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Why the Swiss are so spooked by using debt to prop up economy

Germany, which is known for strict budgets, has tapped debt markets to prop up its virus-hit economy, while neighbouring Switzerland has consistently curbed borrowing despite calls to change course.

Why the Swiss are so spooked by using debt to prop up economy
Montreaux, Switzerland. Photo: DPA

With Swiss firms struggling through another lockdown, the federal government last week finally loosened its purse strings a bit, doubling emergency aid to 10 billion Swiss francs ($11.2 billion, 9.3 billion euros) as part of a programme to boost the economy.

But when he presented the package for companies worst hit by the latest Covid restrictions, Finance Minister Ueli Maurer again lamented that Switzerland had to borrow to boost the economy.

Some 10 billion francs in debt will have to be paid off within six years according to a constitutional debt brake rule, Maurer warned.

READ MORE: What will Switzerland's coronavirus debt mean for your tax bill?

He promised to present various options to do so as soon as the economic outlook cleared a bit.

Despite mounting criticism that the wealthy Alpine nation isn't doing enough to support companies, Maurer has repeated time and again that the Swiss government has “no money”.

The government is already borrowing “150 million francs a day, or six million per hour, or 100,000 a minute,” he notes.

In 2020, Switzerland's federal government spent 15 billion francs ($16.7 billion, 13.8 billion euros) to support the economy, and preliminary data shows it ended the year with a deficit of 15.8 billion ($17.6 billion, 14.5 billion euros).

Debt phobia

Some have called for Switzerland to put balanced budget dogma aside during the crisis, to protect against potential long-term economic damage.

“Switzerland could be much more generous,” said Michael Graff, an economics professor at ETH Zurich, a public research university.

He believes the country could borrow what it needed to boost business activity without a problem.

A study published by Graff in January argued the nation's post-crisis finances would remain healthy even if borrowing rose, primarily because the country entered the pandemic with one of the world's lowest debt ratios.

National debt stood at 25.8 percent of gross domestic product (GDP) at the end of 2019.

That was less than half the European Union's widely breached target of 60 percent.

According to Graff, if the Swiss debt ratio rose by 10 percentage points, or even 20, and “if things take a turn much worse than expected” the country would still be at a level that is “extremely low, compared to other nations, once the crisis is overcome”.

If Switzerland is in some ways a very liberal nation, Graff pointed to a “public debt phobia” which he said was a cultural trait.

After debt soared at the end of the 1990s owing to a crushing real-estate crisis, Switzerland became a champion of fiscal rectitude, introducing a debt brake into its constitution in 2003.

‘Irrational’ fear

“This fear of going into debt is something irrational,” argued Cedric Tille, an economics professor at Geneva's Graduate Institute of International and Development Studies.

This is especially so, he said, because Switzerland currently benefits from negative interest rates, which means investors are willing to lose money to own Swiss 10-year bonds.

Former Swiss central bank vice president Jean-Pierre Danthine believes the country's debt brake rule should be suspended when the economy is facing a crisis.

With negative rates, Switzerland can borrow “all it needs for its economy”, he said in a recent interview with Leman Bleu television.

The country did not suffer as badly as some European neighbours during the first wave of the pandemic moreover, and its economy has fared better.

It was able to ease restrictions faster and count on strong pharmaceutical exports.

The Swiss government rapidly implemented economic support measures and allocated 70 billion francs ($78 billion, 64 billion euros) to finance partial unemployment benefits for workers and short-term business loans.

After falling by 8.6 percent in the first half of the year, Swiss GDP rebounded with a 7.2-percent gain in the third quarter.

But after infections surged again, cafes, restaurants, theatres, cinemas, museums and sports clubs were closed in mid-December and all non-essential shops followed a month later.

Shops are slated to reopen on March 1, but some fear the shutdown will lead to a wave of bankruptcies at small- and medium-sized businesses.

“For the second wave, they should have distributed aid much earlier to cover lost revenue,” remarked Rafael Lalive, an economics professor at the University of Lausanne.

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Five signs you’ve settled into life in Switzerland

Getting adjusted to Swiss ways is not always easy for foreign nationals, but with a lot of perseverance it can be done. This is how you know you’ve assimilated.

Five signs you've settled into life in Switzerland
No lint: Following laundry room rules is a sign of integration in Switzerland. Photo by Sara Chai from Pexels

Much has been said about Switzerland’s quirkiness, but when you think about it, this country’s idiosyncrasies are not more or less weird than any other nation’s — except for the fact that they are expressed in at least three languages which, admittedly, can complicate matters a bit.

However, once you master the intricacies and nuances of Swiss life, you will feel like you belong here.

This is when you know you’ve “made it”.

You speak one of the national languages, even if badly

It irritates the Swiss to no end when a foreigner, and particularly an English-speaking foreigner, doesn’t make an effort to learn the language of a region in which he or she lives, insisting instead that everyone communicates to them in their language.

So speaking the local language will go a long way to being accepted and making you feel settled in your new home.

You get a Swiss watch and live by it

Punctuality is a virtue here, while tardiness is a definite no-no.

If you want to ingratiate yourself to the Swiss, be on time. Being even a minute late  may cause you to miss your bus, but also fail in the cultural integration.

‘The pleasure of punctuality’: Why are the Swiss so obsessed with being on time?

Using an excuse like “my train was late” may be valid in other countries, but not in Switzerland.

The only exception to this rule is if a herd of cows or goats blocks your path, causing you to be late.

A close-up of a Rolex watch in Switzerland.

Owning a Rolex is a sure sign you’re rich enough to live in Switzerland. Photo by Adam Bignell on Unsplash

You sort and recycle your trash

The Swiss are meticulous when it comes to waste disposal and, not surprisingly, they have strict regulations on how to throw away trash in an environmentally correct manner.

Throwing away all your waste in a trash bag without separating it first — for instance, mixing PET bottles with tin cans or paper — is an offence in Switzerland which can result in heavy fines, the amount of which is determined by each individual commune.

In fact, the more assiduous residents separate every possible waste item — not just paper, cardboard, batteries and bottles (sorted by colour), but also coffee capsules, yogurt containers, scrap iron and steel, organic waste, carpets, and electronics.

In fact, with their well-organised communal dumpsters or recycling bins in neighbourhoods, the Swiss have taken the mundane act of throwing out one’s garbage to a whole new level of efficiency.

So one of the best ways to fit in is to be as trash-oriented as the Swiss.

READ MORE: Eight ways you might be annoying your neighbours (and not realising it) in Switzerland

You trim your hedges with a ruler

How your garden looks says a lot about you.

If it’s unkempt and overgrown with weeds, you are clearly a foreigner (though likely not German or Austrian).

But if your grass is cut neatly and your hedges trimmed with military-like precision (except on Sundays), and some of your bushes and shrubs are shaped like poodles,  you will definitely fit in.

You follow the laundry room rules

If you live in an apartment building, chances are there is a communal laundry room in the basement that is shared by all the residents.

As everything else in Switzerland, these facilities are regulated by a …laundry list of “dos” and “don’ts” that you’d well to commit to memory and adhere to meticulously.

These rules relate to everything from adhering to the assigned time slot to removing lint from the dryer.

Following each rule to the letter, and not trying to wash your laundry in someone else’s time slot, is a sign of successful integration.

Voilà, the five signs you are “at home” in Switzerland.

READ MORE: French-speaking Switzerland: Seven life hacks that will make you feel like a local

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