Exploring Swiss island of liquidity in Europe’s sea of sovereign debt

In this column, we look at the reasons for Switzerland being an island of healthy public finance in a stormy sea of sovereign debt. In its statement of accounts for 2011, the Swiss government summarised that the key figures of Swiss public finance – including the confederation, states, municipalities and social security carriers – are among the lowest by international comparison.

Switzerland’s fiscal quota – measuring fiscal revenues (including tax and social security contributions) against GDP – was at a low 29.3%, while the nation’s public spending ratio – measuring government expenditures against GDP – was just 34.8%. Ordinary public profit and loss (P/L) balance was at a surplus for the sixth year in a row (0.4% of GDP in 2011), Switzerland’s national debt ratio – measuring national debt against GDP – was a low 36.5% applying the EU’s Maastricht definition, and 48.7% applying the International Monetary Fund (IMF) definition, respectively. The depth of the sea of sovereign debt around that island is best illustrated by the schedule set out in the graph.

So, how has Switzerland managed to avoid the sovereign debt crisis from which most Western countries are suffering so badly? Debt brake laws are the main reason.

Felix Egli is a senior partner and Wu Fan is counsel at the Swiss law firm VISCHER in Zurich