The Euro Crisis a Dilemma

The euro crisis of 2010 presented Switzerland with a nasty dilemma. Swiss exporters and service providers were in danger of being priced out of business. Responding to their complaints, the Swiss central bank pegged the franc against the euro in September 2011 at a rate of 1.2 francs to the euro.

There seemed every reason to believe that the Swiss franc-euro peg would hold forever

Then, without warning, Switzerland changed its mind. On January 15, 2015, the Swiss central bank ended the peg—and the franc almost instantly rocketed up 20 percent against the euro, and even more against the currencies of Central and Eastern Europe..

It’s not clear exactly why Switzerland did this. Whatever the motive, what matters here are the consequences for Central and Eastern Europe: further destabilization of already troubled democracies.

Everywhere in Europe, traditional modes of leadership and established institutions are unraveling. Last weekend, Greece elected a government that rejects EU-imposed austerity almost half of all Italian voters support parties that are skeptical of or outright opposed to the European Union.

After the events of January, investors are in search of escape from seemingly unending financial and economic crisis. Holders of Swiss francs profited handsomely, but many investors and brokerage firms, were hit with massive losses. Two brokerage firms in London and New Zealand have announced huge losses and will have to close. A New York-based currency broker said clients suffered significant losses, and it needed an emergency loan to stay in business.

While the Euro has declined against the US Dollar the Swiss Franc has soared. Volatility of this nature and magnitude creates positive opportunities for the knowledgeable trader.