Zug, the small but affluent canton outside Zürich, has announced it is ending discounts for early payment of tax bills. The reason? The longer it has cash on its books, the more likely it will incur costs as a result of negative interest rates charged by Swiss banks. The canton calculates that the move will save SFr 2.5m ($2.5m) a year.
As discussed with Paul Marks here the consequences of negative interest rates are only really hitting us at the margins at the moment, but these rates are indicative of the sorts of problems that we can expect to encounter in mainstream Western countries as the monetarist plate spinning finally begins to spin out of control.
Unless you are in the commodities trading business (as I am in between sojourning in sunny Penang here), you’ll probably have never heard of Zug, which is a tiny Swiss canton just outside Zürich alongside the beautiful lake Zug, but also home to 30 of the worlds top commodities trading houses, primarily because of the advantageous taxes that may be negotiated with the Zug tax authorities.
However, I would argue that what happens in Zug is an important bellwether for what will happen in other Western countries as negative interest rates become more widespread and if the Swiss can’t get their financial shit together, what hope is their for anybody else?
Why else do you think your governments are trying to make holding large amounts of cash illegal? Because if enough people withdraw from the banking system then it will collapse as Northern Rock showed at the beginning of the current crisis.
Next stop – cars being weighed between journeys in and out of Switzerland to pick up those using the strong Swiss Franc against the weak Euro to avoid paying Swiss prices on their shopping.