While the rest of Europe struggles to rein in government debt, there is no talk of forced austerity in prudent Switzerland. Instead, the country is looking forward to growth of at least 2.5 percent this year, thanks to booming exports.
But at what cost?
On Friday, the Swiss National Bank revealed that such exceptionalism has not come cheaply. The central bank reported that it lost 4.2 billion Swiss francs ($4.0 billion) in the second quarter, partly from its bid to check the rise of the Swiss franc against the weakening euro .
The loss in foreign currency reserves was 10.4 billion francs, which was offset by gains in the value of the bank's gold reserves and the fund used to bail out UBS, the Zurich bank.
While ultimately unsuccessful in preventing the franc from increasing in value, the central bank’s expensive failure will have no immediate consequences for the wider economy. The paper loss, however, represents a blow to the prestige of the bank, an institution once considered a bastion of probity to rival the old German Bundesbank.
Though the action may have slowed the rise of the franc , the central bank has largely run out of ammunition.
“The Swiss National Bank was a lighthouse in a stormy sea,” the Neue Zürcher Zeitung editorialized in June. But lately, the Swiss daily warned, “the bank’s aura is in danger.”
The Swiss have navigated through the economic storm better than their neighbors. As so often in its history, Switzerland maintained a distance from the turmoil just outside its borders. When the world sank into recession last year, Swiss output slid 1.5 percent, a pittance compared with the 5 percent declines in Germany to the north or Italy to the south.
But the central bank’s recent attempt to halt the climb of the franc by printing money — 79 billion francs in May alone — to intervene in currency markets served as a reminder that Switzerland cannot insulate itself from the economies around it. In fact, they are yoked together.
“In the long run one can’t avoid a recession with expansionary monetary policy,” said Urs Rüegsegger, the chief executive of the SIX Group, which operates the Swiss Stock Exchange. “The market is going to have to get used to: A, higher interest rates, and B, recession.”
The currency intervention showed that Swiss machinery companies and other exporters could not count on the Swiss National Bank to protect them against swings in the franc’s value against the dollar or euro.
The franc has risen more than 10 percent against the euro this year. It rose a similar amount against the dollar through June, but has recently returned almost to the January level.
The increase has also hit the labor-intensive tourism industry, which accounts for about 3 percent of gross domestic product and double that percentage of employment.
“If there is another crisis, the S.N.B. can’t do much more to keep the Swiss franc from rising,” said Caesar Lack, head of economic research for Switzerland at UBS.
The central bank’s foreign currency reserves ballooned to 232 billion francs in June, from less than 50 billion francs in early 2009. UBS has warned that, in the unlikely event the euro fell to 95 cents to the franc (it was 1.35 on Thursday), the bank would use up all its equity and require recapitalization from the taxpayers.
“Although negative equity is unlikely, it cannot be ruled out,” Mr. Lack wrote last month. Negative equity is associated with corrupt or mismanaged central banks, not a well-organized country like Switzerland.
For its part, the bank and its chairman, Philipp Hildebrand, have warned of continuing risks in the Swiss commercial banking system. UBS, which required a costly bailout after loading up on troubled assets, and Credit Suisse, which was also hit hard, have returned to profit and raised their capital reserves.
But in a worst case of his own, Mr. Hildebrand warned in April that should the two big banks need rescue, the funds required “would exceed our country’s financial resources.”
Mr. Hildebrand has also expressed concern that UBS and Credit Suisse, whose combined assets far exceed the annual output of the Swiss economy, are still too big to fail.
There is no sign of such risks on the tidy, picturesque streets of Zurich, which regularly tops lists of the most livable cities in the world. Here, office workers can shed their business suits for swimming trunks during lunch hour and take a quick dip in the clear lake that abuts the business district.
Economists still expect the Swiss economy to outperform the overall European economy this year and next. Consumer spending held up last year despite the recession, fed in part by an influx of affluent skilled workers from Germany and other European Union countries after relaxation of labor laws.
Unemployment rose above 4 percent last year, alarming by Swiss standards, but still extremely low compared with the rest of the world. “The normal Swiss worker did not see very much of the crisis,” said Yngve Abrahamsen, an economist at the Swiss Federal Institute of Technology Zurich.
Real estate prices are rising, leading to some concern about overheating in prime areas like the Zurich and Geneva lakefronts. But household debt is low.
Ebbing concern about European sovereign debt has helped Switzerland lately, by easing demand for the franc as a haven from market turmoil.
Swiss companies like ABB, which provides equipment and services to energy companies and manufacturers, and Nestlé, the coffee and food marketer, have been reporting healthy profits, mainly because of booming emerging markets.
“Switzerland has an advantage from being outside the euro zone and from having some very well-established, well-oiled industries,” said Gary Steel, a member of the executive committee of ABB, which is based in Zurich.
Mr. Lack of UBS said that he was still optimistic about the Swiss economy. As a share of G.D.P., Switzerland has more assets abroad than any other country.
“Would you rather live in a bankrupt state or a country that is owed a lot of money?” Mr. Lack asked. “I would still rather live in Switzerland.”