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WorldMarch 2 2015

CEE reels from Swiss franc exposure

As the Swiss National Bank removed its cap against the euro, the risk of borrowing in foreign currencies was made clear, as countries that had been busily borrowing in the Swiss franc reeled at the impact of its sudden appreciation. 
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CEE reels from Swiss franc exposure

The alpine valleys of Vorarlberg in Austria are tucked between the borders of Switzerland and Liechtenstein, and the state shares with these neighbours a distinct, and almost indecipherable to outsiders, dialect, close economic ties and a penchant for borrowing in Swiss francs.

The latter was a quirk that emerged in the mid-1990s, which has since spread throughout Austria and even, at the behest of Austrian banks, to central Europe. The trend started because many of the citizens of Vorarlberg worked in Switzerland, and earning Swiss francs made it easier to borrow and save in the currency, too. This logic was furthered by the fact that the interest rate on a franc loan was about one-third of that for loans denominated in Austrian schillings or, later, in euros.

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