🏦 VAT’s All, Folks!

Here’s the thing about the Swiss franc that nobody in finance wants to say out loud: it’s basically gold, but with better institutions and a functioning democracy attached. That’s it. That’s the whole thesis. You can dress it up in words like « secular appreciation trajectory » and « geopolitical safe haven premium, » but what you’re really saying is: Switzerland is boring in a way that compounds. And boring compounds beautifully.

The franc has been appreciating, more or less structurally, for over twenty-five years. Not because of some genius monetary policy. Not because the SNB is staffed by wizards. Because Switzerland keeps running surpluses, keeps its politics local and manageable, and keeps its institutions from embarrassing themselves on the global stage. (I know, I know — the UBS thing. Fine. But the response to the UBS thing was also Swiss: boring, competent, finished.) The result is a currency where the appreciation is the yield. You don’t get paid in interest. You get paid in franc. Every year, a little more. The Swiss franc against the dollar over two decades is basically a chart of what happens when a country decides to just… not screw things up.

Which creates an actual problem for anyone managing Swiss franc portfolios, and this part is genuinely underappreciated. Near-zero rates mean you can’t just park money in CHF bonds and call it a day. That worked when it worked. It doesn’t anymore. So now you’re in this weird position where the safe asset gives you safety but no income, which means you have to go get income somewhere else, which means you have to take risk, which means you need hedging, which means you’re basically building a complicated structure around the core conviction that Switzerland will remain Switzerland. The whole portfolio management exercise is essentially: « How do I get yield without giving up the Swiss anchor? » Swiss dividend stocks at 4-5%, real estate funds as the new fixed income, USD tech exposure with currency hedging layered on top. A lot of moving parts to stay in one place.

And then there’s the de-dollarization conversation, which comes up approximately every six months in the financial press and which, every six months, turns out to be premature. The dollar index shows no structural weakness. The dollar is fine. People keep predicting its demise because predicting the demise of dominant systems is intellectually exciting and also, frankly, great for clicks. The franc doesn’t threaten the dollar. It just quietly does its thing in parallel, absorbing capital flows every time something geopolitical goes sideways. Middle East tensions, trade wars, political chaos in major economies — money shows up in Zurich. It’s not glamorous. It doesn’t need to be. CHF1 is worth more than it was in 2000, and more than it was in 2010, and more than it was in 2020. The trend line is not complicated.

Have a great week!

M. Hantale 🧀

Here’s what everyone misses about the EU’s new Industrial Accelerator Act: it is not a bold move forward. It is a belated admission of failure. Brussels just announced, with great ceremony and a Frenchman at the podium, that it wants manufacturing to account for 20% of EU GDP by 2035. The current figure is 14.3%. Switzerland is already at 18%. No mandate required. No Séjourné speech. No €2T public procurement lever. Just federalism, fiscal discipline, and a quiet refusal to regulate things to death.

The Act itself is more interesting than the fanfare suggests. Public procurement across the EU runs to roughly €2T a year, around 14% of bloc-wide GDP. The proposal would embed « Made in Europe » content thresholds into how that money gets spent: 70% local components for state-supported electric vehicles (excluding the battery, a concession that tells its own story), minimum shares for low-carbon aluminium, cement, wind and solar kit. The reciprocity clause is the genuinely new thing. Countries that close their public markets to European firms will lose access to European ones. The EU calls this principled. The rest of the world has a shorter word for it. Still, credit where due: the EU is finally using the size of its single market as an instrument of power rather than a courtesy it extends to everyone.

Switzerland sits in a peculiar position here. As a signatory to the WTO Government Procurement Agreement, alongside the United States, the United Kingdom, Japan and Canada, Swiss firms should, in principle, qualify under the Act’s definition of eligible suppliers. « Made in Europe » may thus extend to a country that is not in the EU, does not pay into the EU budget, does not implement EU industrial regulations, and never suffered the deindustrialisation the Act is designed to reverse. That is either elegant pragmatism or a loophole large enough to drive a Stadler Rail train through. Probably both.

The deeper problem is execution. The Act has already been watered down once in negotiations: French industrial ambition met German export anxiety, met Central European dependence on Chinese supply chains, met the WTO’s prohibition on naked local-content rules. Steel, under relentless pressure, ended up needing to be low-carbon, not necessarily European. That compromise is not a detail. It is a preview of every implementation fight to come. The EU has 27 procurement regimes, 27 political calendars, and 27 definitions of what counts as « playing by the rules. » Brussels can write the regulation. Enforcement is a different project entirely. The EU has a well-documented tendency to set ambitious targets and then argue about them for a decade.

Switzerland does not do this. It does not need a central authority to tell Basel-Stadt and Vaud to align on industrial content rules. The Confederation’s structure produces, almost mechanically, the kind of policy consistency that the EU must negotiate into existence at enormous cost. Swiss pharma, precision machinery, and specialised engineering did not survive the strong franc, the 2008 crisis, the COVID shock, and now the Trump tariff era by waiting for Brussels to build them a lead market. They survived by being irreplaceable. That is the industrial strategy. Not 20% of GDP by 2035. Being the thing nobody else can make.

The EU’s awakening is genuine and overdue. The geopolitical logic is sound: a bloc that lets its industrial base hollow out while rivals subsidise theirs is not practising free trade, it is practising unilateral disarmament. But legislating your way back to industrial strength requires a quality of institutional execution the EU has rarely demonstrated in economic policy. The Act will now move through the European Parliament and the Council, where it will be amended, contested, diluted, and eventually passed in a form that pleases nobody completely. That is how European law works. Meanwhile, Swiss firms will keep building things the world actually wants to buy, and may well qualify as « European » enough to access the protected market the EU is creating. Pragmatism, it turns out, does not require a flag.