situated at the very heart of europe but remaining outside the european union ( eu ) has benefited from the continued process of european integration. there are a host of examples to illustrate this. the bilateral agreements switzerland concluded with the eu in 1999 and 2004 would have been very difficult to reach with 27 individual nations. among other things, this has led to greater immigration from the eu. despite initial fears here in switzerland, open and integrated labor markets between the eu and switzerland have clearly given the swiss economy a welcome boost in recent years. indeed, private swiss firms and even semi - public sectors like health care have reaped substantial benefits by drawing on the supply of large numbers of highly skilled immigrants from the eu member states and in particular from germany. moreover, this has not come at the expense of swiss workers. recent research actually suggests that the immigration from the eu during the last couple of years has narrowed the wage differential. 1 immigrants have also been an important source of demand during the financial crisis. they are clearly one of the reasons why switzerland ’ s economy has weathered the financial crisis relatively well. indeed, switzerland is one of the very few developed countries where private consumption remained a steady source of growth virtually throughout the entire financial crisis. 2 a particularly relevant benefit directly linked to the introduction of the euro pertains to exchange rate volatility. after the introduction of the euro and before the peak of the financial crisis in 2008, the average euro – swiss franc volatility was roughly 30 % lower than the prevailing deutsche mark – swiss franc volatility in the 1990. the compression in exchange rate volatility is significantly larger if one takes the lira or the peseta or any of the other peripheral european currencies as a reference point. with the mounting concerns in financial markets over the ability of several, mainly peripheral european countries to handle their public debt level, the situation has evolved significantly. exchange rate developments became a challenge for the swiss national bank ( snb ). with interest rates at zero and limited means to further expand monetary policy through other quantitative easing channels, exchange rate interventions were a necessary unconventional monetary policy tool. the snb made it clear that it would fight off “ safe haven ” flows out of the euro in accordance with its objective to prevent deflationary risks from materializing by way of an excessive appreciation of the swiss franc. this strategy of fighting off deflation risks has yielded the intended results. the deflationary risk in switzerland has largely disappeared and the

swiss economy has been able to benefit from the ongoing recovery of the global economy. while the weakening of the euro with respect to the swiss franc is dampening export activity, exports are being supported by growth in foreign demand. overall, today the outlook for the swiss economy remains a favourable one. admittedly, the adopted strategy is not without risk which comes primarily in the form of increased currency and concentration risk in the snb ’ s balance sheet. this risk reflects the burden the snb has assumed in order to protect the swiss economy from the threat of deflation. the snb has sufficient equity capital to withstand even large losses. when considering the favourable economic outlook for switzerland, we must not lose sight of the fact that the latest tensions on the financial markets have increased the downside risks. should these downside risks materialise and, via an appreciation of the swiss franc, lead to a renewed threat of deflation, the snb would take all the measures necessary to ensure price stability. in other words, the snb would do whatever it takes to fight deflation and safeguard price stability in the medium - and longer - term. switzerland has an obvious and enormous interest in europe ’ s ability to manage through this public debt crisis decisively and ultimately successfully. europe ’ s ability to navigate out of the current crisis is also very much in the interest of the united states and indeed the world. when i say this, i don ’ t mean to refer solely to the potential economic strains as a result of europe ’ s public debt concerns. what is ultimately at stake is the vision of the founding fathers of the eu ; the vision of a continent living in peace and prosperity and thereby contributing to a stable world order. see gerfin, michael and boris kaiser ( 2010 ), “ auswirkungen der immigration der jahre 2002 bis 2008 auf die lohne in der schweiz ”, in : die volkswirtschaft, no. 6. in 2009, annual growth of private consumption amounted to 1. 2 % in switzerland, while in the euro area, it contracted by 1. 2 %. merely upholding this vision will not, however, resolve the debt situation. but it explains the bold and decisive steps taken by european governments, together with the international monetary fund ( imf ), to begin to address market concerns. it also explains why after a rapid deterioration of public finances in europe, collective monitoring of fiscal discipline and peer pressure experience a revival.