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UBS warns against tying Swiss franc to weak euro

Swiss franc/euro graphic: Oct 2000

(swissinfo.ch)

Switzerland's biggest bank, UBS, says any attempt to link the Swiss franc and the euro would rob Switzerland of its ability to set lower interest rates and threaten the franc's position as an international investment currency.

The warning is based on a study, released on Tuesday, by the UBS group economic research department in Zurich.

The study says that pegging the Swiss franc to the euro would largely deprive the Swiss National Bank of its ability to keep interest rates low, and jeopardise the franc's standing among international investors.

The study also suggests that a link to the euro would undermine the franc's stability, once the European Union admits new member countries from eastern and central Europe.

It said that although the euro had brought monetary stability to countries like Spain and Italy, this was no argument for Switzerland, which had enjoyed monetary stability for decades.

If the franc were no longer independent, says the study, the security issuing and asset management businesses would decline in importance. It points out that asset management alone accounts for 50,000 jobs in Switzerland.

For the first 18 months after the euro's introduction in January 1999, the two currencies maintained a stable exchange rate of about SFr1.6 to the euro.

However, after the Swiss National Bank adjusted monetary policy last December, the franc has regained its independent status. It is currently trading at around SFr1.5 to the euro.

The chief economist of the UBS group, Peter Buomberger, said the study should not be seen as an argument against Swiss membership of the EU. It was a judgement from an economic perspective, he added.

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