In fact, the instrument of collective labour agreements is regulated by only three short paragraphs in Swiss law. The negotiation setup typically guarantees that firm and industry specifics are taken into account in the arrangements, so that competitiveness can be preserved. The high employment rate among the domestic working-age population shows that the Swiss labour market is in good shape. Currently running at 80%, employment is almost 15 percentage points above the European average. 4.3  A sound fiscal policy  Another supporting factor for the Swiss economy is sound public finances, as reflected in relatively low fiscal deficits and public debt. This fiscal discipline is related to the political institutions of direct democracy and federalism. Swiss voters tend to be pragmatic and have generally shown little inclination for large and ‘creative’ public projects. Furthermore, fiscal decentralisation is pervasive: the cantons, the main sub-national entities, are like sovereigns on a smaller scale, and have extensive taxation and spending powers. In Switzerland, regional autonomy enhances control of public spending and accountability. One element of the incentive scheme is the tax competition among cantons. The cantons are free to set their own tax rates or establish new taxes. As companies and individuals can vote with their feet, cantonal governments have an incentive to strike the best possible balance between the tax burden they impose and the public services they provide. These traditional elements were complemented at federal level with a stringent debt brake mechanism in the early 2000s.

Confronted with such dramatic developments, the Swiss National Bank (SNB) introduced a minimum exchange rate of CHF 1.20 per euro on 6 September 2011. Against the backdrop of a rapidly deteriorating global economic outlook and policy rates that were already at the zero lower bound, this measure helped to avoid an extreme tightening of monetary policy conditions. By setting a cap on exchange rate appreciation, the SNB provided some relief to businesses and bought them time to adopt measures that would reduce costs and improve productivity. Nonetheless, the Swiss franc remained highly valued. However, the minimum exchange rate of CHF 1.20 per euro was only ever meant to be an exceptional and temporary measure. A few weeks ago, on 15 January, the SNB announced its discontinuation. Publishing such a decision as a surprise announcement for the markets and the public was unavoidable. No pre-emptive guidance is possible for this kind of decision. Any guidance would have invited speculative attacks. Markets reacted accordingly, and the Swiss franc appreciated massively within minutes after the announcement. Although some of the overshooting has since been corrected, our currency is still trading at a significantly overvalued level as we speak. Once again, the reasons for the SNB decision are to be found in international developments. In particular, over the course of 2014 it became increasingly evident that the European Central Bank (ECB) and Fed policies would diverge. In the US, the ongoing recovery rendered the prospect of an exit from the unconventional policies more likely.