Another update from Switzerland.
Sometimes people forget the point of the story of King Midas. And by forgetting, they make the same mistake as Midas. How often have you heard someone say, “He has the Midas touch you know”, meaning he’s rich and knows how to get richer. Whereas the story of Midas is how once the king had the ‘gift’ of being able to turn whatever he touched into gold, it killed him because everything he tried to eat or drink also turned to gold.
And that is what is begining to happen to Switzerland. Just as with King Midas there may be some unforseen consequences to having the Midas Touch.
You might think that Switzerland of all countries must be riding high. After all Switzerland and its currency are seen as safe havens and so money has flowed there in rivers. It is an open secret that wealthier Greeks, Spaniards and Italians have been spiriting their wealth out of their own nations to hide it away in Swizterland. Capital flight from all parts of Europe to Switzerland is hardly news.
How could this be a bad thing for the Swiss? Indded for a long time it didn’t seem as if it could be. The problems were all on the shoulders of those outside Switzerland, in the countries from whence the money was bleeding. For countries like Hungary, Romania and others like Poland the problem was that many people in those countries had taken out mortgages and other debts (corporate and municipal debt as well) in Swiss francs because at the time they did so, the rate was atractively low. But the more capital has flown from those countries and Europe in general to Switzerland the more the value of the Swiss franc has risen relative to all the other currencies. And those were and still are the currencies with which people are trying to pay back their swiss franc denominated loans.
Given that story you would expect the problem to be in Hungary Romania and elsewhere but not in Switzerland. The problem would be for the people who took out the loans and for the banks who made the loans and were now facing massive losses on them. And those banks were not so much Swiss as Austrian, Italian (UniCredit) and most of Greece’s banks.
And all this is true.
The Swiss tried to stop the Franc increasing in value by having the Swiss Central Bank sell francs and buy euros on the open market. But each time it did so it got absolutely spanked. It would gorge itself on euros, and move the market a few points, only to watch the entire effect be erased in a matter of hours as the market pushed the other way. And so the Swiss took the amazing step of pegging the franc to the euro.
To some extent this has worked for the currency. BUT it has not worked for prices.
Switzerland ‘the banking center’ is not the same as Switzerland ‘the nation’ or the Swiss people and their other businesses and lives. And this is the Midas lesson the Swiss people are only now really having to face. As money keeps pouring in to Switzerland, the currency is no longer moving as much as it did before, but prices are. Not a problem for the banks and their super wealthy clients. But becoming a serious problem for everyone else. In some of the wealthies parts of Switzerland, like Zurich and Lugano, a strange thing is happening. It is becoming too expensive for the Swiss. Local consumer and serivce businesses are dying in Switzerland.
Even large industries are finding it hard to stay. Nestle, a name synonymous with Switzerland, ( EDITis – I previously INCORRECTLY wrote..” now headquartered in Luxembourg.” This is not true. It is Nestle Finance International, Nestles’ corporate financing arm which is incorporated in Luxembourg) Last year I think it was, Novartis cut 2000 jobs and moved most of them to China. Rumour is that more will go soon. Yesterday Merck announced it was leaving Geneva.
Switzerland has the Midas Touch and is choking on it. Small businesses, particularly those which cater for tourists are finding there are fewer. Sure, the super rich are still coming. In the exclusive hotels there are often more Russian conversations than Swiss ones. But outside the charmed circle, businesses which catered for more ordinary tourists and more ordinary businessmen and women are finding those people just can’t afford to spend in Switzerland. Even the Swiss find it cheaper to shop over the border.
Capital flight to Switzerland is begining to have seriously negative effects on the more ordinary Swiss and on the rest of the Swiss economy. Perhaps even the Swiss, those not sucking on the global banking teet, will come to realize as we already have, that bailing out Europe’s big banks, when the cost is austerity for the rest of us and for the economy we actualluy live in and depend upon for food and clothes and employment, is not going to save the rest of us. It is and will continue to impoverish us and destroy the real worth of everything it touches.
The banks have already touched Democracy and as they have turned it in to a source of gold for themselves they have destroyed what democracy was supposed to be for the rest of us. Our democractic institutions have become a golden investment for them but increasingly an empty parade of inside influence and unaccountable power, for the rest oof us. They have touched the law and turned it too into a fount of gold for themselves and destroyed what it was for us. Equality before the law? Don’t make me sick. If you steal a loaf you will go to gaol. If you launder billions or bank the blood money of dictators you will get a knighthood or dinner with the President. They have touched the very fabric of our civil society and made it brittle and repressive. The more of the world and society the banks touch and turn to gold for themselves, the more alienated more and more of us become.