POLICIES OF SWITZERLAND GOVERNMENT FOR THE PERIOD 2008-2010
Like the other economies of the world Switzerland was also affected by the worldwide recession, though in recent years Switzerland has experienced high growth, low unemployment and modest inflation, with strong fiscal and external positions.it is because Switzerland is open to trade and financial relations with the rest of the world. The effect come through two ways the financial channel and the trade (demand for exports). The authorities have taken a practical approach in reducing the impact of the crisis on the economy, but more may be needed. The planned and approved federal measures made some ¾ percent of GDP in 2009.
Policy of increasing competition
This strategy, supplemented in 2008 by a chapter entitled "Natural resources in the external economic strategy" and in 2009 by a chapter entitled "The Principle of sustainability in foreign policy", is based on three sections. The first is to improve access to external markets and help to guarantee the introduction of a clear and practical set of international rules. The second is to improve Switzerland's competitiveness by making its national market more competitive, and the third is to assimilate the largest possible number of countries into the global economy by supporting the economic development of partner countries. The first of these goals is to ensure that Swiss suppliers have easy access to markets worldwide. In order to achieve this, obstacles to across border trade such as customs, or non-tariff barriers such as quotas must be removed.
Policies to improve trade
Because international trade has historically played an important role in developing Switzerland's economy, the Government remains deeply devoted to an open multilateral trading system. According to it, multilateralism is the best way of ensuring free trade and protecting economic agents. As well as the 1972 Free Trade Agreement, Switzerland has signed Joint Agreements 1 and 2 with the EU, which cover a great number of areas, specifically, free movement of persons, air and land transport, agriculture, training and research, technical barriers to trade, , cooperation in matters relating to justice, the police etc. Since 2009, Switzerland and the EU have also contracted agreements on customs facilitation and security, education, recognition of protected designations of origin (PDO) and protected geographical indications (PGI), with the European Defense Agency. The Free Trade Agreement with the Faroe Islands and the Free Trade and Economic Partnership Agreement signed with Japan in 2009, Switzerland has a system of 24 free trade agreements settled under the EFTA framework
Policies to control prices
. The monetary policy strategy directed by the BNS in order to fulfil its task consists of three components. Firstly, the BNS considers price stability to be equal to an annual increase of less than 2% in the Swiss consumer price index. Furthermore, on 6 September 2011, the BNS determined a maximum rate for the euro. In 2008, monetary policy came under great pressure because of the considerable uncertainty about trends in the economy and in financial markets. For the first ten months of 2008, inflation rose above the 2% threshold for the first time since 1995, determined by higher prices for oil and raw materials. It then became clear that the financial crisis would cause a noticeable slowdown in Switzerland's growth. The BNS therefore left the range of 2.25%-3.25% for the three-month interest rate unaffected till October 2008.
It then brought it down in four phases to 0-1% between October and December. In combination with foreign central banks, it also took measures to relax money markets.
Policies to stop the appreciation of Franc
The start of 2009 was marked not only by a tough situation and uncertainties in financial markets, but also by a high danger of deflation produced by the economic crisis and the swelling Swiss franc and this directed the BNS to decide in March to bring the range of the three month interest rate down to 0%-0.75% and to oppose any appreciation of the franc against the euro. In order to increase liquidity it also bought up bonds in franc from the Swiss borrowers in private sector. This expansionary monetary policy continued until the end of the year. The rise of the Swiss franc against the crisis affected euro was only stopped by the insertion of a minimum exchange rate of 1.20 francs to the euro by the Swiss National Bank (SNB). This means, however, that the Swiss franc is still overvalued. The costs are revenue losses in the tourist industry, a fall in exports, a weak economy and job losses. It is, though, clear that the Swiss franc really is overvalued at its current rate of just over 1.20 to the euro.
STUCTURAL REFORMS
If Switzerland appears both competitive and wealthy, this is above all due to strong contribution by the labor force (82.5% in 2011) rather than a high level (US$48 per hour in purchasing power parity in 2010) or growth in productivity (-0.5% yearly between 2008 and 2011). A number of structural reforms have been introduced in recent years, at both the internal and the external levels, to supplement and reinforce the growth policy. The combination of broader frankness to the outside, the introduction of free movement of persons within the EU and EFTA and the reforms of the domestic market have helped to enhance competition at the domestic level, while at the same time making exports more competitive
Since the strength of the Swiss franc is a problem that affects the whole of the economy, it must be tackled not only by the SNB and its monetary devices but also by the government and its fiscal policy.
Policies to control financial crisis
On 3 rd. august 2011 the Swiss national bank started taking liquidity measures against the overrated Swiss franc. It announced that it would lower the target range of three month rate of interest to 0%-0.25% and aim for a three-month rate close to 0%. Also, it announced that it wanted to raise the sight deposits of domestic banks at the SNB from CHF 30 billion to CHF 80 billion. This limit was continuously stretched during the subsequent weeks until sight deposits were eventually more than CHF 250bn.The Swiss national bank used a number of instruments such as foreign exchange swaps to provide the financial market of Swiss franc with liquidity. The M3 money supply increased by about CHF 35bn exclusively in the period from January to August 2011. On 6 September, the SNB fixed a minimum rate of CHF 1.20 to the euro. SNB did understand that it was essential to control the supply of money in the market thus it issued Insurance of SNB Bills. These bills were first issued on October 2008 and its only purpose was to cancel the large amounts of liquidity in case the money market is over supplied
The SNB said that it aimed for a continued weakening of the Swiss franc and that it is ready to purchase foreign exchange in infinite quantities. If the economic position and deflationary hazards request it, the SNB will take further actions.
Conclusions
Even at the present rate, Switzerland had done its task ahead of the crisis, making its economy right for the good and the worse times. And in two giant steps in the past six years, the Swiss opened their labor market to their neighbors from the European Union. Swiss firms can now draw on a huge collection of highly qualified workers from France and Germany, from Poland and the Czech Republic. With a few smart works, the Swiss thus raised the average rate at which their economy can expand throughout the series from less than 1.5 percent to at least 2 percent now. Strong tax revenues and a robust budget surplus are among the concrete rewards for such virtue.
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.Swiss government has al less need for an expansionary fiscal policy in contrast to other countries because they maintained their monetary policy right from the beginning. A fiscal stimulus always cast the danger of wasting resources, particularly if governments try to spend too much money in a haste. The Swiss taxpayer, already blessed with a low-tax government, will probably survive the crisis without a build-up in government debt
To handle recession the government of Switzerland had to intervene to lift the economy with expansionary fiscal policies. These usually include altering taxation and government spending.
As Switzerland's tax rates are already very low in comparison to its adjacent EU nation, government spending was used to stimulate the economy. Success was determined not only by the monetary policy or the fiscal policy but by the policy mix thus SNB intervention in Swiss economy proved favorable.