Home > Uncategorized > Swiss central bank fuels Europe’s North-South debt crisis – Telegraph

Swiss central bank fuels Europe’s North-South debt crisis – Telegraph

September 27, 2012 Leave a comment Go to comments

A report by Standard & Poor’s claimed the Swiss National Bank (SNB) had bought €80bn (£64bn) of German, Dutch, French, Finnish and Austrian bonds this year to counter a flood of money entering the country and hold the franc at 1.20 to the euro.

The scale is vast. The SNB has effectively financed almost 90pc of the combined budget deficits of five core countries over the same period. The bank’s total reserves have soared to 79pc of GDP.

Some inflows into Switzerland are funds repatriated by Swiss citizens seeking shelter from the global storm. But a large part is either capital flight from Italy, Spain and Greece, or money withdrawn by Swiss banks from the Club Med bloc as they cut exposure.

The effect has caused the North-South yield spread to widen further, fuelling the eurozone’s vicious cycle. “We think this ‘euro-recycling’ is exacerbating the trend of diverging market conditions for sovereign bonds in the eurozone,” said the agency.

Simon Derrick from BNY Mellon said the Swiss central bank was more or less forced to only buy top-notch bonds as it struggles to defend its euro peg. “The golden rule for reserve managers across the world is that you don’t lose taxpayers’ money. But the truth is that this has become a conduit for capital flight from South to North,” he said.

via Swiss central bank fuels Europe’s North-South debt crisis – Telegraph.

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