BIS central bankers’ speeches  3  decisively in the event of an excessive appreciation of the Swiss franc. This policy was maintained throughout the first half of 2010. In spring 2010, the news on the state of the Swiss economy turned increasingly positive although the forecast remained fraught with major uncertainties. It was not clear, for instance, that partial unemployment (short-time work) could be reabsorbed without a significant additional increase in the rate of unemployment. The recovery appeared to be on the way but was presumed to remain very fragile. At the same time, the sovereign debt crisis in Europe was causing major tensions in financial markets. In general, markets were commonly afraid that the euro could face long term structural problems, the flight to safe investments was universal and the pressures on the Swiss franc were substantial. The SNB considered that, at that time, the Swiss economy was unlikely to have gained enough strength to be able to withstand a further violent appreciation of the franc. Such a development would have placed the Swiss economy under such severe strains that the threat of a deflationary trend would have again come to the fore. The SNB was not prepared to take this risk; it resisted an excessive appreciation of the franc and in so doing was led to acquire large quantities of foreign exchange.
In fact, over the March to December 2009 period, the Swiss franc depreciated by a little over 2% with respect to the euro and by less than 1% on an export-weighted basis. In December 2009, the SNB updated its view of the economy and decided that some appreciation of the franc would be tolerable but that an excessive appreciation needed to be prevented. It maintained this policy until June 2010. Over the course of this period, while the franc gained almost 8% with respect to the euro it lost about 10% against the dollar. Chart 7 shows that the export-weighted value of the franc increased by approximately 2.5% during this period. After June 2010, the SNB refrained from intervening. Until the end of the year the franc gained around 10% on the euro, 15% on the dollar and more than 10% on an export-weighted basis. What can we conclude from this? We can certainly not conclude that the SNB was not able to hold on its policy, or was “defeated by the markets”. On the contrary, the SNB did what it had announced it would do and thus provided the Swiss economy with monetary conditions that have contributed to a reasonably swift recovery from the crisis and an early return to precrisis GDP levels, while, importantly, assuring price stability. Chart 8 shows the evolution of the Swiss GDP in comparison with a few other industrialized countries.