Saturday, January 17, 2015

A Mini Banking Crisis Affecting German Cities

This week.....the Swiss National Bank made a decision, without much notice.  They had....for roughly four years.....set up a stationary rate of the Swiss Franc to the Euro.  If you watch the business news.....there are dozens of reasons given for the action.  But the key reason that most will simply say is that....if they hadn't reacted this way to stabilize it....the rate would have increased against the Euro.  Because of the dramatic fashion that people were dragging money into Swtizerland for investment purposes and holding reasons.....stability outranked a floating scale.

This had serious impact with a number of German communities, for an odd reason.  A week could have used one Euro to buy 1.20 Swiss Francs.  Today?  That one Euro will buy roughly .97 Swiss Franc.  Yeah....roughly a .25 cent drop in cost.

For Germany?  Well, it's a curious thing.  A lot of German communities need operate on a weekly and monthly basis.  Swiss banks have always been popular because of their stability and long-term projection.  From ARD business news.....I noticed that they listed approximately twenty-nine German cities that had loans with Swiss banks.

Whatever they owed a week ago....went up approximately twenty-percent in scale.  ARD says that the 2013 debt for the cities involved was just under two billion Euro.  If they were still at that point, you'd figure the debt would be 2.4 billion Euro because of the rate change.

How does a city find extra "loot" to cover their loans now (more costly to pay back)?  You basically have to cut services or find new ways to tax the residents.  More fines, more property tax episodes, forcing people to pay more on their street renovation, or cut back on city employees.

The end of the Swiss bank loan business to German cities?  I would imagine that a review will occur, and they will ease themselves out.....trying to find other banking institutions that revolve only around the Euro.

Private German individuals with Swiss bank loans?  So far, the news folks haven't found anyone weeping about it.  If there were some'd be a tough-luck episode because you'd have monthly payments that went up by a significant amount and won't be able to a twenty-percent cost increase for a long period of time.

Was the four-year period of stalling rate increases a smart idea?  It's hard to say.  The Swiss National Bank was looking out for the Franc and for it's investors.  Maybe they should have limited the stall for just six months, and then allowed a floating trend to occur.  But, it's history now.  And twenty-nine German mayors are now sitting there.....trying to find cash to cover next month's loan payment back to the bank, and trying hard to find German banks to offer an exceptional deal for them to ease out of their Swiss loan.

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