Switzerland's Cheesy Economy
By Sam Vaknin
Author of "Malignant Self Love - Narcissism Revisited"

In a series of referenda in 2003-5, Swiss citizens transformed their
country forever, economically aligning it with the European Union
and opening it up to work migration. It was an uncharacteristic
response to increasingly worrisome times.

In March 2003, Switzerland's annual rate of inflation dipped to 1.3
percent. Once a cause for celebration, it is now construed to be a
worrisome sign of lurking deflation. Growth has been below trend for
years now. Demand is ever-weakening and capacity is idle. Taxes are
high, the national debt soaring.

Interest rates are vanishingly low, having been chopped by half a
percentage point in March 2003. But the Swiss franc, impervious to
these monetary gambits, is at a five year high against the dollar.
Switzerland depends on exports and tourism - they constitute more
than half its gross domestic product. The almighty currency does its
trade balance no favors.

National economic emblems are crumbling left, right and center. In
an interview to the daily Blick, Andre Dose, chief of Swiss
International Air Lines, the tottering successor of the bankrupt
Swissair, begged for tax exemptions, lower insurance premiums and a
waiver of airport charges as well as soft loans and subsidies from
both government and banks. The airline lost more than $700 million
in 2002.

A study recently released by Agrarplattform - a group representing
farmers, processors and retailers - disabused the Swiss of their
long held conviction that their cherished agricultural sector -
notably milk, potatoes and meat - is profitable. Indigenous
armaments technology firms - such as the state-owned Ruag group -
besieged by anti-war protesters, saw their profits slashed.

In 2002-5, Switzerland's leading brand names - Roche
(pharmaceuticals), Credit Suisse (banking), Adecco (manpower) and
Zurich Financial Services - have announced record losses and job
cuts.

And then there is Severe Acute Respiratory Syndrome (SARS) and avian
(bird) flu. Switzerland has been struck with ten suspected cases of
the former. It tightened inspections at its airports, cancelled
flights and allocated funds for research into the new pandemic.
Swiss pharmaceutical company, Roche, produced a diagnostic kit by
end-2003.

No sector is spared the slump. Swiss banks, much-decried over the
last few years for their alleged complicity in money laundering, are
being pried open by assertive United States regulators and a
zealous, mainly European, Financial Action Task Force.

In 2002, Swiss banks begun to repatriate to Nigeria more than $670
million looted by late dictator Sani Abacha and deposited with them.
In the run-up to the war in Iraq, the government froze $368 million
in Iraqi financial assets at Washington's behest, repeating its act
in 1990.

Mobsters, terrorists, scammers, venal politicians and tax dodgers
now look for anonymity and discretion to Lebanon and Cyprus, or even
to Austria, the USA, the United Kingdom and Luxemburg .
Switzerland's reputation as a safe pecuniary haven is in tatters.

This was only the latest in a series of upsets suffered by the
ailing banking industry.

In August 1998, following intensive public pressure by Jewish
organizations - and a thinly-disguised anti-Semitic backlash -
Switzerland's two major banks, UBS and Credit Suisse, agreed to set
up a $1.25 billion fund to settle claims by holocaust survivors and
their relatives. The red-faced Swiss government threw in $210
million. It seems that the banks were in no hurry to find the heirs
to the murdered Jewish owners of dormant accounts with billions of
dollars in them.

A settlement was reached only when legal action was threatened
against the Swiss National Bank and both public opinion and
lawmakers in the USA turned against Switzerland. It covers owners of
dormant accounts, slave laborers, and 24,000 of 110,000 refugees
turned back to certain death at the Swiss border - or their heirs.

A high level international commission, headed by Paul Volcker, a
former chairman of the Federal Reserve Board, identified 54,000
accounts opened by holocaust victims - not before it inspected
350,000 accounts at an outlandish cost, borne by the infuriated
banks, of $400 million. To compound matters further, the Bergier
Commission, set up in 1996 by the Swiss parliament, revealed, in
March 2002, that Swiss banks provided the Axis powers with interest
free loans.

Wall Street dealt Swiss financial intermediaries and their US-based
brokerages, another blow. Recently, they settled with US regulators
over charges of issuing biased stock analyses and recommendations.
But this did not prevent former star investment banker with Credit
Suisse First Boston, Frank Quattrone, from being charged with
obstructing justice and destruction of evidence. Many mid-size and
large Swiss firms are exiting the tainted capital markets altogether.

In April 2003, according to Swissinfo, the news Web site of Swiss
Radio, Jean-Pierre Roth, chairman of the Swiss National Bank (SNB),
warned, in its annual meeting, against undue optimism. Deteriorating
trading conditions, stagnant consumption and diminished government
spending heighten the "risks of a renewed worsening of the
situation ... Compared to the previous year, conditions for our
companies have worsened."

The country is still hobbled by red tape and anti-competitive
cartels. Growth in 2003 was lower than the Bank predicted only five
months ago, he admitted. The Organization for Economic Cooperation
and Development (OECD) concurs. In its outlook, it warned that
subdued conditions abroad and an inexorably appreciating franc
continue to threaten the country's recovery.

GDP grew by an imperceptible 0.6 percent in 2003 and 1.9 percent in
2004. The International Monetary Fund (IMF), more upbeat, projected
a 0.3 percent uptick in 2003 and 2.4 percent the year after. In 2002
the economy froze at zero growth. Unemployment stood at an
unprecedented 3.9 percent in February 2003.

Not all is bleak, though. German chipmaker, Infineon, is considering
to relocate to Switzerland. In April 2003, San-Diego based Netrom's
Tempest Asset Management inaugurated a currency trading center in
Zurich "to gain access to the multi-trillion dollar financial
markets in Europe". Swiss firms, from gourmet baker Hiestand to
computer peripherals manufacturer, Logitech, are showing record
sales and surging profits.

The UBS Index of Investor Optimism, maintained by Swiss mammoth
bank, UBS and the Gallup Organization, climbed 61 points in March
2003 - albeit to reach only one third its size in January 2000. Half
the population foresee a recovering economy and two fifths believe
in improving employment prospects.

Moreover, globalization has coerced Switzerland into abandoning its
splendid - and costly - isolation. In March 2002 it voted to join
the United Nations - something it has resisted for decades.
Swisspeaks, a two month festival promoting Switzerland, took place
in April 2003 in New-York.

Ten million visitors attended Expo.02 - a national exhibition in
Neuchatel. Seven agreements with the European Union came into force
in June 2003. Incredibly, Switzerland is poised to join the Schengen
agreement, leading to the scrapping of internal borders with the EU.
Banking secrecy will be partially lifted in line with Union
directives.

With 7 million inhabitants (one fifth of which are immigrants) -
Switzerland is among the richest polities on Earth. Income per
capita is more than $38,000. The economy's openness - its weakness -
is also its fount of strength. It endows Switzerland with enviable
resilience and flexibility.

The country survived intact the first and second world wars, fought
on its doorstep. It has reinvented itself, metamorphosing in the
process from a backward rustic landlocked domain to a financial cum
engineering global empire. It will emerge, as it always does,
invigorated and ready for new challenges.


Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant
Self Love - Narcissism Revisited and After the Rain - How the West
Lost the East. He served as a columnist for Global Politician,
Central Europe Review, PopMatters, Bellaonline, and eBookWeb, a
United Press International (UPI) Senior Business Correspondent, and
the editor of mental health and Central East Europe categories in
The Open Directory and Suite101.

Until recently, he served as the Economic Advisor to the Government
of Macedonia.

Visit Sam's Web site at http://samvak.tripod.com