This, however, is only the “first sight” scenario. European unemployment is largely structural, meaning that although there is a demand for labor on the part of the firms, this demand is not necessarily matched by the supply on the labor market. Under these circumstances, the labor market could constitute a bottleneck for growth and lead to inflationary pressure. To prevent inflation from rising, the European Central Bank would have to further increase interest rates. Clearly, structural adjustments are of the essence in Europe. In the absence of flexibility, the unemployment rate cannot be lowered significantly and doubts exist about the actual room of maneuver of the monetary authorities. Expected growth for Switzerland, on the other hand, looks quite moderate by international standards. Thus, one might think that there is little danger of inflation and that the Swiss National Bank should further support the seemingly fragile economic upturn. A look at the labor market, however, shows another picture. Unemployment has fallen steadily since the summer of 1997 to a low rate of 2.3% only. Its recent increase to 2.6% is due to seasonal factors. Moreover, there are already clear signs of a shortage on the labor market. Stronger growth could thus fuel the well-known wage-price spiral. Under these circumstances, a further tightening of monetary policy is a realistic hypothesis. To make things even more difficult, there is a high degree of uncertainty concerning the development of labor productivity in both Europe and Switzerland.
For the first time in its history, Switzerland is surrounded by countries all sharing the same currency. Even without being a member of the Union, it is affected by this new monetary situation. De facto, our trade with Europe is already taking place in one currency only - the euro - because the parities of the former national currencies have been definitively locked. That means that our foreign trade is less diversified by currencies than earlier and that fluctuations of the SF/euro exchange rate have an even stronger impact on the Swiss economy than the former SF/DM or SF/FF exchange rates. At the same time, a common monetary policy for Europe is likely to lead - over time - to a stronger synchronization of business activity in the EMU member states. This, in turn, means that the impact of the European business cycle on the Swiss economy will become more even and thus also stronger. More than ever, Switzerland’s economic destiny will be linked to that of Europe. Today, Switzerland benefits already from the technical simplification induced by the substitution of ten different currencies by a single one. Monetary unification brings advantages to internationally oriented firms as it simplifies their foreign currency management and their accounting procedures. From the year 2002 onward, when the euro will exist in the form of cash, the single currency will make things even easier for a broad public, not only for the Europeans, but also for every Swiss travelling through the euro-zone.