Niklaus Blattner: Three nations, two currencies, one economic area Speech by Mr Niklaus Blattner, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Freiburger Montags-Gesellschaft, Freiburg im Breisgau, 6 June 2005. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The Upper Rhine EuroRegion comprises Baden, the Südpfalz region, Alsace and Northwestern Switzerland. In what shape is the economy in this region? Is it as dynamic as we would like? Are the national borders that transect the region a handicap or have we come to accept them? What are the implications of the fact that the region has two currencies? Firstly, the Upper Rhine EuroRegion is economically sound. This is due not least to the capital goods sector and the pharmaceutical/chemical industry, with the latter ensuring high added value in Northwestern Switzerland in particular. However, the Upper Rhine EuroRegion does not rank among the very best in Europe. While its level of economic added value is perfectly acceptable, its growth in recent years has been significantly lower than that in other regions. The region’s situation is, therefore, no different to that of many other economic areas in Continental Europe. Secondly, cross-border integration in the Upper Rhine EuroRegion is high. The diversity of the economic interrelationships between the national regions is reflected in the brisk trade in goods, capital flow and free movement of persons.
On the fiscal front, investment in effective water management systems is urgently needed on top of reconstruction and assistance for flood victims and affected firms. This will not only restore foreign investors’ confidence, but will also enhance the economy’s productivity and its potential growth by avoiding future disruptions and making more efficient use of the country’s abundant water resources. BIS central bankers’ speeches  3  Nevertheless, the expected massive spending for such purposes will unavoidably stretch the government’s fiscal resources. At the same time, the government will have to spare some fiscal policy “bullets” in the event that the situations in the U.S. and the Eurozone worsen more than expected and lead to another global recession. Against this backdrop, mediumterm fiscal discipline is needed to ensure long-term sustainability of the country’s public finance. This means the government will have to rethink or reprioritize certain policies that may not contribute to productivity enhancement. Meanwhile, the Monetary Policy Committee (MPC) had been raising the policy interest rate over the past year, until the last meeting in October where the MPC hold the policy rate unchanged. Personally, I view the current level of our policy rate to be accommodative enough to support domestic recovery, with some room available for further easing if needed. While upside risks to inflation are not very serious at the moment, we still need to keep our eyes on inflation pressures that are likely to build up with the pick-up in public and private spending after the flood is over.