As a consequence, we had to conduct a more aggressive interest rate policy than the ECB in order to lower the attractiveness of our currency and give some leeway to our economy. Things have normalised since then and we have already lifted interest rates on four occasions in the last two years. As you can see, we conduct our monetary policy independently of the ECB. 2/3  I'm sure you will agree, that Switzerland is most definitely not an isolated island, as many still believe. It is clearly an open economy which has chosen to take up the challenges of the world economy. Large Swiss firms invest more money and create more jobs abroad than at home. Switzerland has become a major investor not only in Europe, but also here in the United States, as well as in Asia. Today, there are 4.2 million jobs in Switzerland and we count 1.8 million people working in Swiss firms abroad. Apart from Singapore and Hong Kong, there is no other country where foreign investments play that kind of leverage role. Actually, Switzerland is not an alpine fortress, but a home base for globally active industries… …in keeping with the long-standing tradition of watchmakers and chocolate producers! 3/3
Although there are signs of improvements in the recovery, many economies are still in a weak financial position, and domestic demand is expected to grow at low rates for some time. After years of financial excesses, households in many countries, particularly in the U.S., have accumulated excessive debt. Many advanced economies also have weak fiscal positions, due to fiscal expansions implemented to contain the recession, measures to support the banking sector, or simply the fiscal profligacy that took place prior to the crisis. In particular, the level of government debt in some European countries will require a significant and protracted fiscal consolidation to avoid insolvency. Therefore, the deleveraging process of households and governments implies that domestic demand is unlikely to be an engine of growth. As a consequence of this scenario, the inflationary pressures will be relatively contained. The rise in commodity prices is having effects on headline inflation, but the propagation to other prices will be limited because of a negative output gap. This is in sharp contrast with the situation in emerging market economies (EMEs). Accordingly, monetary policy in advanced economies will remain expansionary, and despite some tightening in the near future, they will still have lower interest rates than those in EMEs, and which will be well below what used to be considered a neutral stance. In contrast, EMEs have been growing strongly, and after suffering moderately from the global crisis, many have already reached levels of full capacity, and some of them may even be overheating (Figure 1).