Switzerland’s central bank has played a significant role in the eurozone’s increasingly uneven wealth distribution by investing significantly in more stable European countries to dampen the Swiss franc’s value, according to a report.
Ratings agency Standard & Poor’s estimates that Switzerland bought €80 billion (SFr97 billion) worth of bonds issued by the “core” eurozone countries of Germany, France, the Netherlands, Finland and Austria during the first seven months of 2012.
This amounts to 48 per cent of those countries’ collective full-year deficits, of which Switzerland bought only about 10 per cent in 2011.
This move, combined with massive foreign investments in “safe haven” Switzerland, created a financial current that inflated Switzerland’s foreign reserves to 80 per cent of GDP and funneled assets away from the eurozone’s weaker economies, such as Greece and Spain. It also drove down yields for bonds issued by the core European economies, which stand at 2.15 per cent year-to-date, versus 3.04 per cent in 2011, according to the S&P calculations.
The investment trend leaves some Swiss worried that they could be on the hook if the debt crisis continues to deepen. The rightwing Swiss People’s Party, for example, has continued to speak out against the SNB’s euro investments, declaring them too risky given losses incurred in previous SNB interventions.
But some investors believe things are looking up with the Swiss franc weakening against the euro for the first time in many months. This has been accompanied by a recent fall in European bond yields.
However, Swiss National Bank chairman Thomas Jordan was quick to note on Tuesday that these developments should not be interpreted as signs of a definite eurozone recovery.
“Unfortunately, it’s probably still too early to tell whether this is in fact the case or not,“ Jordan said at a business event near Zurich this week.
Jordan also said that the SNB’s maximum peg of one euro to SFr1.20 will remain in place for the foreseeable future, with no planned end date for the policy.