Storm threatens Swiss safe haven; Switzerland's reputation as a safe haven during financial and economic storms is facing a challenge due to the global financial crisis. More than a year after the meltdown in subprime lending triggered a crunch in worldwide credit markets, the real economy is starting to feel the effects. And Switzerland is not immune.
| Auteur | Armitage, Tom |
| Fonction | ECONOMY |
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At the top of Zurich's posh Bahnhofstrasse shopping district, close to the main train station, is a UBS bank branch. Its windows display the current stock prices of Switzerland's blue chip companies, plus prices of stock market indices from around the world. For many years, those walking past would generally have seen these numbers appearing in green--showing that stocks were posting healthy gains. But for the past year, most of these numbers have been red as global stock market losses mount.
What began as a crisis of confidence in the credit markets has slowly started to take its toll on the broader economy. Property prices have fallen sharply in the United States, the UK and certain European countries like Spain.
Companies such as the United States' 'big three' Detroit carmakers (Chrysler, Ford and GM) have sought funding from the U.S. government, while high-street names in the UK such as retail chain Woolworths and furniture store MFI have already fallen victim to the economic slowdown. So far, Switzerland has managed to remain relatively unscathed. Economists increasingly agree, however, that the Alpine nation won't be left untouched for long.
Root causes
With all the headlines about the financial crisis it is sometimes hard to fathom exactly where the issue is. Under normal circumstances, banks loan cash to one another on a short-term basis through the interbank markets, charging a small rate of interest for the privilege. However, the collapse in the value of subprime assets caused a crisis of confidence within the banking industry, staunching the flow of such credit and leading to a freeze in interbank lending.
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Without banks lending to one another, the banking system grinds to a halt. Some banks failed--25 in the United States alone from January 2008 through October 2008, according to the Federal Deposit Insurance Corporation (FDIC)--while others began cutting back on the money they loan to companies for investments or to individuals for items such as mortgages and student loans.
The consequences of such measures are rippling through the entire economy, leading to a decline in demand for houses, a collapse in consumer confidence and, ultimately, to rising unemployment.
While some countries have been hit worse than others, Switzerland is clearly starting to feel the pain too.
Fast reactions
Since the beginning of the financial crisis, trillions of dollars have been lost on stock exchanges...
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