The head of the Swiss National Bank (SNB), Martin Schlegel, and Federal Councillor Karin Keller-Sutter, head of the Federal Department of Finance (FDF), are concerned about government debt around the world. According to an AWP newswire report published by Allnews, the two officials spoke on Swiss German television on Friday, on the sidelines of the annual meeting of the International Monetary Fund and the World Bank in Thailand.

What the head of the SNB says

Martin Schlegel issued a warning that comes with a condition: the high level of debt in developed countries "is a concern that could lead to a crisis in the future if the necessary measures are not taken in time", according to the remarks reported by Allnews. This is therefore not a forecast of a crisis, but a risk that depends on a failure to take measures in time.

The head of the SNB explained the mechanism that worries him: rising interest rates increase countries' interest costs, and this is happening at a time when fiscal room for manoeuvre is no longer very large. In other words, when loans have to be refinanced at higher rates, a larger share of public revenue goes to paying interest, which reduces governments' capacity to act. The source does not cite any figure on the level of public debt in the countries concerned.

The risks listed by Karin Keller-Sutter

The head of the FDF broadened the discussion. In her view, the high debt of certain states, the possibility of corrections on the stock markets, as well as energy prices and energy supply could lead to an economic slowdown. Here again, the remarks are in the conditional: these are risk factors, not an announced scenario.

Switzerland well placed, but not immune

In terms of government debt, Switzerland ranks relatively well by international comparison, Karin Keller-Sutter noted. According to the head of the FDF, the country is praised for its budgetary policy, its tax policy and its stability.

She warned, however, that international interconnection is such that Switzerland would also be vulnerable to a debt crisis triggered by the debt of major states, such as the United States, or in Europe, where France could drag the euro into crisis. This is the heart of the argument: moderate national debt does not shield the country from a crisis that originates elsewhere, because its economy is closely tied to those of its major partners.

The source does not detail the channels through which such a crisis would reach Switzerland. It says nothing about a possible effect on the Swiss franc or on banks; only the possibility of corrections on the stock markets is mentioned, in general terms, by the Federal Councillor.

Inflation and growth: the figures cited

When it comes to inflation, Switzerland stands out from the rest of the world, according to the article. Martin Schlegel noted that inflation is contained "in the middle of the 2% range", which has allowed the SNB to leave its policy rate unchanged. The source gives neither the measured inflation rate, nor the reference period, nor the level of the policy rate.

On growth, the article states that growth of 1.5% to 2% is forecast for Switzerland this year, without specifying who made this forecast. It is an estimate for the current year, not an observed result.

A warning rather than a forecast

Neither Martin Schlegel nor Karin Keller-Sutter is announcing a debt crisis. Their statements, as reported, describe a risk: it could materialise if measures are not taken in time, against a backdrop of rising interest rates and reduced fiscal room for manoeuvre. The sources do not specify which measures the two officials consider necessary, nor within what timeframe.

Sources

  • Allnews (AWP): "BNS et DFF inquiets de l’endettement des Etats dans le monde"