The pandemic has shifted state actors into the focus of attention. The demand of two ETH Zurich professors for the institution of a huge state fund in Switzerland underlines this move towards the state and also aims to get the central bank to play a key role.
Switzerland and the whole world is slipping into a recession as the new coronavirus spreads. The recession may, depending on how long and how deep it will be, trigger a wave of bankruptcies and cause mass unemployment.
Two professors at the world-renowned ETH Zurich university, Hans Gersbach and Jan-Egbert Sturm, demand the institution of a «Switzerland Fund» to complement the 10 billion Swiss francs in emergency aid the government pledged last week.
The fund ought to be endowed with some 100 billion francs ($104 billion) and would stand to replace a substantial part of the wealth generated in normal times. The proportion of the money paid to companies needs to be close to 100 percent of their normal intake and should be based on their recent wealth creation history, the authors said in their proposal (available here in German language only).
Deep SNB Pockets
To finance the fund, Switzerland would have to suspend the debt brake, a mechanism designed to prevent government from overspending. Switzerland is in a very comfortable financial position following years of budget surpluses.
In addition, the Swiss National Bank (SNB) has very deep pockets since it started buying huge amounts of foreign currency to prevent the franc from appreciating further. The distribution reserve, from which the bank takes the money it gives to the federal and cantonal governments on an annual basis, has risen to include 84 billion francs.
Professors Gersbach and Sturm said that the government needed to look into unusual forms of financing the proposed state fund and added that the SNB could contribute with an exceptional payment from its coffers.
A Very Public Demand on the Bank
Tomorrow Thursday, the SNB will publish its quarterly monetary policy assessment. Economists have said that the bank won’t touch monetary policy conditions for the time being. It is not likely that the bank will give an answer to the call by the professors tomorrow.
But the demand for a contribution from the SNB to deal with the current crisis is there for all to see. Hitherto, the directorate has been firm in its rejection of additional demands on contributions from the distribution reserve, for instance by the country's trade unions, referring to its independence from politics and on the need to have plenty of means to implement monetary policy at all times.
Liquidity for Banks
But only exceptional policy will be strong enough to offset the damage to the vast part of the Swiss economy that is going to suffer from the crisis. The reserves accumulated by the SNB could come in handy and it wouldn’t be a surprise if the government approached Thomas Jordan and his colleagues in that respect.
The bank will also be called to deal with eventual liquidity problems of banks should the crisis lead to big numbers of bankruptcies and defaults.
