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Strong Swiss franc alarms unions and exporters

The machine industry has suffered more than others from a strong Swiss franc


Recent cases of Swiss firms paying cross-border workers in euros or slashing salaries to cope with a strong Swiss franc are not isolated, warn unions.

The franc has appreciated by ten per cent against the euro since the start of 2010, much to the disquiet of unions and exporters. But economists say the impact of a strong franc on Swiss firms is not black or white.

At the beginning of September the Swiss logistics firm Stöcklin, based in Dornach, south of Basel, sent letters to 120 of its cross-border workers who live in France and Germany proposing a new contract with a six per cent salary cut – or SFr300 per month.

The management argued that they had benefited from a 12 per cent rise in their purchasing power as their salaries were paid in Swiss francs. Ten workers who refused this measure were sacked.

Swiss printing firm Karl Augustin went even further. At the beginning of August the company, based in Thayngen in canton Schaffhausen, decided to pay its 15 cross-border workers in euros rather than Swiss francs – and using a SFr1.55 per euro exchange rate calculation, while the present rate stands at SFr1.34 per euro.

“After pressure we managed to change this to the current rate,” chief economist of the Swiss Trade Union Federation, Daniel Lampart, told, adding that the federation was considering court action over a related dismissal.

Although these are the two main cases that have recently come to the public’s attention, the federation has indications that there are others involving firms paying in euros to try to “make profit on the back of employees”, especially cross-border workers, said Lampart.

“This is illegal,” he warned. “By opening our labour market to the free movement of EU workers we guaranteed the Swiss people that Swiss salaries would be paid in Swiss francs – it’s the law.”

In the 1990s Swiss unions denounced similar salary dumping moves by Ticino clothing firms, which tried to pay their staff in Italian lire after the currency slumped.

“It hurts”

Although Swiss manufacturing exports have started to pick up in recent months, the strong franc continues to eat into margins, particularly for companies that send the lion’s share of their goods to the European market.

The euro zone is Switzerland’s biggest trading partner and industry groups have warned that the franc’s rise against the euro could force companies to move production outside Switzerland.

“It hurts us that the Swiss franc appreciates because we produce nearly everything in Switzerland,” Friday’s Swiss daily Blick quoted Swatch chief executive Nick Hayek as saying.

At a news conference in Zurich last Wednesday, the Swiss Export lobby group said small and medium-sized (SME) Swiss exporters would continue to feel heavy pressure in the coming years.

Two-thirds of the 100 firms surveyed by the group said they had suffered a drop in profits over the past year of around 20 per cent and most said they expected only limited or stagnated growth in the next 12 months.

Political pressure is also bubbling. Earlier in the week Otto Ineichen, a businessman and a member of parliament for the centre-right Radical Party, called on the government to back special measures for SMEs for six months to prevent job losses. Ineichen would like the federal authorities to act as guarantor for part of the loans granted to exporting SMEs.


But a survey of 206 firms conducted in July and August in preparation for the Swiss National Bank (SNB)’s September meeting paints a less dramatic picture.

The SNB reported last week that the strength of the Swiss franc only hurt a minority of Swiss companies, and more than half experienced no noticeable effect.

It said nearly a fifth of the companies reported positive effects, while slightly more than an quarter experienced mildly or strongly negative effects.

Those suffering most from weaker margins and lower sales were chemical and plastic manufacturers, machine and electrical installation firms, as well as the metallurgy industry. The winners included the wealth management sector and importers of things like cars, building materials and other durable items.

The plight of exporters is complicated and needs to be looked at in more detail, said Daniel Kalt, head of economic research at UBS.

“There are certainly concerns about a strong franc, but you have to consider each export firm differently,” he told

“Those with a lot of added value, which pay their wages in Swiss francs have problems, but over the past ten to 15 years there has been a huge transformation of Swiss export industry with firms setting up production in the eurozone to hedge currency risks.”

Franc on steroids

The Swiss franc is a traditionally sought after safe haven currency during tough economic conditions.

Switzerland’s economic and political stability, conservative nature, stable housing market and well run financial system contribute to the attractiveness of the franc as an escape from more volatile conditions around the world.

The strength of the franc this time around was also boosted by particularly dire economic conditions in both Europe and the United States, which weighed down on the euro and the dollar.

In addition, Switzerland came out of the financial crisis and subsequent recession in relatively good shape compared to many Western economies, with its downturn cushioned by robust private consumption.

During the peak economic boom year of 2007, one euro cost the Swiss well over SFr1.60. In early 2008, the exchange rate sank below SFr1.50 – thus raising the relative strength of the franc.

Intervention by the SNB has been credited with keeping the rising value of the franc in check throughout 2009, and it was not until December that it cost less than SFr1.50 to buy one euro.

But fears of countries such as Greece defaulting on sovereign debts catapulted the euro into a decline that the SNB was powerless to halt.

In mid-September the SNB refused to be bullied into a snap buying spree of euros. But it said it was poised to react if recent adverse economic conditions worsened.

At the beginning of October one euro cost just SFr1.34.

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Growth forecasts

The SNB predicts a “marked” slowdown in growth later this year and into 2011 of around 2.5 per cent, given the strength of the Swiss franc and a cooling of the global economy.

Forecasters at the Swiss Economic Institute (KOF) say, despite a strong economic rebound underway, a strong franc will hit the brakes on growth next year. Growth will likely slump to 1.8 per cent for 2011 as exports and the tourist industry suffer under a franc practically one-to-one with the dollar and whittling away at the euro.

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