Credit Suisse head office. | EPA Dismal science Franc talk on Switzerland A small mountainous country on the brink of a recession.

Greece and Switzerland are small and mountainous countries. They have populations of somewhere around 10 million people. They export cheese. And they both have been hit hard by the eurozone crisis.

The similarities stop right there, though. While Greece suffers from the typical symptoms of an economic underperformer — huge public debt, bloated bureaucracy, weak private sector — Switzerland has the opposite problem. Its political and economic stability has, once again, turned the Swiss franc into the world’s favorite safe-haven currency, and that’s not necessarily a good thing. Over the past few months, the strong franc has taken a toll on exports. Switzerland is on the brink of recession right now.

Much depends on what’s going to happen in Greece. When eurozone leaders hammered out a deal last week, the franc immediately nudged lower against the euro (and then rose again). A gradual recovery of Greece and the eurozone would weaken the franc and boost the Swiss economy. A Grexit, on the other hand, could push the franc close to parity with the euro and cripple key industries such as luxury goods, pharmaceuticals, engineering and tourism. Within the country, the so-called Frankenschock — the shocking rise of the franc — has sparked a lively debate about Swiss identity in times of turmoil. The question, put simply, is this: Can a country be too strong for its own good?

The mixed blessings of a strong currency aren’t a new phenomenon, of course. Whenever the world was in crisis in recent decades, the high franc put a dent in the Swiss economy. In the 1970s, the Swiss National Bank had to impose negative interest rates to deter investors. Then, in 2011, with the Greek crisis unfolding, the central bankers set a minimum exchange rate of 1.20 francs to the euro and promised to defend it against financial markets.

And so they did, gobbling up billions of euros in return for keeping the franc down. That worked out pretty well until the European Central Bank announced a massive purchase of eurozone debt, adding downward pressure on the euro. The SNB abruptly abandoned its peg and sent the franc on a sharp rise; it now trades at around 1.05 to the euro. (To mitigate the impact, the Swiss central bankers also lowered deposit rates to a record -0.75 percent.)

Economists who predicted a Swiss downturn have been proven right since then. Exports declined in the first quarter, and companies ranging from ski manufacturers to auto suppliers to milk and cheese producers have all published disappointing numbers. Many Swiss businesses have increased working hours with no extra pay. Others cut jobs and moved production abroad. Even Switzerland’s famous mountain resorts are suffering because Europeans (and Russians, too) are staying away.

How bad is it, then? That depends on who’s doing the talking. The Frankenschock pits two schools of thought against each other. There are those who argue that the franc should not float forever and that some kind of currency peg is needed to prevent a permanent economic decline. Union leaders and business lobbyists, in particular, have warned against a process of deindustrialization that would reduce Switzerland to a nation of asset managers and dairy farmers. Switzerland is too small, so the argument goes, to stick it out alone in a globalized economy.

The other school is firmly in the camp of the populist Swiss People’s Party, or SVP, which has captured more than a quarter of the Swiss vote in recent elections. Party officials pursue a Swiss version of Britain’s old splendid-isolation policy. They love to refer to historical battles fought by heroic locals against foreign intruders and to promote the image of a nation that is neutral, autonomous and, to some extent, immune to global turmoil. Last month, Die Weltwoche put the headline “Strong franc, strong Switzerland” on its front page. The weekly, which is close to the SVP, argued that the rise of the franc need not be a bad thing. Imports are getting cheaper, after all, and the strong currency might pressure Swiss companies to become more efficient and competitive than their counterparts in, say, Bavaria or Lombardy.

The debate between Swiss internationalists and isolationists goes way back, and it’s as much about emotions as about economics. But in this case, the numbers will likely decide who’s right. If the eurozone recovers in time, Swiss economists hope for a franc at about 1.10 to the euro — a level that most Swiss companies could probably live with. (And some might even become more innovative and efficient.) Parity with the euro, on the other hand, would likely cause lasting damage, proving all those right who believe that Swiss isolation isn’t all that splendid.

For now, though, all the Swiss can do is sit on the sidelines and watch. The Swiss National Bank, in particular, doesn’t have a whole lot of options left. When the central bankers made their surprise move in January, they lost credibility with investors. So introducing another peg in the near future could be tough. Lowering interest rates again, on the other hand, would further inflate a real-estate bubble that seems sizable already. As a measure of last resort, a UBS economist has recently suggested, the SNB might end up introducing capital controls. In an effort to prevent people from hoarding cash, Swiss banks would give out no more than 100 francs a day.

That would be one more thing, then, that the Swiss have in common with the Greeks.

Konstantin Richter is a regular contributor to Die Welt and the author of “Bettermann” and “Kafka was Young and He Needed the Money.”

Authors: