David Prosser: The Swiss can hold the line for only so long

Outlook It is all-in for the Swiss National Bank then. Having raised the stakes several times already with currency market interventions aimed at driving down the overvalued franc, the central bank swore yesterday to do all that it takes to keep the value of its currency above SFr1.20 against the euro.

That determination stems from the enormous damage done to the Swiss economy by the way in which investors seeking a safe haven have flocked to the franc. And one can see why the Swiss are so frustrated – their tourism industry and their exporters are being ravaged because Switzerland is not embroiled in the eurozonecrisis and has no debt mountain of its own.

The problem is that the central bank may not be able to do all it takes to hold the line in the sand now drawn. As Norman Lamont can testify, George Soros once proved that a central bank is no match for a foreign exchange market in full cry.

The Swiss currency will remain in demand as a safe haven asset until investors no longer feel the need to seek safety. And given the failure of the eurozone's political leaders to resolve the debt crisis in the single currency bloc, that doesn't look like being any time soon.

Foreign delegates to the most recent Davos summit, the annual gathering of the World Economic Forum held in Switzerland every January, cannot fail to have noticed how much more expensive visiting the country has become thanks to the appreciation of the franc. But though that expense was an obvious practical application of one of the most talked about themes of the summit – the imbalances that have driven such huge capital flows around the world – there is no sign at all to the end of such pressures.

At best, the Swiss National Bank's dramatic intervention yesterday will hold for a few months, providing the country's economy with some respite. But as the bank itself concedes, it will be hugely expensive. And in the long term, it is a doomed policy – if all other things remain equal, in terms of the eurozone crisis, the defences will be breached in the end.