She told parliament that a work group was studying the imposition of capital controls and negative interest rates to protect Switzerland from the capital flight that a euro collapse would engender (Handelsblatt).
A tidal wave of euros would drive up the Swiss franc, devastate Switzerland’s export economy, and devalue its vast wealth invested in other countries.
Already in August, the Swiss National Bank instituted a currency peg and swore to defend it by acquiring “unlimited” amounts of euros, a risky strategy if the euro were to collapse (for the debacle leading up to the peg, read... Swiss Franc Wreaks Havoc In Switzerland).
Meanwhile, 27 heads of state convened in Brussels for another European Union summit to find that elusive solution to the debt crisis. It began with dinner at around 8 pm and will continue on Friday. Goal: changes in the EU treaty that would impose Germany’s new religion of budgetary discipline on all 27 member states. Violators would be hit with automatic sanctions.
The European Court of Justice would have final control over national budgets. (Ironically, Germany was one of the first EU members to violate the existing 3% deficit limit and was the primary reason existing sanctions have never been applied). Short-term measures to keep contagion at bay are also on the agenda.
“Europe has never been in so much danger,” said French President Nicolas Sarkozy a few hours before the summit (Le Figaro). He worried about “the risk that Europe will explode” and urged that an agreement be found because there were only a few weeks left to make the decisions. He called for more solidarity, more discipline, and more governance within the Eurozone. “An agreement on Friday is crucial,” he said. “We won’t have a second chance.”
But Angela Merkel’s fiscal-union dictate of belt-tightening and central control over budgets isn’t going down all that well elsewhere.
“I don’t have any support in Sweden for changing the treaty,” said Fredrik Reinfeldt, Prime Minister of Sweden upon his arrival in Brussels (Le Figaro). Sweden is one of the 27 EU members but not in the 17-member Eurozone. To contain the debt crisis, he proposed instead the reinforcement of existing bailout funds and more IMF involvement.