niklaus blattner : review of the swiss economy : end - of - year media news conference introductory remarks by prof dr niklaus blattner, member of the directorate of the swiss national bank, at the end - of - year media news conference, zurich, 7 december 2001 * * * 11 september 2001 : a test for the global financial system for a number of years now so - called systemic risks have received increasing attention from the central banks and from banking and financial market supervisory authorities. in extreme circumstances, systemic risks may ultimately lead to a breakdown of the financial system. they have their origin either in a transmission of liquidity and solvency problems between banks and other financial service providers or in the fact that numerous market participants are simultaneously affected by the same non - diversifiable risks. examples of such risks are sudden, widespread and massive losses in the value of financial assets ( stock market crash ), serious malfunctioning of major financial market infrastructures, large - scale natural disasters or terror attacks which obstruct markets and market participants in economic or technical and physical respects. the consequence may be a substantial disruption of economic activity. the damage caused to the affected economies is liable to be correspondingly large. the terror attacks of 11 september 2001 hit the central nerve of the global financial system - new york, the major trading centre for the world's leading currency and the preferred location of the international banking and financial services industry. allow me to recapitulate the consequences in a few words : various banks, stock brokerage firms and securities houses lost part or even all of their staff, their business premises, their backup facilities and their lines of communication. the markets remained closed on the following day, the equity markets even until the end of the week. from a systemic point of view, of even greater consequence than the closing of the equity market was the fact that the two markets for us government paper and for commercial paper, the main vehicles for short - term liquidity equalisation between market participants, had ceased to operate. payment and settlement systems started to break down. securities and credit balances totalling billions were thus blocked at some banks while lacking at others. even though the terror attacks were concentrated on new york and washington, in the beginning they not only paralysed wall street but they also threatened to undermine significant parts of the international financial system. it is much too soon, and this is not the proper place, to make an assessment of the profound human, social and

any major decision in switzerland has to be approved in a public referendum, the prospect of euro membership in the near future is thus highly unlikely. the final point i would like to make is that going for a currency peg instead of adopting the euro outright is not an option for switzerland either. it could even be a dangerous solution. currency peg not an option it is no secret that the majority of swiss are against eu membership, at least at the moment. but you may ask : even if switzerland isn't an eu member, couldn't it peg the swiss franc unilaterally to the single currency? wouldn't this help eliminate the exchange rate risk, without giving up monetary flexibility entirely? there is no such thing as a free lunch in monetary affairs! it is not at all certain that a peg would engender the foreign exchange stability that exporters dream of. we have learned from our experience with flexible exchange rates that any explicit foreign exchange target stimulates the appetite of speculators instead of calming the atmosphere. and this would be especially true if our pegging decision were to be taken unilaterally, without the prospect of a full and permanent integration into the euro area. today, with global markets and global speculation, it would be an illusion to believe that a central bank can defend a specific exchange rate target unless there is strong convergence of economic fundamentals with the economy whose currency it is pegging the domestic currency to. furthermore, a nominal peg against the euro would do little to stabilise the real value of the swiss franc – the only thing that matters for the international competitiveness of the swiss economy – or to stabilise the franc vis - a - vis third currencies, especially the us dollar. given our exposure to global economic and financial shocks, and their arguably smaller importance for the euro area, pegging the swiss franc to the euro is not a realistic option. flexible exchange rates give us the room of manoeuvre we need. conditions for monetary independence having reviewed the advantages of retaining our national currency and flexible exchange rates, i would now like to turn to the conditions necessary for successful monetary independence. i see three crucial factors here : credibility, transparency and efficiency. credibility the first is the need for a highly credible central bank. if the public believes that the central bank will not deliver on its promise to keep inflation low and stable, price stability is difficult to preserve. in this case, joining a monetary union whose policy