It’s hard to imagine Switzerland in trouble: per capita GDP, income, and wealth are among the highest in the world. Unemployment is 2.8%. It has a budget surplus and a trade surplus. Even a baby sitter makes over $30 an hour. And yet, a recession is loitering near their meticulously swept doorstep. Due, ironically, to another strength of theirs—the white-hot franc.

Wealth has gone up in smoke: Swiss wealth is largely invested in foreign countries, and losses due to the high franc are estimated to have reached CHF 400 billion ($510 billion) since early 2010—a colossal amount for a country with a GDP of $322 billion. The Swiss pension system alone lost CHF 50 billion, according to Daniel Lampart, an economist at the Schweizer Gewerkschaftsbundes. Pensions of workers are at risk, and plans to reduce pension payments are bubbling up.

There will be layoffs, said Serge Gaillard, Director in the Staatssekretariat für Wirtschaft. The economy has weakened in the last three months and is expected to degrade further. At the current exchange rate, he said, sectors that compete internationally will have to lay off people and transfer production to cheaper countries. That was a week ago. Now, companies have announced the first job reductions, among them Swissmetal and Migros, the largest supermarket chain in the country.

The corporate bloodbath has started. A number of companies, including Swatch, ABB Group, and Holcim, the second largest cement supplier in the world, lowered their forecasts. Even the SBB (Swiss Federal Railways) complained about the “catastrophic development” on its cargo transit routes between surrounding countries where revenues are in euros, but expenses in francs.

Tourism is already a casualty. Europeans can no longer afford the prices at the current exchange rate and have chosen cheaper destinations: Belgians –9.5%, Dutch –8%, Germans –7.6%, according to the Federal Statistics Office, and some regions have reported a collapse of 20% (e.g. Riederalp in the Canton of Valais).

Retail sales are nose-diving. Swiss consumers who live in areas near the border (a big part of Switzerland) buy in neighboring countries, where products are much cheaper. Per latest estimates, the loss could reach CHF 3 billion in 2011. Coop, second largest supermarket chain, and number one in brand-name products, has seen sales of its most important product groups retreat by 3%—unheard of before.

The stock market crashed. The SMI blue-chip stock index reacted to the rising franc and the economic mayhem it engenders with a hair-raising crash of 30% from February to its August 10 low.

Companies are resorting to desperate measures. Jaquet Technology Group, a global manufacturer of measurement devices located in Basel, wants to lower production costs by paying workers in euros, if they live across the border in Germany. And not at the current exchange rate of CHF 1.13 to the euro, but at CHF 1.29. It also announced that it would raise the workweek from 40 to 42.5 hours without additional pay. Just how this will fly with Swiss regulators is still uncertain, but if it does, other companies may adopt similar measures.

And now this: exchange-rate profiteering. Consumers and companies are getting hammered by higher prices on imports—though the high franc should produce lower prices. In what has become a national front-page scandal, importers and distributors are keeping exchange-rate profits and have raised prices instead. In response, Coop pulled 95 imported items off the shelves, including L’Oréal’s Studio Line and Ferrero’s Kinderschokolade. The boycott had some impact, and distributors started to cave on prices.

All eyes are on the SNB. Despite pressure from CEOs and politicians, it did not opt for an exchange-rate peg during its meeting last Wednesday—which it would have to defend against market participants all over the world. However, it has done just about everything else: forced real yields into negative territory, flooded the markets with francs, and intervened in the currency markets.

But SNB interventions were a fiasco so far: In 2010, it intervened briefly to force down the franc and lost 19.2 billion francs ($24 billion). In the first half of 2011, it tried again and lost another 10.8 billion francs ($13.6 billion). Daily volumes are $168 billion for the dollar-franc trade and $72 billion for the euro-franc trade. To intervene effectively, the SNB would have to print and sell vertigo-inducing sums. And each time, its willingness to lose money would be brutally tested by market participants.

The crisis, caused by the weakness of two economic superpowers (the US and the EU), may well be too great for Swiss economic and monetary policies to impact long term. And if that is the case, Switzerland’s economy, which so far has not suffered the ravages of globalization, will have to adjust, and those adjustments are going to be painful.

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