Strong franc throttles Swiss industry

By Heinz-Peter Dietrich Aug 2, 2011, 10:45 GMT

Geneva - Switzerland's economy is doing battle with its strong currency, the franc, and is in danger of losing it.

This, at least, is the pessimistic view in broad sections of business leadership. Increasingly, the call is being made for the government to act.

With profit margins shrinking and disappearing, industry faces a sharp loss of export business, and having to put workers on reduced hours.

In the meantime, Swiss firms have tried a bit to help each other out by billing in euros within the country, not francs.

The euro is not official legal tender in Switzerland, but in transactions between companies it has already partially achieved this status.

Since in Switzerland the right exists to denominate bills in other currencies beside the franc, the euro has already achieved the role of a currency used in contracts, notes Heinz Hauser, foreign commerce expert at St. Gallen University.

And, Hauser told Swiss Broadcasting, he had seen this coming. 'Currency risks are thereby spread more widely,' he commented.

A study by the business consulting and auditing company Deloitte shows that among large-sized concerns there is a greater readiness to outsource jobs abroad.

'The situation is alarming,' Economics Minister Johann Schneider-Ammann commented. 'A crisis could be looming.'

It is now considered likely that Switzerland's jobs situation will come under pressure as the second half of the year progresses. So would a pegging of the franc's rate to the euro be a solution?

'Indirectly, such a measure would mean that we would not only be abandoning our currency independence, but also our independence altogether,' Schneider-Ammann told the publication Blick.

Instead, the government wants to promote innovation and help the tourism sector.

What is certain is that the export boom experienced by Swiss industry in the first half of the year is - with the exception of watches - now over.

Exports are stagnating and prices are dropping. Those who don't lower their prices lose their customers. And those who are still doing good export business find themselves, owing to the strong values of the franc, starting to operate in the red, as the machinery industry has found out.

On currency markets, experts are not ruling out a pegging of the franc at parity with the euro. Currently the rate is around 1.17 francs per euro.

But economic researcher Jan-Egbert Sturm of the ETH university in Zurich, has his doubts about such a move.

'It is after all a sign of strength that the franc has risen to such heights,' he told the Sunday newspaper Der Sonntag. The moment is not right for coupling the franc to the euro.

And tax breaks for an industry suffering from the strong franc are nothing more than subsidies that block structural change and provide false incentives, Sturm argues.

So at the moment all that remains is one other course - longer working hours at no extra compensation, in order to boost productivity. It's a course that the chemical concern Lonza in Basel has taken.

Starting July 1, working hours were raised from an average of 41 hours per week to 43 hours for a period of 18 months - a deal approved by the unions.

In the meantime people are waiting for the franc to weaken. At the moment, a franc is worth 0.88 euros - still a few steps away from parity.