Europe's common currency is as unloved as ever. But a breakdown of the euro would have catastrophic consequences – including for Switzerland, Frédéric Papp writes in an essay for finews.first.
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Marine Le Pen, leader of France's far-right Front National party, wanted the euro banished from France altogether. The threat of a euro-free France subsided with her defeat in this month's presidential election at the hands of Europhile Emmanuel Macron, but many French citizens remain intensely frustrated with the European Union and the common currency.
It is a view shared widely in Italy, where many Italians are fed up with the euro and long for the return of the lira. If Beppe Grillo's «Movimento Cinque Stelle» (Five-Star Movement) wins elections next spring, the comic-turned-politico has promised a popular vote on whether Italy should leave the common currency.
In fact, the only people in Europe who seem broadly happy with the euro are Germans. The currency is much too weak when compared to German economic output, which is one reason for Germany's export power. Ironically, German-manufactured goods are shipped to Italy, France, and Spain among others – the very countries suffering under a far too strong euro.
«Who wants to hire amid rigid labor laws?»
To take Germany to task for the euro is absurd: it is comparable to scolding an overachiever for getting good marks at school. Instead, the ball is definitely in the court of southern Europe, including France. Until now, governments have shied away from liberalizing their labor markets, a step which is urgently needed in order to help kickstart their languishing economies.
Companies are hamstrung: who wants to hire and expand in view of rigid laws effectively making it impossible to let employees go if growth isn't sustainable? Labor markets need a certain flexibility; if not a hire-and-fire mentality that is rampant in corporate America, then perhaps the type of happy medium between the two that Switzerland maintains.
Speaking of the tiny alpine nation: Switzerland overflowed with pride at its new 20-Swiss-franc note last week, as well as with a certain glee at the euro's weakness. The country has the franc, solid as a rock where the euro is slack, and relatively low inflation.
«Swiss franc pride masks reality of euro ties»
The Swiss 50-franc note, which features a dandelion, mountains and a paraglider in a wind theme, notched up «banknote of the year» last month. Forgotten in the moment of national pride was that Switzerland has its own currency, but it is far from autonomous on its monetary policy decisions.
More than two years after unpegging from the euro, the franc is still tied to the European currency. Swiss policymakers do little else than watch over the euro's movements, poised to intervene in case the currency weakens and causes an influx of haven funds into the franc.
This isn't monetary policy and it isn't sustainable: Switzerland's central bank has bloated its balance sheet with foreign currency purchases as well as stocks. A regime of negative interest rates – charging banks to hold Swiss franc deposits – has skewed the Swiss property market.
It has also forced investors into alternative investments like private equity, as well as slashed returns on occupational and private pension schemes.
«Schadenfreude over euro predicament is absolutely misguided»
It remains to be seen whether Switzerland's years-long currency defense was the appropriate policy response or a costly mistake of epic proportions. What is already clear is that Switzerland needs the euro to survive the political tests. Anything else would be a currency, policy, and economic disaster, and it is in Switzerland's best interest that the European Union finds its feet and returns to a prosperous path.
If the euro fails, the franc will be the subject of immense haven inflows. The Swiss currency would strengthen to a level disastrous for the wider economy, and deliver a knock-out blow to exporters.
Schadenfreude over the predicament of the EU and the euro is misguided. Switzerland has to learn to love the euro.
Frédéric Papp is an editor at finews.ch. He previously worked for «cash.ch». He studied philosophy, economics and political science at University of Zurich. Before starting his studies, Papp absolved an apprenticeship as a banker at Swiss private bank Rahn & Bodmer.
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