The rise in labor productivity is usually seen as the main factor behind the spectacular performance of the US economy, characterized by high growth and low inflation. Will productivity now also start rising in Switzerland and Europe? Where will it rise more? In Switzerland, where the labor market is more flexible and structural reforms are more advanced, or in Europe, where the large common market and the single currency are expected to break up old structures? We have good reasons to believe that there is a potential for non-inflationary economic growth in Switzerland. Investment has been strong in 1998 and in the first part of 1999, deregulation and competition have made spectacular progress, large-scale adjustments have taken place in various economic sectors and more flexibility is now accepted in the labor market. Some adjustments in the interest rate have been made in order to restore a more neutral monetary stance. In one word, the degree of competitiveness of our economy is stronger today than it was 5 or 10 years ago, production capacities have not been fully exhausted and monetary conditions have been adjusted. Switzerland will thus benefit from the recovery in Europe without major risk of inflationary pressures. Indeed, the assessment of the future stability in the exchange rate between the Swiss franc and the euro depends crucially on what will happen in Switzerland and in the surrounding countries. If the convergence in fundamentals goes on, the exchange rate should remain relatively stable; otherwise some adjustment will be needed.
At that time, the euro will probably also be easily accepted for payments in Swiss border regions and tourist areas. As final advantage, the single currency greatly enhances market transparency and stimulates competition. On the one hand, Swiss importers can now directly compare euro denominated offers from different countries. On the other hand, exporters can less easily differentiate prices according to the market destination of their products. In the long run, transparency will promote efficiency for EU-members and non-members. The almost daily news about mergers and acquisitions in Europe is an expression of the ongoing fight for a favorable position on the unified European market. 2. Extraordinary stability of the Swiss franc/euro exchange rate in the past ...  After these remarks on the general consequences of the euro for Switzerland, let us now turn to the more specific, but nonetheless central, question of the exchange rate between the Swiss franc and the 1  BIS Review 17/2000  euro. As already mentioned, the exchange rate between the Swiss franc and the euro is of crucial importance to the Swiss economy. So far, the relation between the two currencies has been remarkably stable. Since the introduction of the single currency, the Swiss franc/euro exchange rate has fluctuated in an extremely narrow band of only 2%. Thus, exchange rate volatility has until now been even lower than the 8% volatility observable between the Swiss franc and the Deutsche mark during the three years preceding the monetary unification.