(Corrects company name in seventh paragraph in story published on July 14.)
Swiss companies are taking matters into their own hands as the central bank shows little willingness to weaken the franc after it surged to a record.
Lonza Group AG (LONN), a Swiss chemicals maker, is extending work hours without additional pay, while the country’s Labor Union Federation representing about 380,000 workers said it’s in talks with companies about taking steps such as paying wages in euros and pegging salaries to exchange-rate moves. ABB Ltd. (ABBN), the world’s largest maker of power-transmission gear, is weighing whether to buy more parts from the euro region to lower costs.
“The franc has a brutal impact on exporters,” said Hans Hess, president of Swissmem, the largest lobby group for manufacturers, in a telephone interview from Zurich. “It’s as if Formula One driver Sebastian Vettel had to start behind his opponents. To win under these conditions is very difficult.”
The Swiss National Bank signaled it’s up to exporters to deal with the appreciation after attempts to weaken the franc through currency purchases in the 15 months through mid-June 2010 sparked a record loss for the central bank. That has prompted lawmakers to call for SNB President Philipp Hildebrand to resign for failing to protect the economy.
The currency, considered a haven in times of turmoil, has appreciated 8.3 percent against the euro this year, reaching a record 1.1495 today, as investors were concerned that the region’s debt crisis may undermine Europe’s stability. It traded at 1.1546 at 7:34 a.m. in Zurich. The franc has gained 15 percent versus the dollar in 2011.
Half of GDP
Exports account for half of Switzerland’s gross domestic product and companies have weathered three periods of a marked franc appreciation in the past two decades. The current surge is the most severe, according to the KOF Swiss Economic Institute in Zurich, with the so-called real franc exchange rate increasing 20 percent in two years.
VonRoll Infratec AG, the maker of piping systems and casting solutions, is considering pegging some salaries to the euro. The company based in Zug is already paying workers commuting into Switzerland from neighboring nations in euros.
Banks, including UBS AG (UBSN) and EFG International AG (EFGN), are also seeking to lower costs as the franc hurts profit margins. Lonza agreed with unions this month to increase weekly work hours for 2,700 employees by about two hours for 18 months. The Basel- based company forecast last month that the currency’s “massive strength” will reduce 2011 earnings by as much as 70 million francs ($84 million).
With companies under pressure, the economic recovery is showing signs of cooling. Manufacturing grew at the slowest pace in almost two years in June and the government lowered its 2012 growth forecast last month to 1.5 percent from 1.9 percent, calling the franc a “burden.”
Swiss stocks are trailing their counterparts in western Europe. The benchmark Swiss Market Index (SMI) has fallen 6.3 percent this year, compared with the 0.6 percent drop of France’s CAC 40 Index and the 4.4 percent gain of Germany’s DAX Index.
Lawmakers, gearing up for October elections, have toughened their tone on the SNB. Christoph Blocher, vice president of the Swiss People’s Party, has said Hildebrand should resign, calling the bank’s currency interventions “senseless speculation.” Susanne Leutenegger Oberholzer of the Social Democrats told Der Sonntag newspaper this month that it’s up to Hildebrand and Economy Minister Johann Schneider-Ammann to act or step down.
The government pledged July 6 to support exporters should the franc continue to strengthen. It also said the SNB has the “sole” responsibility for currency policy.
Hildebrand has refused to be drawn on whether policy makers would consider intervening again. The central bank, which kept borrowing costs near zero last month, lost $21 billion in 2010 because of its intervention attempts.
SNB Vice President Thomas Jordan said late yesterday in Zurich that policy makers are “monitoring the euro-franc exchange rate very closely” and are “very concerned” about the recent development. He declined to say whether the central bank would consider intervening in currency markets again.
It “wouldn’t be much use” if the SNB tried to weaken the franc through renewed currency purchases, said Alexander Koch, an economist at UniCredit Group in Munich. “A lot of investors are using Switzerland as the only European haven. The SNB can’t do anything because market forces are too powerful.”
In an SNB survey of 210 companies published last month, 48 percent of respondents said they were “experiencing negative effects” from the franc’s gain. Companies in the chemicals, metals and machinery industries were among the worst hit and a “large majority” have responded by cutting jobs and wages, moving production abroad and raising prices, the SNB said.
As companies battle to protect profits, Ewald Ackermann, a spokesman for the Bern-based Labor Union Federation, the largest umbrella organization representing 16 unions, said he expects the number of firms seeking talks on measures such as longer work hours to increase in the coming months. “We’re trying to prevent these measures, but there’s a certain resistance,” he said. “They should have never let the franc appreciate that much. The largest part of this problem will be dealt with on the backs of workers.”
Swissmem’s Hess, who is also chairman of Flamatt, Switzerland-based Comet Holding AG (COTN), the world’s largest maker of X-ray machines, said things will get worse before improving.
“The franc has become the pawn of speculators in an extremely volatile environment and we’ll only see in a year how many companies went bankrupt,” he said. “Still, it’s not the first time we’re facing a difficult passage. We’ll have to find a way to cope.”
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