Thursday, November 29, 2012

Currency War Coming to Europe?



Switzerland is becoming politically isolated in Europe. The country got a big slap in the face from Germany this week. The German Upper House refused to accept a settlement offer from the Swiss government over the very messy matter of German tax cheats, and their accounts with Swiss Banks. A bit of history:


-  The US Justice Department took on the Swiss over banking secrecy four-years ago. The DOJ used a very big club. The deal was that the Swiss would give up the “Names” of account holders, if they did not, they would have to close up all business in the USA. So the Swiss government, on behalf of their banks, folded like a cheap suit in the rain.


-  Then all of the countries in the EU wanted a similar deal as the US. They wanted Names, so they could prosecute them at home. The Swiss balked, knowing that if they caved, the domestic private bankers would get crushed, and a good number of high profile folks would get exposed as cheaters.


-  The Swiss came up with an ingenious “fix” with the following pieces:


1) A flat tax would be applied to the principal of the Black Accounts. The tax runs as high as 41%, depending on the age of the account.


2) A withholding tax of 10% would be charged on income the Black Accounts earn.


3) In exchange for #s 1 and 2, the account holder would remain anonymous, and therefore avoid public disclosure/prosecution.



This is an incredible deal. Let’s call it what it actually is, State sponsored Money Laundering!


For a “fee”, that averages less than 20% of the account balance, and an additional ½% a year, money can be successfully laundered. In the end, the money will be as clean as a whistle. Your average drug kingpin would gladly pay that price.


- Incredibly (to me), both England and Italy jumped on the Swiss offer. They inked deals that start on January 1. The public argument for accepting the deal(s) has been that it raises significant amounts of money. But actually, there are no promises how much will get paid, so the money side is not really the argument for acceptance. I think the reason is that influential folks pushed for this deal because they did not want their Names in the local paper.


-The German Upper House said “Nein!” this week. It was a tremendous defeat for Eveline Widmer-Schlumpf (Swiss President and Finance Minister – great name). It was also a defeat for Frau Merkel who pushed for it. The worst possible outcome is that now, under German pressure, both Italy and England may be forced to reverse their positions; and chuck out the Swiss tax treaty.


What happens next? It might be that another Swiss bank employee steals a tape with more names and account information, and sells it for E5m to the German tax collectors (they are willing buyers, they have already bought two tapes). This is highly illegal activity in Switzerland. The country is up in arms over the trouncing of their laws by neighboring France and Germany.


I wonder if there are any currency implications to this story. The Swiss National Bank has pegged the CHF to the Euro for over a year now. The SNB has been able to do this as they have the tacit approval of the ECB. But the ECB is a slave to French and German politics, and the politicians have their own war with the Swiss. There are very big players squeezing balls right now, I would not be surprised if this ends up blowing back in the face of the SNB.


In passing, I note that EURCHF hit a low (from early September) of 1.2027 today, just a few pips away from where the SNB steps in. This is happening with the backdrop of a stable to firm EURUSD, so a bit of a surprise. Separately, Tomas Jordon, the boss at the SNB had some interesting words today (Link):


To ensure that the SNB can fulfill its mandate in the long term, without any restriction, in the interests of the country as a whole, particular attention is given to its capital base through a prudent provisioning policy.


Read this to mean: We’re gonna take some lumpy losses.


There is going to be another chapter in this story, soon.



  1. But What Do I Know? says:

    Great stuff, Bruce–thanks for keeping up on this. . .

  2. By the time Schlumpf and Draghi get done with them, the once airtight Swiss banking secrecy laws will have so many holes in them that they’ll look like Swiss cheese.

    Jordan talks about a “prudent provisioning policy”? Is that like the “stability pact” that has made Maastricht Treaty the road to perdition that it has become?

  3. About 70 years ago, when a different group of fascists had taken control of all/most of Europe, the Swiss told the fascists to shove it up their liederhosen. Then, as now, there was no coastline of Switzerland, they were physically and psychologically isolated. The intelligencia of Europe (even the ones conscripted to nazi military) kept Switzerland safe from the stupidity

    We all know the EU is circling the drain, and cannot survive in its current form. Whatever one’s opinion of taxes, the EU isn’t going to make it. Throwing good money after bad trying to save something that has zero chance of long term survival is just stupid — even for the bureaucrats of Europe. Even Frau Merkel is slowly starting to realize this.

    Either Europe will back off and leave the Swiss alone, or Europe will suffer massive brain drain and become a “unified” third world basket case. Not exactly a win for the EU in either scenario.

    Bruce: What if this “currency war” actually triggers an earlier breakup of the EU?

    • Hi Bubba
      You say “We all know the EU is circling the drain,…”
      How do you know all of this?
      And who is “we all”?
      Wishful thinking.
      I hope you get over or around your own fiscal cliff and correct the huge deficits and imbalances in the US economy. Europe is moving, anything happening in your neck of the woods or just more of the same? Keep on printing the greenbacks, someone, the Chinese, the oil selllers, other mafias of the world will keep buying them.

  4. “This is an incredible deal. Let’s call it what it actually is, State sponsored Money Laundering!”


    Bankrupt EU bureaucrats taxing their potential enterpreneurs into poverty? Let’s call it what this actually is – State enforced robbery and enslavement. What about property rights, Freedom? All gone. May be there is a place on Alpha Centauri with air to breathe …..

    • This comment is so perfectly ludicrous it really well represents the idiocy of the “libertarian” Right: “Property Rights”, my friend, are a function of GOVERNMENT! Without government there are no property rights, only the people with the biggest guns hoarding everything for themselves (referred to as ANARCHY). And TAXES are the way you pay for that priviledge being provided by GOVERNMENT! And any time you hear someone talking about “FREEDOM” you know immediately that you are in the grip of a flim-flam artist. There is no such thing as “FREEDOM” as some independent state of affairs. Ask your mom and dad! Anyone yelling “Freedom” is ALWAYS trying to get away with something illicit or avoid SOCIAL RESPONSIBILITY!

  5. Cheaters? Someone who values their privacy – a basic human right – and takes steps to protect it is *AUTOMATICALLY* a ‘cheater”? Bull effin sheet.

    True Patriots withold as much tax as they can, by any means, and protect & excercise what few rights they have left.

    It doesn’t seem you know much about money laundering either. When the pigs come for you, don’t count on anyone being left to help.

  6. Know this:

    1) Nobody gets really wealthy by paying taxes, or, the only way to get really wealthy is by avoiding tax payments as much as possible..
    2) NOT paying taxes and succesfully cheating your overlords is commendable, God surely approves of this.
    3) It is a lot of fun!
    4) Whomever disagrees with points 1-3 is blind, gullible or inexperienced.