While Greece, with its strategic position between Asia and Central Europe, has long been exposed to commerce, Switzerland, a country without natural resources, has in some sense been forced to embrace trade in order to survive. Switzerland has now become a global player. Today, the “cliche” of Switzerland as an isolated country with its citizens “entrenched in the Alps, living happily and looking after their cows” totally belies the facts. We tend to easily forget that exports of goods and services account for more than 40 percent of our gross domestic product and that the European market absorbs about two thirds of our exports. The presence of Swiss firms in European countries is also very pronounced, with more jobs created abroad than at home in recent years. In 2002, Swiss direct investments in Europe represented around 7 billion euros, i.e. 13.5 percent of total investments in Switzerland, and Swiss firms employed close to one million people in Europe, equivalent to about one quarter of Swiss employment. Around 9’000 of those employees are living in Greece. My purpose here is not to brag about the Swiss economy, but to emphasize the fact that Switzerland is very open to international trade, investment, and migration, and that our economy is very integrated in the global economy and intimately linked to the euro zone. Swiss monetary policy With those facts in mind, you might wonder whether Switzerland, a highly integrated country surrounded by trading partners sharing the euro, can still follow an autonomous monetary policy.
This would have significant implications on the role of the financial sector in the overall economy. The main reservation with such reforms has been whether they will in fact deliver greater financial stability beyond more basic and well designed changes to the regulatory architecture. It also raises the question as to whether it would significantly raise the cost of financial intermediation. A central piece of the ongoing international debate on the regulatory reform agenda is the proposal on limiting the size of institutions. Whether this in itself will effectively reduce systemic risks has yet to be demonstrated. The experiences of Australia and Canada which have highly concentrated banking systems suggest that the control of systemic risk has less to do with size, and more to do with the effectiveness of risk management and supervision of the large institutions. Malaysia shares this view. Following the Asian financial crisis, measures were taken to prompt the consolidation of our banking sector, thus creating larger institutions with enhanced capabilities not only to operate effectively in the domestic financial system but also beyond domestic borders. The focus is to emphasise on the investment in the risk management capabilities of not only management but also the board of the institutions. It is plausible that artificial restrictions on size or scope could result in a shift of systemic risks to closely inter-connected networks of smaller institutions which collectively pose a similar degree of systemic risk. Emerging economies have great interest in the direction of these reforms.