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As snipers fanned out over the rooftops of the Alpine resort and the Swiss Armed Forces rolled miles of barbed wire through the town, officers had more than the security of Mario Draghi and Lloyd Blankfein in mind. They were also preparing for European chaos should the euro ever collapse.

At their annual exercise in September, the Swiss army drilled for an imagined conflict between two neighboring states (the landlocked nation borders Austria, France, Germany, and Italy). The aim: Turn Switzerland into a secure fortress that could keep out the flood of refugees a regional economic meltdown might send its way. “Rising nationalism in Europe is a trend that needs to be monitored,” says Major-General Jean-Marc Halter, Switzerland’s second-highest-ranking officer, who took charge of the war game and oversaw security at Davos. “It’s the army’s job to protect the country against all possible security threats.”

Switzerland hasn’t seen armed conflict at home since the Sonderbund civil war of 1847. The country’s embrace of armed neutrality kept it out of both World Wars. Adolf Hitler called the Alpine nation “a pimple on the face of Europe” and drew up a plan to subjugate it. Operation Christmas Tree was ultimately shelved, most likely because conquering Switzerland would have required as many as half a million troops.

Despite the country’s mostly conflict-free past, the Swiss are right not to be complacent, says James Galbraith, a professor of government and business relations at the University of Texas at Austin. “Europe is still heading toward a social and human crisis,” says Galbraith, who last year published a book titled Inequality and Instability: A Study of the World Economy Just Before the Great Crisis.

As evidence, Galbraith points to the latest unrest in Greece, where there’s been a spate of fire bombings around the capital. On Jan. 14, a gunman fired at Greek Prime Minister Antonis Samaras’s office at his party’s Athens headquarters. The Italian government said last May it would step up the use of armed forces to safeguard more than 14,000 “sensitive” sites across the country in the face of increasing violence. Spain, which is plagued by regional divisions, could break apart if it were to leave the euro, Galbraith says. “These things have the potential to escalate very rapidly, which is what we saw in Yugoslavia,” where a series of wars killed more than 120,000 people after the state disintegrated in 1991, he says.

In September’s 16-day exercise, code-named Stabilo Due, a hypothetical clash between two fictional nations, Elbonia and Danubia, sparked a refugee crisis, prompting deployments of planes and tanks by the Swiss military. “These exercises in the field are indispensable,” Brigadier René Wellinger, commander of the 29th tank battalion, said in an interview posted on the army’s website. “Shooting ranges and simulators don’t present these types of leadership problems.”

Social strife across Europe may help Swiss Defense Minister Ueli Maurer make the case for boosting the nation’s annual defense spending of almost 4 billion Swiss francs ($4.3 billion). “We have had an almost free fall in the budget for 20 years,” Maurer says. “I just hope that the budgetary pressures will lead to more efficiency, cutting fat but not the muscles.” The Swiss spent 6.3 percent of total government outlays on defense in 2010. That was higher than any country in the European Union that year.

At Davos this year, about 3,300 Swiss troops were deployed to protect heads of governments and secure the airspace in a 28-mile radius around the Alpine village. “In Davos, we gain insight into the effectiveness of our training, procedures, and chain of command,” says Halter, adding that instability on Europe’s periphery is “a scenario that needs to be thought through.”

The role of the army at Davos has been questioned by some Swiss politicians as the cost to taxpayers of providing security for the forum has ballooned to 8 million francs. “The army should be used when Switzerland is threatened by a foreign power,” says Geri Müller, a lawmaker for the Green Party of Switzerland. “It has no business being there.”

The risk that civil unrest in Europe would trigger a wave of refugees into Switzerland is slim, says Anand Menon, an associate fellow at Chatham House in London and professor of West European politics at the University of Birmingham. Wide-scale migration requires “something cataclysmic,” says Menon, who sees Islamic terrorism as a bigger threat, especially since France’s intervention in Mali. “Greece, to a significant extent, is no longer self-governing, and that will cause problems there,” Menon says. “But I don’t think it represents a security threat to other countries, certainly not as far afield as Switzerland.”