Swiss central bank interim Chairman Thomas Jordan said Europe’s turmoil is “extremely alarming” and governments must adopt “ambitious” consolidation measures to avert a default.
“Europe is in a real debt crisis, which is very difficult and painful to overcome,” Jordan said at an event in Zurich today. “No private lender is ready to give money to a country, whose debts are growing boundlessly. At some point there needs to be a correction; either income is increased or spending is cut, debt is inflated away or debt servicing is abolished, causing a state default.”
The Swiss National Bank introduced a franc ceiling of 1.20 versus the euro in September after Europe’s worsening fiscal crisis prompted investors to pile into the currency. While European governments last week awarded debt-burdened Greece a second bailout package, pushing up the euro, Nobel prize-winning economist Paul Krugman said yesterday the nation may have to leave the currency region.
Jordan, who was appointed interim chairman after Philipp Hildebrand’s surprise resignation on Jan. 9, said excessive state debt is also posing a risk to price stability and the independence of central banks. He didn’t make a reference to Swiss monetary policy or the currency ceiling today.
The situation is “extremely alarming,” Jordan said. “To avert an inflating away or a sovereign default, it is necessary in many places to implement ambitious consolidation measures, even if they can be extremely painful in the short run.”
Switzerland isn’t part of the 17-member euro region. The SNB will hold its next monetary assessment on March 15.
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