Strong Swiss franc takes toll on economy

As a paradox, Switzerland, an island of stability and budget control, is the victim of its own economic rigor: the continuous high value of Swiss franc throughout 2011 has taken a toll on the country's economy. In the first eight months of the year, the Swiss currency rose by 20 percent vis-a-vis the euro. With two-thirds of its trade relations connected to the neighboring European Union (EU), high value of the currency has had dramatic consequences for Swiss exporters. Last September, the Swiss National Bank (SNB), the country's central bank, eventually decided to intervene by adopting a minimum exchange rate against the euro. Three months later, the pressure remains high, and it's not clear whether the central bank will have the strength to sustain its action over the long term. To give a comprehensive picture of the Swiss economy under strong currency, Xinhua visited various locations across the country. DWINDLING CHEESE EXPORT "Gruyere" is one the most well-know appellations for Swiss cheese, which, together with other Swiss-made dairy products and Swiss chocolates, forms the pillar of the country's food export. In the hometown of "Gruyere" cheese, the canton of Fribourg, cheese bearing the famous brand has been produced for years, from father to son. Cheese refiner Bernard Gaudard, director of Huguenin Fromages, has been in the business for decades, and has earned a good reputation even across borders. Exports contribute a third to his business, with the EU being the major market. But with the strong Swiss franc against the euro, business had become much tougher, Gaudard said. "At a certain point, some of our (European) customers said stop, and that means that in August for instance, instead of having a certain turnover with the European market, we did strictly nothing," he said. "Our sector will have to find a solution to lower the stocks," he said. Fortunately, his company has a strong Swiss clientele and internationally, it has managed to diversify its customer base beyond European borders. But that's not the case for many other Swiss firms. Some of them started to pay salaries in euros instead of Swiss francs, to limit the impact of the exchange rate. MINIMUM EXCHANGE RATE The peak of the crisis emerged in August, when the Swiss central bank eventually decided to set a minimum exchange rate for the franc at 1.20 per euro. It was the first time in three decades that the central bank made such an intervention. The strategy so far has paid off, with markets reacting positively to the move. But many Swiss exporters still believe the Swiss exchange rate is too high. Several industries called for further weakening of the Swiss franc against the euro -- to an exchange rate of at least 1.35 franc per euro. Jean-Pierre Danthine, Member of the SNB Governing Board, told Xinhua this minimum exchange rate strategy has improved the situation notably. But at the same time, he admitted "the Swiss francs at 1.20 to the euro remains very highly valued though, and thus remains a difficult situation for many importers, all the more because the global economy is slowing down." SKI RESORTS IN TROUBLE A few kilometers higher in the valley is the Alpine ski resort of Saas Fee, one of Switzerland's most famous winter attractions. For years, Swiss ski resorts had to cope with bad snowing conditions. But now, they have another big enemy: the strong exchange rate. In Saas Fee, 40 percent of the tourists come from the EU. Pascal Schaer, Tourism Director of Saas Fee, said the situation had been tough, because Austria, France or Germany is much cheaper than Switzerland at the moment. "So it's all about the pricing in Saas Fee," he said. "We really have to give some discounts to stay attractive." Saas Fee lost 10 to 15 percent of its clientele over the past 24 months and the trend is negative. In reaction, several hotels owners in the ski resort, including Benita Hischier, president of the Saas Fee Hotelier Association who also manages a four-star hotel here named the Schweizerhof Hotel, have decided to act. They're fixing their own exchange rate at 1.35 franc per euro, 10 percent higher the official exchange rate. The special exchange rate offer is announced through the leaflets, which the hotels send to their customers once a year. But with daily ski cards priced at 68 francs, or 55 euros (71.4 U.S. dollars), some foreign skiers still say it's too much. EXPENSIVE FOR HOLIDAY-MAKER In Saas Fee, we came across Peter Lonneke, a Dutch tourist who was on holiday with his family. For him, the strong Swiss Franc is certainly having an effect on his holiday choice. "This is the last time we come to Switzerland, because it is too expensive to stay here, the accommodation, the ski lifts, the food. Everything is expensive, compared to Austria or other (neighboring) countries," Lonneke said. Even for the Swiss themselves, skiing is becoming a luxury hobby. According to a study by Credit Suisse released this month, Swiss ski resorts are 20 percent more expensive than Austrian or French ones without taking the exchange rate into comparison. So it's not surprising if Saas Fee is also offering discounts to its Swiss clientele, just to keep them in the country. It is still not clear whether it will be sufficient to keep the resort's hotels busy throughout the season. The current booking level looks reassuring, according to local tourism office. But what everyone fears is a further weakening of the euro, a nightmare not only for the ski resorts, but also for the Swiss central bank whose coffers are now filled with the single currency.