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Thursday, February 19, 2009

 

the threat to switzerland


as the eastern european spiral continues down, ed harrison of credit writedowns translates an article from the domestic swiss press interviewing economic journalist artur p. schmidt and highlighting the massive potential sovereign solvency problems facing switzerland should eastern europe collapse.

What Switzerland must do now?

Now, the possible losses caused by these loans must be made transparent. Above all, all of the Eastern European risks must be fully disclosed. Together with the loan losses from UBS and Credit Suisse, the entire writedown for Switzerland could exceed the Swiss gross domestic product.

That is to say?

Switzerland, like Iceland, is threatened with a potential national bankruptcy. One consequence would be that the Swiss currency could fall massively in value — possibly even crash. Another would be that Switzerland’s credit rating would be massively downgraded. That would be a trauma for the country: Switzerland was always as a stronghold of stability. The franc could become an unstable soft currency. Then Switzerland would perhaps be forced to abandon the franc and take on the euro.


this is potentially an alarmist view -- but problems in switzerland are less than they are in austria, which might give one some sense of the desperation in vienna. harrison further notes that germany, softening on previous rumblings, seems more likely to intervene to bail out austria.

willem buiter also notes the return of capital controls is likely in eastern europe.

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The Blessed Willem Buiter had a whinge the other day about the FT's new comments sytem. It's certainly new enough to fox me; I now have no idea how to submit a comment on his blog. Ain't progress dandy?

 
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Roubini,today on Bloomberg TV, mentioned that the liabilities of the Swiss banking sector as a percent of GDP stand at 1,000%. To put that in context he also mentioned this ratio for Iceland,which has already collapsed, was 1,200%. I suppose that says nothing about the 'quality' of the liabilities of the banks of the respective countries; but the number for CH does look rather ominous.

 
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