The Swiss Can Barely Afford Their Currency

Silvy Gillhausen, a saleswoman at the Zett Meyer watch store on Zurich's Bahnhofstrasse, senses trouble when clients from abroad pull out their phones. "Some customers come in with prices saved in their cell phones to compare them with ours," she says, standing near a display of IWC and TAG Heuer watches costing as much as 10,900 Swiss francs ($12,930). "Even when we give them 10 percent off, it's still cheaper in their home country."

The crisis in the euro zone has sent investors scurrying to the safety of the franc, driving it up 25 percent against the euro in the past two years. Almost half of the Swiss corporate executives surveyed by the central bank said in January and February that they "experienced negative effects" from the strong franc. Shops such as Zett Meyer that cater to the tourist trade feel the pain. So do exporters. "If you have loads of euro sales and lots of Swiss franc costs, you're getting killed," says Jon Cox, head of Swiss equity research at Kepler Capital Markets in Zurich. Converting euro sales into francs reduces reported results.

While multinationals such as Nestlé, the world's largest food conglomerate, can mitigate losses by moving production abroad, smaller Swiss firms are running out of ways to cut costs. "It's a dangerous situation because there's really nothing we can do," says Peter Widmer, president of Swiss Export, a Zurich-based lobbying group. Thierry Stern, president of deluxe watchmaker Patek Philippe, said in March that Switzerland may be better off adopting the euro. "It's a nightmare for everybody," he said. "We have to adapt."

Mopac, which makes packaging material for food companies, cut wages by about 10 percent for its 260 workers in February because of the franc. The company adjusts wages every three months depending on the exchange rate, says Hans Hartmann of the trade union Unia, which represents employees in a complaint against the company. "Exchange rate fluctuations are a risk that should be taken on by the company's owner," he says. Mopac will restore wages to pre-February levels if the euro-franc rate returns to what it was in 2009, says Chief Executive Officer Rainer Füchslin. "If we hadn't cut wages, we would have had to move our production to the euro zone," Füchslin says. "We did this for our employees."

Jürg Zürcher, manager of the Sunstar Parkhotel in Davos, says some tourists from the U.S., the euro zone, and Asia are opting for cheaper rooms in countries such as France or Austria. "We concentrate our marketing on Switzerland rather than the European market," says Zürcher.

When visitors do come, they often spend less. Architect Mauro Portela, 43, and lawyer Fred Ferreira, 25, from Brazil said they were surprised by the high prices. "We didn't know the differences between the prices in different countries in Europe," says Portela, who may reconsider his plan to buy a Cartier watch in Switzerland. "All of Europe is expensive, but especially Switzerland."

The bottom line: The Swiss franc's 24 percent gain against the euro since 2009 is squeezing local exporters and retailers.

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