swiss ft
Swiss voters have shifted the country’s political direction decisively leftward in elections that delivered a triumph for two environmentally focused parties and reversed decades of gains for the country’s hard right.
The Swiss Green party increased its share of the nationwide vote by 6 percentage points in Sunday’s polls, giving it 13.2 per cent overall. The Green-Liberal party meanwhile took 7.8 per cent, up 3.2 percentage points from the last federal election in 2015.
The swing — though modest in comparison to recent political ructions elsewhere in Europe — represents the largest parliamentary shift in the alpine state’s ordinarily finely balanced political system.
The Greens will gain 17 seats in the 246-seat federal assembly, doubling their existing tally and eclipsing the hard-right Swiss People’s party’s previous record-breaking 15-seat gain in 1999. The Green-Liberals will gain a further nine seats. Together the green bloc will hold at least 44 seats, making it the second-largest in the parliament.
Regula Rytz, the Greens’ party leader, said on Sunday evening that they would bid for one of the seven seats in Switzerland’s government, known as the federal council. That could fracture the existing consensus in Swiss politics and pave the way for an intense period of political dealmaking in the months ahead.
The seven seats in the council are traditionally allocated to the four largest parties in the National Assembly in a convention known as the “magic formula”. Recent years have seen the arrangement favour the parties of the right.
Even if the Greens and Green-Liberals band together in a voting bloc when parliament opens in December, they may not have enough clout to secure a seat, however. That will depend on deals they strike with other parties in the coming weeks.
Regardless of whether they are successful, the altered arithmetic of the Swiss parliament will certainly shape the direction of several critical legislative issues facing Switzerland in the coming months, among them a national referendum on the corporate liability of Swiss-domiciled businesses for human and environmental abuses in their supply chains across the world, and Bern’s contentious future relationship with the EU.
The biggest loser in the election was the Swiss People’s party. Though the far-right populists will remain the largest party in the Federal Assembly, its share of the vote slipped 3.8 percentage points to 25.6 per cent, equivalent to the loss of 12 seats in the federal assembly, reducing its total to 53.
The SVP has seemed an almost unstoppable force: with the exception of a setback in 2011, it had increased its number of seats in the federal assembly in every election since 1975.
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In 2015 the party won the largest mandate ever delivered by Swiss voters to a single party, amid widespread fears over a European immigration crisis.
Sunday’s results capped a muted summer of campaigning in which the flashpoint issues of previous elections, such as immigration and Switzerland’s relationship with the EU, were largely absent. Instead headlines about the global climate crisis shaped much of the mood music.
“Climate change will not disappear from the agenda. It will remain a central topic in politics because it will become more accentuated with every year,” Ms Rytz told the Berner Zeitung shortly after the first exit polls were released on Sunday afternoon.
Welcoming the “historic” result, she said record-breaking summer heat in Switzerland in recent years had made the environmental crisis “palpable” to most ordinary voters, but rejected the notion that her party had coasted to victory thanks only to the “Greta Thunberg effect”.
Data from Switzerland’s meteorological service released last month showed 2019 was the third hottest summer on record, with 2018 and 2017 the fourth and fifth. Switzerland’s glaciers are melting rapidly and this year there has been a spate of deaths among climbers that were linked to increasingly unpredictable environmental conditions in the mountains.
Ms Rytz said her party had worked hard to mobilise popular support following disappointing 2015 results.
The Greens have been particularly successful in mobilising awareness of environmental issues via Switzerland’s regular referendums, through which voters decide government policy. In recent years the party has triggered referendums on the green economy, nuclear power and fair-trade food.
Negative interest rates are “essential” for the Swiss economy and will not be reversed without a significant change in global economic conditions, Thomas Jordan, head of the Swiss National Bank, warned on Thursday. Mr Jordan’s remarks come amid mounting concern in Switzerland that the country’s nearly five-year long rate-setting experiment — aimed at curbing the appreciation of the franc and protecting exports — is beginning to create severe structural problems. The SNB’s benchmark rate, set at minus 0.75 per cent, is the lowest of any central bank in the G10 economies. Yields on 10-year Swiss government bonds have been negative for almost a year. Some economists have warned that the policy distorts capital allocation in the economy, artificially skewing investors’ and consumers’ perceptions of risk in subtle, but potentially impactful ways. Banks margins have shrunk dramatically, while cheap credit has begun to inflate asset prices in some parts of the economy. Speaking to a conference of pension fund managers in Bern — an audience representing institutions that are among the most affected by the rate policy — Mr Jordan struck a defiant tone. “We are aware that the negative interest rate is an unconventional instrument, and one that has side effects,” he said, adding that the policy was likely, nevertheless, to remain in place “for some time to come”. Swiss pension funds have seen a significant worsening in their financial positions as a result of the policy, as bond yields have collapsed. Among the effects has been a dramatic shift of Swiss retirement savings into the country’s property market, leading to a building boom across the small alpine state. The bank had conducted an extensive review of the policy in September, he said, adding: “This showed that the negative interest rate, and our willingness to intervene on the foreign exchange market as necessary, are still essential in order to ease pressure on the franc, thereby stabilising price developments and supporting economic activity. Only in this way can we fulfil our mandate.” The debate in Switzerland is just part of a wider economic argument about the benefits — and side-effects — of negative interest rates. The European Central Bank cut its deposit rate further into negative territory last month but Sweden’s central bank signalled that it intended to raise rates out of negative territory later this year, due in part to counterproductive side effects. “When negative rates were introduced in 2015, we all thought this would be an emergency measure, lasting one or two years and then they would try to get out,” said Daniel Kalt, chief economist for Switzerland at the country’s largest bank, UBS. “Now we are coming up to five years into this regime.” The prospect of interest rates rising had ebbed as the US Federal Reserve had shifted from tightening policy earlier this year to easing it again, he added. “Going from an emergency measure already five years old with the outlook for no change for another three or four years — this is going to become a substantial problem for the Swiss economy. You already see the collateral damage being created,” Mr Kalt said. Switzerland’s banks say negative rates have crimped their profitability and led to significant underperformance relative to international peers. UBS and Credit Suisse have reported lacklustre results in the past fortnight, blaming interest rates as the key drag on their performance. “Negative rates [are] a bit like steroids,” Huw van Steenis, senior adviser to UBS chief executive Sergio Ermotti and a former Bank of England adviser, told CNBC earlier this month. “They are great in a short, sharp usage but long-term usage of steroids starts to dissolve your bones.” The ordinarily quiescent Swiss Bankers Association last week published a white paper condemning the policy. “Negative interest rates no longer fulfil their economic purpose. The Swiss franc is no longer overvalued [and] prices are stable,” said Jörg Gasser, chief executive of the lobbying organisation. Asset bubbles, the SBA warned, were already developing. One example of the strange distortions that negative rates can produce is the mortgage market. In a few cases in the Swiss cantons of Zug and Graubünden, local banks have offered negative-rate mortgages — borrowers are paid by the lenders to take money to fund their properties because doing so is cheaper than depositing the money with the SNB. WEEKLY PODCAST Listen to the new weekly podcast from Gideon Rachman, the FT’s chief foreign affairs columnist, and listen in on his conversations with the decision makers and thinkers from all over the globe who are shaping world affairs The SNB nevertheless has little option but to pursue its policy, many warn. Claude Maurer, head of Swiss macro analysis and strategy at Credit Suisse, said the bank had to follow the lead of the European Central Bank to stop the franc from appreciating, with the Swiss economy unable to afford for the franc to become a high-yielding haven for global investors. “They are forced to conduct the current policy in the global environment,” he said. With such an objective in mind, Mr Maurer added, the Bern-based central bank has even signalled that it is prepared to lower rates further. Changes made in September to the exemption threshold at which deposits by banks are charged could be seen as a preparatory measure to help the country’s bank’s cope with even lower rates. “Our forecasts run until the end of 2020, and we see no change,” Mr Maurer said. “We really have to be prepared for some more years to come with such an environment.”
Polish consumers with mortgages linked to the Swiss franc can ask national courts to annul them, the EU’s top court ruled on Thursday. More than half a million Poles took out loans linked to the franc in the years after Poland joined the EU, drawn by the prospect of lower interest rates. But when the franc surged in the financial crisis, and again in 2015, borrowers found themselves facing higher repayments. Thousands went to court to challenge their contracts, in particular clauses that set how banks calculated repayments. The European Court of Justice said on Thursday that terms deemed unfair in Polish mortgage contracts could not simply be replaced by general provisions of Polish law. It added that, if removing these unfair clauses altered the original contracts in a way that was inadmissible under Polish law, EU law did not preclude them being annulled. Swiss franc mortgage holders welcomed the ECJ’s verdict as a “huge breakthrough”. “The ruling confirms that banks in Poland have to apply the same standards of honesty as in other EU countries,” said Stop Banking Lawlessness, a group representing borrowers. However, analysts said that the ECJ’s ruling was not as bad as it could have been for Polish banks because it left it up to Polish courts to determine which contracts contained unfair clauses on a case-by-case basis, a process that could take years. An index of Polish banking stocks was down only 0.5 per cent in afternoon trading. “While the verdict has shifted the odds slightly more in favour of [borrowers], it would be a stretch to declare that it is a game changer. The best outcome for them would be an explicit recommendation by the ECJ that Swiss franc loans should be converted to zloty at a favourable [exchange] rate for clients,” said Piotr Matys, an analyst at Rabobank. “The ECJ refrained from doing so. This explains why Polish banks with the largest portfolio of FX mortgages have trimmed their recent losses and why the selling pressure on the zloty has not escalated.” Maciej Marcinowski, an analyst at Trigon, said that he thought banks would now wait to see how they fared in cases in Poland’s courts before deciding what provisions to make against possible losses on annulled contracts. There are currently about 500 cases being heard by appeal courts, he said, and 10,000 still being processed by lower courts. “Those 500 cases were put on hold until the ECJ decision. Now those cases will be resolved, which will take maybe half a year, and if . . . banks start to lose rather than winning as they have done until now, then that would be the trigger for them to start building reserves.”
Negative interest rates are “essential” for the Swiss economy and will not be reversed without a significant change in global economic conditions, Thomas Jordan, head of the Swiss National Bank, warned on Thursday. Mr Jordan’s remarks come amid mounting concern in Switzerland that the country’s nearly five-year long rate-setting experiment — aimed at curbing the appreciation of the franc and protecting exports — is beginning to create severe structural problems. The SNB’s benchmark rate, set at minus 0.75 per cent, is the lowest of any central bank in the G10 economies. Yields on 10-year Swiss government bonds have been negative for almost a year. Some economists have warned that the policy distorts capital allocation in the economy, artificially skewing investors’ and consumers’ perceptions of risk in subtle, but potentially impactful ways. Banks margins have shrunk dramatically, while cheap credit has begun to inflate asset prices in some parts of the economy. Speaking to a conference of pension fund managers in Bern — an audience representing institutions that are among the most affected by the rate policy — Mr Jordan struck a defiant tone. “We are aware that the negative interest rate is an unconventional instrument, and one that has side effects,” he said, adding that the policy was likely, nevertheless, to remain in place “for some time to come”. Swiss pension funds have seen a significant worsening in their financial positions as a result of the policy, as bond yields have collapsed. Among the effects has been a dramatic shift of Swiss retirement savings into the country’s property market, leading to a building boom across the small alpine state. The bank had conducted an extensive review of the policy in September, he said, adding: “This showed that the negative interest rate, and our willingness to intervene on the foreign exchange market as necessary, are still essential in order to ease pressure on the franc, thereby stabilising price developments and supporting economic activity. Only in this way can we fulfil our mandate.” The debate in Switzerland is just part of a wider economic argument about the benefits — and side-effects — of negative interest rates. The European Central Bank cut its deposit rate further into negative territory last month but Sweden’s central bank signalled that it intended to raise rates out of negative territory later this year, due in part to counterproductive side effects. “When negative rates were introduced in 2015, we all thought this would be an emergency measure, lasting one or two years and then they would try to get out,” said Daniel Kalt, chief economist for Switzerland at the country’s largest bank, UBS. “Now we are coming up to five years into this regime.” The prospect of interest rates rising had ebbed as the US Federal Reserve had shifted from tightening policy earlier this year to easing it again, he added. “Going from an emergency measure already five years old with the outlook for no change for another three or four years — this is going to become a substantial problem for the Swiss economy. You already see the collateral damage being created,” Mr Kalt said. Switzerland’s banks say negative rates have crimped their profitability and led to significant underperformance relative to international peers. UBS and Credit Suisse have reported lacklustre results in the past fortnight, blaming interest rates as the key drag on their performance. “Negative rates [are] a bit like steroids,” Huw van Steenis, senior adviser to UBS chief executive Sergio Ermotti and a former Bank of England adviser, told CNBC earlier this month. “They are great in a short, sharp usage but long-term usage of steroids starts to dissolve your bones.” The ordinarily quiescent Swiss Bankers Association last week published a white paper condemning the policy. “Negative interest rates no longer fulfil their economic purpose. The Swiss franc is no longer overvalued [and] prices are stable,” said Jörg Gasser, chief executive of the lobbying organisation. Asset bubbles, the SBA warned, were already developing. One example of the strange distortions that negative rates can produce is the mortgage market. In a few cases in the Swiss cantons of Zug and Graubünden, local banks have offered negative-rate mortgages — borrowers are paid by the lenders to take money to fund their properties because doing so is cheaper than depositing the money with the SNB. WEEKLY PODCAST Listen to the new weekly podcast from Gideon Rachman, the FT’s chief foreign affairs columnist, and listen in on his conversations with the decision makers and thinkers from all over the globe who are shaping world affairs The SNB nevertheless has little option but to pursue its policy, many warn. Claude Maurer, head of Swiss macro analysis and strategy at Credit Suisse, said the bank had to follow the lead of the European Central Bank to stop the franc from appreciating, with the Swiss economy unable to afford for the franc to become a high-yielding haven for global investors. “They are forced to conduct the current policy in the global environment,” he said. With such an objective in mind, Mr Maurer added, the Bern-based central bank has even signalled that it is prepared to lower rates further. Changes made in September to the exemption threshold at which deposits by banks are charged could be seen as a preparatory measure to help the country’s bank’s cope with even lower rates. “Our forecasts run until the end of 2020, and we see no change,” Mr Maurer said. “We really have to be prepared for some more years to come with such an environment.”
Polish consumers with mortgages linked to the Swiss franc can ask national courts to annul them, the EU’s top court ruled on Thursday. More than half a million Poles took out loans linked to the franc in the years after Poland joined the EU, drawn by the prospect of lower interest rates. But when the franc surged in the financial crisis, and again in 2015, borrowers found themselves facing higher repayments. Thousands went to court to challenge their contracts, in particular clauses that set how banks calculated repayments. The European Court of Justice said on Thursday that terms deemed unfair in Polish mortgage contracts could not simply be replaced by general provisions of Polish law. It added that, if removing these unfair clauses altered the original contracts in a way that was inadmissible under Polish law, EU law did not preclude them being annulled. Swiss franc mortgage holders welcomed the ECJ’s verdict as a “huge breakthrough”. “The ruling confirms that banks in Poland have to apply the same standards of honesty as in other EU countries,” said Stop Banking Lawlessness, a group representing borrowers. However, analysts said that the ECJ’s ruling was not as bad as it could have been for Polish banks because it left it up to Polish courts to determine which contracts contained unfair clauses on a case-by-case basis, a process that could take years. An index of Polish banking stocks was down only 0.5 per cent in afternoon trading. “While the verdict has shifted the odds slightly more in favour of [borrowers], it would be a stretch to declare that it is a game changer. The best outcome for them would be an explicit recommendation by the ECJ that Swiss franc loans should be converted to zloty at a favourable [exchange] rate for clients,” said Piotr Matys, an analyst at Rabobank. “The ECJ refrained from doing so. This explains why Polish banks with the largest portfolio of FX mortgages have trimmed their recent losses and why the selling pressure on the zloty has not escalated.” Maciej Marcinowski, an analyst at Trigon, said that he thought banks would now wait to see how they fared in cases in Poland’s courts before deciding what provisions to make against possible losses on annulled contracts. There are currently about 500 cases being heard by appeal courts, he said, and 10,000 still being processed by lower courts. “Those 500 cases were put on hold until the ECJ decision. Now those cases will be resolved, which will take maybe half a year, and if . . . banks start to lose rather than winning as they have done until now, then that would be the trigger for them to start building reserves.”
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