Confusion reigns over SFr2 billion bailout

Empty beds are a problem in many Swiss hotels Keystone

A SFr2 billion ($2.5 billion) government plan to bail out the ailing export and tourist industries has sparked fierce debate about how the money should be spent.

With individual enterprises clamouring for tax breaks and temporary low interest loans, there are fears that the package could distort competition or fail to hit the right targets.

Economics Minister Johann Schneider-Ammann announced the cash injection on Wednesday in response to the export and tourism sectors complaining about the negative effects of the strengthening franc.

Schneider-Ammann did not give details of how the money would be spent, but said the State Secretariat for Economic Affairs (Seco) would draw up a distribution plan to be presented to parliament next month.

With manufacturing associations warning of companies going to the wall and trade unions forecasting job losses, it was high time the government acted, according to Julius Bär bank chief economist Janwillem Acket.

“This announcement is certainly better than sitting back and doing nothing, but it is little more than a symbolic gesture,” he told swissinfo.ch. “The sum is actually tiny when compared to the Swiss gross domestic product of SFr500 billion with a third of that amount directly linked to exports.”

Size matters

Acket is convinced that the lion’s share of the money should be directed in the form of tax breaks at smaller companies that are in in dire straits. This applies as much to the tourism sector as manufacturing, he added.

“The tourism sector needs to be divided into segments,” he told swissinfo.ch. “The high-class sector has been less affected because it attracts wealthier clients, but the mid- to low-class sectors are where the money should be directed.”

The Swiss Hoteliers Association made it clear that it wants extra funding to promote the whole of Switzerland to key markets.

“We need more funds to market Switzerland to Russia, India, China and Latin America,” spokeswoman Susanne Daxelhoffer told swissinfo.ch. “We also need to step up promotional activity in Europe.”

Subsidies

The Swiss Small and Medium Sized Enterprises Association reacted with fury to the announcement of the SFr2 billion bailout fund. “It is nothing more than poisonous and excessive subsidisation,” the association said in a statement.

The association is concerned that the government will weaken the economy by distorting competition as it arbitrarily targets individual sectors for bailouts.

Instead, the government should concentrate on untangling the current bureaucratic mess of the value added tax system and other forms of deregulation, the association said.

The Swiss Business federation, economiesuisse, is also wary about how the funds will be targeted.

“We are not convinced by short-term measures as it would be next to impossible to determine exactly which sectors and enterprises to support,” chief economist Rudolf Minsch told swissinfo.ch.

Minsch counselled the government to sit tight on the bailout fund until it worked out a precise method of distribution. Top of Minsch’s wish list would using the money to partly fund an overhaul of the VAT system and to inject more money into the Commission for Technology and Innovation’s start-up programme for new companies.

Price war

On Wednesday, Schneider-Ammann also announced plans to tighten up anti-cartel laws to crack down on price fixing. Such practices between producers, distributors and retailers have been widely blamed for the failure of high street prices to come down despite cheaper imports entering the country.

Price watchdog groups welcomed the decision to review anti-cartel laws, but the Swiss Retail Association and economiesuisse are against such a move, arguing that existing regulations can work if they are properly implemented.

The row over high street prices has prompted supermarket chains to embark on a cost cutting war of their goods.

Coop revealed at the weekend that it would be withdrawing dozens of well-known brand items from its shelves because foreign suppliers were refusing to pass on the savings of a weak euro on to Swiss consumers.

Discount stores Denner, Aldi and Lidl had already started reducing the prices of many items, and Migros followed suit this week, slashing the cost of many of the items that Coop has stopped stocking.

The strong franc

The Swiss franc is a so-called “safe haven” currency, which means that investors and speculators buy it when other currencies, including the euro and the dollar, are under pressure. 

The franc has gained about 25 per cent in value against the euro and the dollar over the past four years. 

The Swiss National Bank has emphasised that it does not pursue an exchange rate target, but consistently bases its monetary policy on its legal mandate. 

This mandate stipulates that “the SNB is required to ensure price stability, while taking due account of economic developments”. 

Starting in March 2009 the SNB intervened in currency markets. But after pumping in 15 per cent of GDP in May 2010 to little effect as the Swiss franc surged during the first round of the Greek debt crisis, it dropped them in June 2010. 

These forays led it to a loss of SFr21 billion last year, its biggest ever, and its chairman, Philipp Hildebrand, has faced calls to resign.