ZURICH: Germany, known for tight budgets, has captured debt markets to support the virus-infected economy, while nearby Switzerland has been cutting its borrowing. despite calls to change course.
With Swiss companies struggling through another lock, the federal government last week unraveled its purse strings, doubling emergency aid to 10 billion Swiss francs ($ 11.2 billion, 9.3 billion euros) as part of a program to stimulate the economy.
But when he showed the package to companies worse off by the latest Covid restrictions, Finance Minister Ueli Maurer lamented once again that Switzerland would have to borrow to boost the economy.
Some 10 billion francs in debt must be paid within six years under a constitutional debt brake rule, Maurer warned.
He promised to present various options to do so as soon as the economic outlook cleared a bit.
Despite strong criticism that the Alpine rich country is not doing enough to support companies, Maurer has repeatedly said that “the Swiss government has no money.”
The government is already borrowing “150 million francs a day, or six million an hour, or 100,000 a minute,” he notes.
In 2020, the Swiss federal government spent 15 billion francs ($ 16.7 billion, 13.8 billion euros) to support the economy, and preliminary data show that it ended this year with a deficit of 15.8 billion ($ 17.6 billion, 14.5 billion euros).
Some have called for Switzerland to set aside a fair budget dogma during the crisis, to protect against long-term economic damage.
“Switzerland could be a lot more generous,” said Michael Graff, a professor of economics at ETH Zurich, a public research university.
He believes that the country could borrow what it needed to stimulate business activity without difficulty.
A study published by Graff in January argued that post-crisis finances in the country would remain healthy even if a loan rose, mainly because the country was entering the pandemic with one of the lowest debt ratios in the world.
National debt was 25.8 per cent of gross domestic product (GDP) at the end of 2019.
That was less than half of the EU’s overall target of 60 per cent.
According to Graff, if Switzerland’s debt ratio were to rise by 10 percentage points, or even 20, and “if things turn out much worse than expected” the country would still be at a level that is “well low, compared to other countries, when the crisis comes over. ”
If Switzerland is in some countries very liberal, Graff pointed to a “public debt phobia” which he described as a cultural attraction.
After debt rose in the late 1990s as a result of an emergency crisis, Switzerland became a hero for fiscal justice, introducing a debt brake into its constitution in 2003.
“This fear of getting into debt is somewhat irresponsible,” said Cedric Tille, a professor of economics at Geneva’s Graduate Institute of International Studies and Development.
This is especially true, he said, as Switzerland currently benefits from negative interest rates, which means investors are willing to lose money to sell Switzerland’s 10-year bonds. to have.
Former Swiss central bank vice-president Jean-Pierre Danthine believes the country’s debt brake rule should be suspended in times of crisis.
With negative rates, Switzerland can borrow “everything it needs for its economy,” he said in a recent television interview with Leman Bleu.
The country did not suffer as badly as some European neighbors during the first wave of the pandemic, and its economy has improved.
It was able to reduce restrictions more quickly and account for strong drug exports.
The Swiss government quickly implemented economic support measures and distributed 70 billion francs ($ 78 billion, 64 billion euros) to finance partial unemployment benefits for workers and short-term business loans.
After falling 8.6 per cent in the first half of the year, Switzerland’s GDP bounced back with a 7.2-per cent gain in the third quarter.
But after diseases resurfaced, cafes, restaurants, theaters, cinemas, museums and sports clubs were closed in mid-December and all non-essential shops followed a month later. after that.
Shops are being asked to reopen on March 1, but some fear the closure will bring down a wave of bankruptcy for small and medium-sized businesses.
“For the second wave, they should have disbursed aid much earlier to cover lost income,” said Rafael Lalive, a professor of economics at the University of Lausanne.