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EXPLAINED: What does euro-franc parity mean for Switzerland?

With the value of the European currency declining due primarily to the war in Ukraine, the euro reached parity with the Swiss franc. Is this good or bad news for Swiss consumers and Switzerland?

This banknote is worth even more now against the euro. Photo by Michele Limina/AFP
This banknote is worth even more now against the euro. Photo by Michele Limina/AFP

For the first time in seven years, the Swiss franc and the euro hit parity on Sunday. 

The European currency fell by four percent since Russia invaded Ukraine on February 24th, while the Swiss franc has risen by 0.9 percent during this period.

READ MORE: Parity with the euro: Why the Swiss franc is now so strong

The fact that the franc is so strong is nothing new in itself: it is largely thanks to Switzerland’s stable and resilient economy, which has managed to resist the many crises that have weakened other countries’ financial markets.

In fact, during the 2008 global recession, investors from all over the world stashed their money in Switzerland for safekeeping. Because of this influx of money, the value of franc rose dramatically — from around 0.7 francs per euro to near parity.

Another important factor is Switzerland’s relatively low national debt, which, together with the European debt crisis, has boosted the franc.

This may sound like very good news, but in fact the parity has consequences for Switzerland.

Switzerland relies heavily on exports —  particularly pharmaceuticals, machinery, instruments, and watches. Over 40 percent of the country’s production is sent to its main trading partners in the European Union. 

It is fair to say that exports are the backbone of Switzerland’s prosperity and economic growth. But when the franc rises, it makes Swiss products less competitive — that is, too expensive — in eurozone markets.

What specific impact can we expect from the parity?

News platform Watson has listed some of the major repercussions of the weakening euro / stronger franc. This is an overview of the likely consequences:

The industry in general

The rapid appreciation of the Swiss franc is having a huge impact on the export-oriented industrial sector. Both the large association of the machine, electrical and metal industry (Swissmem) and Swissmechanic, the organisation of the smaller industrial suppliers, will be impacted by the new exchange rate.

“The opportunity to invest in innovation and digitisation is decreasing accordingly”, a Swissmem spokesperson pointed out.

The association assumes that the companies will try to pass part of the cost increase, which will also affect raw materials, energy and primary products, on to the customers.

For Swissmechanic, there are problems on the horizon as well.

“Our companies have steadily increased their efficiency in recent years, but the point will be reached when they can no longer do so”.

Restaurant and tourism sector

This branch, which has not yet recovered from enormous losses sustained during the pandemic, is facing a new blow  — higher costs, which means more expensive meals for the consumers.

“At the moment we can live with the current franc exchange rate to some extent, but there are limits”, according to Casimir Platzer, head of the industry association Gastrosuisse.

Will Swiss restaurants be impacted by stronger franc? Photo by Pixabay

The same dynamic applies to the tourism industry, which was also significantly impacted by the health crisis.

Martin Nydegger, director of the marketing organisation Switzerland Tourism, speaks of “an accumulation of problems that together represent a real challenge”.

Because of the war in Ukraine and lingering fears of Covid,  visitors from the USA and Asia are still staying away from Switzerland. Added to these problems is the exchange rate parity, which “is another hurdle that we have to overcome”, Nydegger said.

Will Swiss hotels now have to lower prices?

“The Swiss hotel industry is still extremely competitive”, according to Andreas Züllig, president of the Hotelleriesuisse industry association.

The current parity has been apparent for some time, he said, and the sector has been able to adjust and adapt its pricing, benefiting from the fact that prices in neighbouring countries had risen much faster than in Switzerland in recent years.

Will cross-border shopping become even cheaper?

Many people living close to the border frequently shop in France, Italy or Germany, where prices for everyday goods are much lower.

Will weakening euro make this activity even more lucrative for Swiss shoppers?

Shopping abroad will certainly remain cheaper than in Switzerland but Dagmar Jenni, head of the Swiss Retail Federation, said it is unlikely many more people from Switzerland will make the trip across the border(s) just to shop.

Also, the grass in not necessarily greener (and prices lower) on the other side, she said, pointing out that in Germany prices are rising much faster than in Switzerland.

Plenty of Swiss residents take shopping trips from from Switzerland to Germany. Photo by SEBASTIEN BOZON / AFP)

READ MORE: EXPLAINED: Why is Switzerland so expensive?

What about salaries and employment?

For Daniel Lampart, chief economist at the Swiss Confederation of Trade Unions, the weaker euro could have consequences for both wages and jobs.

He points out that companies in Germany would pay significantly lower wages than they did two or three years ago.

“The weakness of the euro gives them an additional advantage, while Swiss industry is at a disadvantage”, he said.

What needs to be done to offset the euro-Swiss franc parity?

Some in the industry are calling for the Swiss National Bank (SNB) to intervene as it had done in 2011, when the SNB had capped the franc at 1.2 euros, devaluing the Swiss currency by 8 percent.

But in 2015, the SNB abandoned the cap, saying it was no longer justified. The franc’s value immediately soared by around 30 percent. 

Others, however, are largely, unconcerned. “The increase is pretty muted, indicating that the SNB hasn’t intervened much over the past few days,” Maxime Botteron, and economist with Credit Suisse, told news outlet Swiss Info. 

“It has a lot to do with the fact that the franc’s appreciation is against the euro and other currencies.”

What else has Switzerland done to keep its currency from gaining strength?

Just when the SNB removed the currency cap in 2011, the bank had also lowered interest rates, pushing them into the negative territory at -0.75 percent.

This move was intended to deter foreigners from parking their money in Swiss banks, as they had done after the 2008 economic crisis, by making the franc unattractive to investors.

However, this defence mechanism proved to be a double-edged sword: while it may have kept the franc from gaining in value, it also drastically reduced the yield from Swiss pension funds and savings accounts.

READ MORE: EXPLAINED: How does the Swiss pension system work – and how much will I receive?
 

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EXPLAINED: What is ‘church tax’ in Switzerland and do I have to pay it?

Switzerland is one of only a handful of countries where most people must pay taxes to support religious institutions. This is what you should know about it.

EXPLAINED: What is ‘church tax’ in Switzerland and do I have to pay it?

Switzerland is already widely known as a tax haven, but it seems it could be called a tax heaven as well, with millions of Swiss regularly contributing a portion of their wages to religious institutions. 

However, not everyone in Switzerland pays church tax. 

Whether or not you must pay the church tax depends on where you live and what religious denomination you belong to.

If you have moved to a Swiss community, chances are you had to declare your religious affiliation while registering your arrival at the Gemeinde / commune / comunità locale.

And if you identified yourself as a member of a Roman Catholic or Protestant (including Reformed) Church, then you can expect to be slapped with a so-called ecclesiastical tax. 

People in other religions, such as Islam or Judaism, or some of the less common protestant faiths, are not required to pay this tax. 

As is also the case in Austria, Finland, Germany, Denmark and Sweden, Switzerland’s churchgoers must finance the costs of their local churches, with funds ultimately being used to upkeep the facilities, clergy’s salaries, as well as other operating costs.

This is a long-standing and common practice in most cantons, with the exception of Geneva, Neuchâtel, Vaud, and Ticino.

People attending religious institutions of other than Catholic and Protestant denominations, or those living in the four cantons that don’t impose this tax, are free to make a voluntary, tax-deductible contribution to their church, but are not obligated to do so by law.

And it’s not just private individuals who are liable to pay church tax — most cantons, except Basel-City, Schaffhausen, Appenzell Ausserrhoden, and Aargau also levy it on businesses.

READ MORE: Switzerland’s strangest taxes – and what happens if you don’t pay them

This is a somewhat paradoxical situation, as Switzerland recognises the principle of separation of church and state, which would normally preclude public funding of religious groups.

Yet, the country’s main denominations are authorised to collect church taxes; in fact, Swiss Constitution expressly allows cantons to regulate the relationship between church and state on their territories — including the right to levy taxes.

How much is this tax and do you have to pay it?

Again, the amount depends on the canton you live in, but on average it is 15 percent of the income and wealth tax for Roman Catholics and 10 percent for those attending Protestant churches.

If you officially declared your religious affiliation and if you live in a canton other than Geneva, Neuchâtel, Ticino, and Vaud, then yes, you must pay this tax.

How do you opt out of paying the tax?

There is, however, a relatively simple way to opt out of the church tax.

If you move to a new community, just don’t declare yourself as a member of either a Roman Catholic or Protestant parish.

If you already have done so, then send a registered letter to the parish in your municipality and inform them that you are no longer a member of the church.

Importantly, if you have already declared yourself a member of the church in one municipality, this information will follow you to your next municipality, i.e. the communes will pass on information between each other. 

Therefore, simply moving a declaring no religious status will be insufficient. You will need to send the resignation letter. 

Send a copy of this letter to your cantonal tax office. If you are in Valais, you should send your letter to the baptism parish. 

A copy of the form you need to send is available here (in German). 

You don’t have to give a reason why you chose to leave the church; certainly don’t mention it is because you don’t want to pay taxes!

READ MORE: How to navigate your way to a lower Swiss tax bill

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