Other nations talk, Switzerland acts
In some of the luxury-watch boutiques of Paris, you can hardly move for Asian – particularly Chinese and Indian – buyers. They’re cheerfully paying thousands of euros for handmade, horological masterpieces from Switzerland. In some stores well over half of all sales are to Asians.
And that largely explains why Swiss manufacturers of these high-level time pieces are hiring horologists as fast as they can to keep up with demand. Brands such as Tag Heuer, Hublot, Breguet, Corum and Audemars Piguet had a gratifyingly profitable year in 2010 when sales comfortably exceeded €12bn, but they expect an even better one this year as buyers from “Shankong” flock to their stores. Time pieces costing €2,400-plus make up 40 percent of all sales.
As a symbol of the rapid rebound of the Swiss economy, the buoyant state of the mechanical watch industry is highly appropriate. After all, it was little more than a year ago that these brands were just as furiously laying off staff – 4,200 in 2009 – as they are now hiring them and analysts were gloomy about the industry’s immediate prospects. As indeed was the OECD about the country as a whole, predicting “the global crisis will have a lasting impact on the Swiss economy.”
And now? Credit Suisse economics rejoiced recently at Switzerland’s “surprisingly strong recovery” as employment rose, exports took off despite a powerful franc, and inflation was held at a paltry one percent.
Taking everything together, you could say this nation of just eight million people can lay claim to the unofficial title of winner of the financial crisis.
It seems only yesterday that Switzerland was under attack from all sides. Washington investigators were pursuing its banks for fraudulent activities while Brussels was demanding an end to secret bank accounts. Its much-cherished status as a tax haven was also under threat.
(Switzerland didn’t take too kindly to this outside attention, especially from Washington. Konrad Hummler, chairman of the Swiss Private Banking Association, fumed at what he called America’s “moral duplicity,” pointing out quite correctly that Florida and Delaware are favourite tax havens for Americans. )
And, oh yes, the nation’s two pillar banks, Credit Suisse and UBS, were embroiled in the sub-prime chaos, with the government having to bail out the latter to the tune of $59bn.
Since then we’ve seen the mother of all turnarounds. UBS and Credit Suisse are very much back in business despite UBS having to pay a $780m fine to the US for brazenly inviting American citizens to stash their cash in its secret accounts. (UBS was found to be hiding about $20bn in American money of dubious origin.) To boot, these mighty institutions have been given a “Swiss finish” by the central bank that considerably exceeds the latest Basel III stability rules.
And it’s still a tax haven by another name, one of which is “tax-efficient jurisdiction.” Anybody with at least $250,000 to play with can negotiate an agreement with local authorities that means income taxes payable are significantly less than in most other jurisdictions. This is of course a big reason why Switzerland remains home to at least a quarter of all funds in the hands of global wealth management and why hedge funds are flocking to Zurich.
And as a result of some adroit financial diplomacy, all those accounts may yet stay secret. Although foreign account holders must now sign a “certificate of fiscal conformity” as a sign that everything’s kosher and Switzerland’s 330 banks have agreed to supply other nations with information about suspected money-laundering or other illegalities, a new department of international finance is quietly negotiating a host of bilateral deals under the “Rubik” umbrella. Under this arrangement taxes payable would be extracted from secret accounts without the name of the holder being revealed.
Why has Switzerland got so rapidly out of jail? Just one reason could be that leading businesspeople and bankers routinely move in and out of top jobs in government as “economic counsellors” or equivalent roles. Other nations talk, Switzerland acts.