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Swiss Struggle With Strong Franc

August 19, 2011 by  

Swiss Struggle With Strong Franc

The Swiss government took steps Wednesday to weaken the Swiss franc, which has enjoyed record-high strength recently. According to CNBC, the government announced that it wants to inject 2 billion Swiss francs into the economy, in order to combat overvaluation of the currency. Some investors have expressed disappointment, however, that the Swiss National bank did not take more decisive action, such as pegging the franc to the euro.

“We have identified five sectors we want to invest in the export industry, tourism, innovation, research and infrastructure,” Swiss economy minister Johann Schneider-Ammann said at a media conference in Berne, according to an article for the website.

“The franc’s rapid rise has prompted squeals from Swiss businesses and exporters, who see their margins dwindling, raising the pressure on Swiss officials to take decisive action,” the article read.

However, The Wall Street Journal reported that the currency’s strength may begin to affect Switzerland’s reputation as a favored destination for foreign multinationals — due to the soaring cost of living.

“While the tax benefits still largely outweigh the soaring cost of running a foreign business in Switzerland — one new study found Zurich and Geneva have the highest wages in the world — some companies are already cutting expat packages and could decide on bigger cuts after the summer holidays, say consultants,” the WSJ article read. “The franc’s strength is beginning to erode Switzerland’s place as a favored destination for multinationals looking to lower their tax bill. The economic downturn as well as fears of tax increases in countries such as the U.K. and Ireland have increased the attractiveness of Switzerland.”

That attraction may be wearing thin, though, according to the article, as “the soaring franc has made doing business in Switzerland prohibitively expensive.”

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