Tuesday, February 24, 2009

If the Swiss Run Out of Cash, What Then?

If the Swiss run out of money, heaven help us all!

Economist Artur Schmidt says Switzerland could go broke because Swiss banks extended billions in credit to Eastern European countries which now can't pay back the money.

“Switzerland, like Iceland, is threatened with a potential national bankruptcy,” Schmidt told the Swiss daily Tagesanzeige.

Loans made in Swiss francs stimulated rapid economic growth in many Eastern European countries, Schmidt says, making Swiss currency very important.

Swiss banks lent francs to local banks, which in turn lent them to their customers. Such loans were especially attractive because interest rates were much lower than required for loans in local currency.

The system worked as long as exchange rates between Swiss and Eastern European currencies remained reasonably stable.

Now Eastern European currencies are falling and more borrowers are having problems repaying their loans.

A reminder that this economic mess is not just America.


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