Swiss finance minister Eveline Widmer-Schlumpf: Economy will withstand franc shock

 
Jessica Morris
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Swiss Finance Minister Eveline Widmer-Schlumpf (Source: Getty)

Switzerland's economy will be able to withstand the pain inflicted by its decision to scrap the currency ceiling, which sent the Swiss franc as much as 39 per cent higher against the euro on Thursday.

Swiss Finance Minister Eveline Widmer-Schlumpf said that the decision was a "good development" which would give the Swiss National Bank (SNB) more room to manoeuvre.

"I'm confident that the economy will be able to cope with this decision," she told the SonntagsBlick and Schweiz am Sonntag newspapers. "Companies are in a far better position than in 2011 when the cap was introduced."

"If the exchange rate stays above 1.10 Swiss francs per euro, companies should be able to adjust."

But Switzerland's exports - 40 per cent of which go to the Eurozone - will be particularly hard hit by the move. Exporters will find their revenues crunched while goods and services become less competitive internationally.

Last week the SNB shocked markets by scrapping its currency cap of 1.2 francs per euro which had been in place since September 2011. It also further reduced already negative interest rates, discouraging new flows into Swiss francs.

Analysts have suggested it was a pre-emptive move ahead of this year's first meeting of the European Central Bank's (ECB) governing council on Thursday.

"This is a pre-storm warning ahead of the ECB meeting on sovereign debt next week - the Swiss know something that we don't and they are bracing in advance," Shai Heffetz, managing director of InterTrader said.

The currency ceiling was introduced at the height of the Eurozone crisis, as investors piled cash into Swiss francs believing it was a safe-haven which would hold its value, causing it to strengthen in a short time period.

Its appreciation hurt exporters which found their products and services became more expensive internationally. At the same time, it was reducing the cost of imported goods being sold in Switzerland, which was also contributing to deflation.

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