Zurich is clean. I mean, really clean. It took three days before I accidentally saw a drug deal, and even that was down an alley after I got lost, and so politely done, as I imagine back-alley drug deals go, that it took me a moment to realize what was happening.
It's this sort of delayed disbelief, this sort of miscomprehension of events, that seems to have swept Switzerland, and namely, Swiss banks, into the wake of an economic climate it has largely avoided. But the troubles of the eurozone, neighboring Switzerland on all sides, have made themselves known in the small alpine country.
Neutrality put to the test
The country's decision in 2001 not to join the eurozone, when its neighboring countries to all sides were leaping on board, was clearly a good one for the neutral country. Granted, the cost of living is high, a Starbucks latte and muffin that in the States would have cost me $6 cost me nearly 10 francs in Bern. The unemployment rate is low; while other countries were watching the ranks of their unemployed rise in number, Switzerland's declined steadily from above 4% in January 2011 to 2.8% in July 2011. It's since risen to 3.4%, only to drop back down to 3%.
The country is not without its dark side: Swiss-manufactured hand grenades recently were used in the Syrian conflict, prompting the Swiss government to suspend all arms deals to the United Arab Emirates. Its CPI dropped 0.03% in June, which wasn't unexpected.
Shelter from the storm
Long the haven of international customers looking for tax shelters, the Swiss banking system has come under attack from a myriad of sources, not the least of which is Germany. German tax officials recently raided the homes of 5,000 clients of Credit Suisse
It's another blow for a banking system that has faced growing scrutiny of its deposits from overseas. Overall, the total amount of foreign assets managed by banks in Switzerland has dropped nearly 300 billion francs (about $305 billion) since 2008. Overall, the amount of foreign assets under management dipped to 51% of total AUM at the end of 2011, the lowest it has been in the past four years.
A bank scandal? You don't say
It's not surprising that the Swiss banking system should come under fire; few banks in fewer countries have escaped scrutiny following the global economic collapse. The investigations aren't idle ones; officials from HSBC
In the global environment of bank disasters, from the MF Global collapse to the LIBOR rate manipulation, from the fallout from subprime mortgages to laundering for terrorist groups, Switzerland's safe haven for tax evaders seems almost charming.
But consider Switzerland's neighbors: Italy, with an economy that's shrunk 2.4% this year; France, with an economy that its president called "flatlined"; and of course, Germany. Switzerland is the sole holdout from the eurozone in Western Europe, surrounded as far as the eye can see. In this case, a sort of reverse of the old adage is true: If they don't join you, beat 'em.
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