum Currency Area is being conducted in real time via members of the European Monetary Unit. An Optimum Currency Area needs labor and price mobility, participants with similar business cycles, and lastly, a system of sharing the fiscal burden of all the member-statesxvii. The European Monetary Unit lacks any sort of mechanism for fiscal risk sharing, and the concept of similar business cycles is shaky considering the discrepancies in employment rates between countries like Spain and Germany. Switzerlands lack of interest in adopting the Euro as a national currency has paid off extremely well over the past 13 years. So much so that the strength of flows into Swiss Francs from European bonds and currency has caused such unprecedented and unplanned strength that many sectors are being smothered in currency overvaluationxviii. Since the beginning of the 21st century, the Swiss Franc has appreciated against the US Dollar and the Euro by 100% and 25% respectivelyxix. Since June of last year, the US Dollar has

weakened by 33% against the Swiss Franc in spite of minimal differentials in interest rates and inflation volatilityxx. The incredible strength against the United States has been a product of two major themes. First, the US Dollar has become the most common borrowing currency for the previously mentioned carry trade. Due to its low interest rates, and weak probabilities of interest rate increases in the next two to three years, the Dollar has become extremely popular for borrowing, and simultaneously lending to countries with higher interest rates. In the past ten years, the country in the developed world with the highest interest rate has been Australia. The following graph shows the exchange rate data for the past ten years that compares the Australian Dollar to the US Dollar, the Japanese Yen, and Swiss Francs. It is very clear that after the financial crisis, the US Dollar has become the most popular borrowing currency. This means that in spite of similar interest rate environments, the US economy still remains much weaker than Switzerland, and even has additional fiscal policy risks. This makes it much easier to borrow considering it is likely to stay weak when compared to the alternatives, Japanese Yen and Swiss Francs.

Developed World Carry Trade (2000-Present)

1.2 1 0.8 0.6 0.4 0.2 0 120 100 80 60 40 20 0 AUD/USD Rate (LH) AUD/CHF Rate (LH) AUD/JPY Rate (RH)

The Swiss National Bank began to attempt to stunt the strengthening of the Swiss Franc directly against the Euro in 2010, as the Swiss National Bank announced it would be engaging in an expansion of its currency portfolio by purchasing Euros in the secondary market xxi. The Swiss National Bank paid for the Euros using Swiss Francs. Fundamentally, they are increasing the demand for Euros, increasing the supply of Swiss Francs, and therefore altering the short term equilibrium to show a weaker Swiss Franc and a stronger Euro. An email to a spokesperson at the Swiss National Bank yielded a response that they do not confirm or deny any participation in the foreign exchange marketxxii. However, Swiss National Bank data from 2010 confirms that extremely large currency investments were made to expand Euro holdings on the central bank balance sheet. In spite of the investment of billions of Swiss Francs, the exchange rate still fell, and had a number of Swiss policy commentators calling for the resignation of Philipp Hildebrand, the Chairman of the Governing Board of the Swiss National Bankxxiii. In August of 2011, The Swiss National Bank took an alternative path from simply buying Euros in the spot foreign exchange market. The first measure was providing enough liquidity to Swiss money markets (interest rates on loans with maturities shorter than one year) that interest rates began to price a negative yield on government bonds. In a matter of days, this measure also failed to stem the appreciation of Swiss Francs. The final effort as of the time of the writing of this paper was the formal announcement and enforcement of a fixed exchange rate between the Swiss Franc and the Euro at any price greater than 1.20 Swiss Francs per Euroxxiv. The cost of enforcing this peg has caused Swiss National Bank investment in Euros to explode. The value of Euros owned by the central bank has become more than 70% of Swiss outputxxv. The biggest risk exposure to the balance sheet is the potential for the European Central Bank to reduce

overnight interest rates in an effort to boost liquidity to suffering nations. This is the largest threat to the stability of the currency peg.

FX Holdings by Swiss National Bank (Millions CHF)

180000 160000 140000 120000 100000 80000 60000 40000 20000 0 Q1 1997 Q4 1997 Q3 1998 Q2 1999 Q1 2000 Q4 2000 Q3 2001 Q2 2002 Q1 2003 Q4 2003 Q3 2004 Q2 2005 Q1 2006 Q4 2006 Q3 2007 Q2 2008 Q1 2009 Q4 2009 Q3 2010 Q2 2011 USD EUR JPY GBP CAD Other FX

Switzerland is one of Europes only landlocked nations. In accordance with the gravity model, three of its direct neighbors generate over half of Swiss imports and exports as a percentage of total trade volume in local currencyxxvi. Trade patterns have largely remained unchanged in the previous two decades. Emerging economies have started to take on a larger volume of trade, but industrialized nations in Europe still consist of nearly 80% of Swiss trade volume. Switzerland has held a trade surplus for every month since August 2005, indicating that even in light of recent weakness in the currency of its main trading partners, there is no weakness in demand for Swiss goodsxxvii. The aforementioned fixed exchange rate adopted by the Swiss National Bank in September has helped give exporters a cushion by allowing them to forecast for a more stable currency environment, something that was severely lacking until a formal currency

peg was implemented. The worlds second largest cement producer blamed the appreciation of the Swiss Franc for 916 million CHF worth of sales in the second quarter of 2011 alonexxviii. Large, Swiss multi-national corporations have explicitly expressed approval of currency measures taken by the Swiss National Bank. Over the past ten years, the Swiss current account balance has been driven higher by an increase in demand for Swiss goods and Swiss services. The current account balance was driven negative in the third quarter of 2008 by the global financial crisis, causing a significant decrease in risk appetite by businesses due to uncertain credit conditions in short term funding markets, and an increase in the strength of the Swiss Franc. Switzerland has run a current account surplus since the beginning of 2009, however that surplus is dwindling because of currency appreciationxxix. The Big Mac Index perhaps shows the most outrageous effect of Swiss Franc appreciation. On a raw basis, the Swiss Franc is 98% overvalued when compared to the United States Dollar, and 63% overvalued when adjusting for GDP per capitaxxx. One way of examining the domestic damage of the strong currency is by looking at tourism as a percentage of total services receipts. Tourists make a relatively small portion of output, but nonetheless are a good barometer of what foreigners believe about Swiss price in comparison to their domestic currency. Tourism now makes up less than 20% of service receipts, with the most recent data still lacking the second quarter of 2011, where the Franc appreciated by 18% against the Dollarxxxi. The recent currency peg may alleviate some of this pain, but if the peg were to be removed, the Swiss Franc would likely appreciate again, only causing a deeper problem for the service industry.

Tourism Share of Services (%)

30 25 20 15 10 5 0

2002 01

2001 01

2001 07

2002 07

2003 01

2003 07

2004 01

2004 07

2005 01

2005 07

2006 01

2006 07

2007 01

2007 07

2008 01

2008 07

2009 01

2009 07

2010 01

2010 07

Due to the low interest rate environment, Switzerland has continued to run a financial account deficit that has grown over the past decade. The financial account balance has briefly turned positive during recessions due to repatriations of capital flows in foreign markets. However, the size of global equity and credit markets provides much greater opportunities than what can be done in domestic markets that are already very well developed. The balance of direct investment has steadily demonstrated that Swiss corporations are actively looking to place their money in countries with higher growth rates and growing demand for consumer goods. Within the financial account, the flight of Euro denominated assets is visibly seen in the investment into domestic money market funds. Money market investment has spiked since 2009, and forced the Swiss National Bank to respond by taken yields on Swiss government interest rates negative for any debt note with a shorter maturity than six monthsxxxii. Simultaneously, The Swiss National Bank brought domestic LIBOR rates to negative levels in order to stem capital flows by curbing yield seeking behavior. In short, to put money into a

2011 01

Swiss bank account required the money owner to pay the bank interest, as opposed to banks paying interest on accounts. The total Swiss balance of payments tends to run at negative levels. This isnt surprising considering that Switzerland is a developed country rich with capital and extremely low domestic yields. Due to yield seeking behavior, under normal business conditions, capital owners will seek to maximize yield or return, requiring Swiss Francs to be sold for foreign currency (or foreign interest rates). This behavior should shift demand for foreign currencies higher than demand for Swiss Francs, allowing Swiss Francs to depreciate against other currencies with higher yields. However, this has not happened, and anyone predicting that a negative balance of payments would generate a cheaper Swiss Franc would be terribly wrong. This is because other capital-rich nations and regions such as the Eurozone have shifted behaviors from risk-loving and yield seeking to capital preservation. In an effort to preserve real purchasing power, yield seeking behavior has been abandoned, as any perceived gains from interest rate differentials are viewed as not being worth the risk of market liquidity, and in some cases market solvency. Until legitimate measures are taken by the European community to settle liquidity and solvency for peripheral European nations, there will be continued stress on the Swiss balance of payments and currency overvaluation. Unfortunately, the future of Swiss trade and investment is dependent on the political cooperation of the European Unions core nations, Germany and France, which have differing opinions on handling regional weakness. As long as uncertainty over the future of the European Monetary Unit and capitalization of European banking institutions looms, the outlook for Swiss trade patterns and financing will sway in the balance of regional events.

Swiss 3M LIBOR (%)

3.5 3 2.5 2 1.5 1 0.5 0

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jul-01

Jul-02

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

The biggest failure of Swiss policy over the past 24 months has been the utter failure of the Swiss National Bank to gauge the strength of capital flows into Switzerland. Switzerland is not an optimal funding currency for engaging in transactions where the ultimate goal is collecting a positive interest rate differential. As a result, any policy aimed at attempted to curb yield seeking behavior is fruitless. The currency peg in the cash foreign exchange market has provided stability and a lack of volatility, but has required the Swiss National Bank to buy enormous amounts of the Euro, especially in comparison to Swiss output. One of the issues facing the European Exchange Rate Mechanism in the early 1990s was the weakness of the underlying currency pegs in the face of economic volatility and corresponding speculation. Speculators destroyed the peg between British Pounds and German Marks amid a major selling spree of British Pounds against the lower bound of the exchange rate bands. The situation in Switzerland is remarkably different. If speculators were to sell Swiss Francs, it would be welcomed with open arms. However, if the European Central Bank lowered interest rates to combat economic weakness, the Swiss National Bank would likely find itself unable to defend the peg against an expansion of the European Central Banks balance sheet. Dealing directly

Jul-11

with the strength of the Swiss Franc only addresses the symptoms of the underlying issue, which is ineffective. To address the cause of the European sickness, Switzerland needs to participate in the recapitalization of European banks. Stress tests of core and peripheral European banks have been wildly inaccurate or downright deceitful since their introduction last yearxxxiii. Belgian bank Dexia passed multiple stress tests, and recently required its sovereign loan losses to be nationalized by French and Belgian authorities. Austrias Erste Bank received one of the top scores for assets at risk to sovereign credit events (meaning that bank capitalization would not be effected by worsening sovereign funding conditions), and recently revealed that it hid billions of Euros worth of losses on sovereign credit default swapsxxxiv. Bank recapitalization can come in a number of ways, but there are three major themes. Public sector participation should be at the forefront of discussions, but there needs to be significant collateral provided by peripheral governments. The current stock of public debt in Switzerland is 38% of domestic outputxxxv. There is room to add to this without destroying its image of fiscal prudence, and that slack should be used to provide an equity buffer to Italian, Spanish, and French banks. Dilution of equity is much better than offering credit access to European banks at rates beneath market prices. Offering credit access essentially increases the leverage of European banks, which only increases their susceptibility to economic volatility. Bank shareholders should have to bear the burden of the loans made to debtors who lack the ability to repay the terms of their loans. The Swiss capital injection would undoubtedly lose money, but if it prevents the triggering of a credit event for a major European bank and the resulting global financial contagion, then fears regarding the threat of a European meltdown should dissipate after banks take haircuts on bad loans but evade bankruptcy. The result would be a slowdown (or even the end) of capital flight into Swiss money markets.

Another more radical measure the Swiss could take is the guarantee of either an exit mechanism for the European Monetary Unit, or a multi-regional currency block that would separate the Euro into an eastern, core, and western currency with different interest rates. Multiple working papers released by the European Central Bank have addressed concerns regarding the growing divergences in the types of economic policies between different European nationsxxxvi xxxvii. The formation of different currency blocks that would trade freely would allow the market to correct the interest rate imbalances between different nations like Greece and Germany. Upon entering the Eurozone, the different countries watched their government bond spreads converge to mere basis points as they joined a single interest rate policy. Today, the market has spoken, as the peripheral European nations trade at multi-percent spreads to Germany and Francexxxviii. This is not because of any underlying interest rate expectation, but it is due to the increased probability of fiscal stress on nations like Greece and Ireland at the current interest rate level. Any country that wanted to return to a national currency would be allowed to do so at this time. The Euro would still exist, but it would consist of countries that have a significant equity buffer for its banks. The other currency zones will likely need to undergo a large depreciation in order to become competitive again, easing regional imbalances. Switzerland should use a multi-interest rate model as a bargaining chip if the European Union is in search of money to recapitalize its banks. The last policy is to buy European bank debt using the Swiss National Banks foreign exchange reserves under the condition that banks sell off enough assets to cover a guaranteed repayment of these loans and suspend future debt issuances. Under these conditions, The Swiss National Bank would be able to unwind its massive foreign exchange investments and provide a liquidity buffer to banks in danger of paying exorbitant debt servicing costs. There is one major

flaw in this plan and that is who the banks will sell their assets to and for what price. Assuming that this issue is resolved, the Swiss would be paid at par on the bonds and banks would unwind the leverage on their balance sheet, potentially making them more appealing to private investors. The purchase of bonds with Euros would have an unknown effect on the short run exchange rate between Europe and Switzerland, but this would help ease the solvency fears. Since capital preservation is primary in most European investors right now, relieving these fears with bond purchases would do more to stabilize Franc overvaluation than traditional monetary policy using the interest rate mechanism. The strength of the Swiss Franc and the appreciation of gold in the past 12 months arguably have no fundamental basis using traditional policy measures. However, this is due to the assumption that interest rates for public securities in developed world nations have no default risk. Public entities can default, and investors can shift their capital allocation behaviors from yield seeking to risk fearing to accommodate this belief. Using traditional policy measures that try and give a boost to yield seeking behavior has failed in Switzerland repeatedly over the past year, and the currency peg only leaves the country more exposed to sovereign stress as opposed to fighting the true problem. In order to combat the problem, Switzerland will need to take part in stemming fears of bank solvency by providing buffers to major banks in return for significant collateral from counterparties. The trick is to do this without adding more debt obligations, at any interest rate, to these private entities. Adding more leverage to global banks will only destabilize the global financial system at some later date. Switzerland must force equity owners to dilute their capital in order to prevent default on obligations to creditors. Switzerland is the only source of capital remaining in the world that can fund these types of operations at extremely low interest rates. In accordance, the European Union will need to comply with Swiss

intervention into its affairs. The Swiss can finance the deleveraging of European banks at interest rates beneath 1%, and even though there will be a direct loss on these investments, the long term benefits of a more stable Eurozone will solve issues regarding currency valuation and the resulting output and price level imbalances. Additionally, the losses on bank equity would pale in comparison to the losses taken on foreign exchange reserves, which would wipe out at least 70% of annual Swiss output in the event that the Euro breaks down. This is not acceptable, and therefore the Swiss and Europeans have mutualistic reasons to coordinate a plan to backstop banks at risk.

International Monetary Fund. World Economic Outlook. Rep. Vol. 2011. New York: International Monetary Fund, 2011. Print. ii Armstrong, Neal. "Swiss Franc Surges to Record Highs on Slump Worries." Uk.reuters.com. Reuters, 09 Aug. 2011. Web. 20 Oct. 2011. <http://uk.reuters.com/article/2011/08/09/markets-forex-idUKL6E7J90OM20110809>. iii Switzerland. Swiss National Bank. Consumer Prices. By Swiss National Bank. 2011 ed. Vol. Sept. Swiss National Bank, 2011. O1-1. Swiss National Bank Monthly Statistical Bulletin, Web. iv Switzerland. Swiss National Bank. Gross Domestic Product by Type of Expenditure. By Swiss National Bank. 2011 ed. Vol. Sept. Swiss National Bank, 2011. P2. Swiss National Bank Monthly Statistical Bulletin. Web. v Switzerland. Swiss National Bank. Switzerland's External Debt. By Swiss National Bank. 2011 ed. Vol. Sept. Swiss National Bank, 2011. R6-a. Swiss National Bank Monthly Bulletin. Web. vi Auer, Raphael. "International Liquidity Provision During the Financial Crisis: A View From Switzerland." Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute 75 (2011). Web. vii Jackson, James K. "The Financial Crisis: Impact on and Response by The European Union."Congressional Research Service 7.57 (2009). Web. viii Thomasson, Emma. "C.Suisse Ends Oldest Swiss Bank Brand Leu." Www.reuters.com. Reuters, 15 Nov. 2011. Web. 16 Nov. 2011. <http://www.reuters.com/article/2011/11/15/creditsuisse-idUSL5E7MF0YT20111115>. ix Switzerland. Swiss National Bank. Current Account - Components. By Swiss National Bank. 2011 ed. Vol. Sept. Swiss National Bank, 2011. Q1-a. Swiss National Bank Monthly Statistical Bulletin. Web. x Dismal Scientist. "Switzerland Forecast Table." Moody's Analytics. Dismal Scientist. Web. 18 Oct. 2011. <http://www.economy.com/dismal/outlook/country.aspx?sid=9480A8E1-542B-4C16-ABC5-18DC543865AF>. xi Organization for Economic Co-Operation and Development. "Activation Policies in Switzerland." OECD Social, Employment and Migration Working Papers 112 (2010). Web. <http://www.oecd.org /dataoecd/19/44 /46224109 .pdf>. xii Source XI xiii Source XI xiv Simonian, Haig. "Swiss Pay Heavy Price for Currency Strength." FT.com. Financial Times, 9 Jan. 2011. Web. <http://www.ft.com/intl/cms/s/0/fc687108-1c2d-11e0-9b56-00144feab49a.html#axzz1gwVTCESI>. xv Yale University. "The Swiss Question." Yale International Forum. Yale University, 1997. Web. 18 Oct. 2011. <http://www.yale.edu/iforum/Spring1997/Swiss.htm>. xvi Tebbit, Norman. "An Electoral Curse Yet to Be Lifted." The Guardian. The Guardian, 9 Feb. 2005. Web. 18 Oct. 2011. <http://www.guardian.co.uk/politics/2005/feb/10/freedomofinformation.economy>.
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Switzerland. Swiss National Bank. Financial Account - Main Categories and Supplementary Classifications. By Swiss National Bank. 2011 ed. Vol. Sept. Swiss National Bank, 2011. Q3-a. Swiss National Bank Monthly Bulletin. Web. xix Switzerland. Swiss National Bank. Foreign Exchange Rates. By Swiss National Bank. 2011 ed. Vol. Sept. Swiss National Bank, 2011. G1. Web. xx Source XIX xxi Kitano, Masayuki. "Euro Rises vs Swiss Franc as SNB Seen Buying." Www.reuters.com. Reuters, 23 Feb. 2010. Web. 19 Nov. 2011. <http://www.reuters.com/article/2010/02/23/markets-forex-idUSTOE61M05R20100223 ?type=usDollarRpt>. xxii Abegg, Werner. "Antwort: Re: SNB Interventions." Message to the author. 21 July 2010. E-mail. Will forward upon request xxiii Thomasson, Emma. "The Trials of Philipp Hildebrand." Reuters.co.uk. Reuters UK, 14 June 2011. Web. 18 Nov. 2011. <http://uk.reuters.com/article/2011/06/14/uk-swiss-hildebrand-idUKTRE75D14E20110614>. xxiv Swiss National Bank. Communications. Swiss National Bank Sets Minimum Exchange Rate at CHF 1.20 per Euro. Swiss National Bank Sets Minimum Exchange Rate at CHF 1.20 per Euro. Swiss National Bank, 6 Sept. 2011. Web. <http://www.snb.ch/en/mmr/reference/pre_20110906/source/pre_20110906.en.pdf>. xxv Switzerland. Swiss National Bank. Foreign Currency Investments. By Swiss National Bank. 2011 ed. Vol. Sept. Swiss National Bank, 2011. R4-a. Swiss National Bank Monthly Statistical Bulletin. Web.

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Switzerland. Swiss National Bank. Foreign Trade. By Swiss National Bank. 2011 ed. Vol. Sept. Swiss National Bank, 2011. I1, I2, I3. Swiss National Bank Monthly Statistical Bulletin. Web. xxvii Source XXVI xxviii Copley, Caroline. "Swiss Franc, Energy Costs Batter Holcim Q3 Profit." Www.reuters.com. Reuters, 09 Nov. 2011. Web. 18 Nov. 2011. <http://www.reuters.com/article/2011/11/09/holcim-idUSL6E7M90B920111109>. xxix Switzerland. Swiss National Bank. Current Account - Components. By Swiss National Bank. 2011 ed. Vol. Sept. Swiss National Bank, 2011. Q1-a. Swiss National Bank Monthly Statistical Bulletin. Web. xxx The Economist Online. "The Big Mac Index: Currency Comparisons, to Go." The Economist. 18 July 2011. Web. 18 Nov. 2011. <http://www.economist.com/blogs/dailychart/2011/07/big-mac-index>. xxxi Source XIX xxxii Mijuk, Goran. "Swiss Debt Yields in Negative Territory." The Wall Street Journal - Wsj.com. 31 Aug. 2011. Web. 18 Nov. 2011. <http://online.wsj.com/article/SB10001424053111904199404576540601403370190.html>. xxxiii The Guardian Live. "European Banks' Stress Test Findings." The Guardian. 15 July 2011. Web. 18 Nov. 2011. <http://www.guardian.co.uk/business/blog/2011/jul/15/european-banks-stress-test-results-live-blog>.NOTE: The opinions of credible foreign exchange strategists from a number of investment banks have called into question the methodology of the stress tests used to gauge sovereign risk in European banks.
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Simonian, Haig. "Erste Cuts Credit Default Swap Exposure." Financial Times. FT.com, 28 Oct. 2011. Web. <http://www.ft.com/intl/cms/s/0/57cdaa7e-0137-11e1-ae24-00144feabdc0.html#axzz1gwVTCESI>. xxxv Source V xxxvi Gardo, Sandor. "The Impact of the Global Economic and Financial Crisis on Central, Eastern, and South-Eastern Europe." Occasional Paper Series 114 (2010). European Central Bank. Web. xxxvii Cahn, Christophe. "Output Growth in Several Industrialized Countrie: A Comparison."Working Paper Series 828 (2007). European Central Bank. Web. xxxviii The Economist Print Edition. "The Euro: Beware of Falling Masonry." The Economist 26 Nov. 2011. Web.