Switzerland is not part of the European Monetary Union. It is nonetheless deeply in-tegrated in its European environment through its geographic situation and its strong historical, cultural and economic links with Europe. Over 50% of Swiss exports go to countries of the euro-zone, while 70% of imports come from there. In the future, business activity in the euro-zone will have a growing impact on the business cycle in Switzerland, the exchange rate playing a key role in the transmission mechanism.

Looking back on the first 14 months of the euro from a Swiss perspective, the most striking observation is the extraordinary stability of the Swiss franc/euro exchange rate. A detailed analysis shows that this stability was due to a high degree of conver-gence in economic fundamentals and to similar monetary decisions taken by the European Central Bank and the Swiss National Bank. Thus, solid economic reasons have been behind this stability and not some artificial strategy of currency pegging implemented in secret.

In the future, the exchange rate should evolve depending on the development of the fundamentals - in Switzerland and in the euro-zone - and on the answers to some important political questions like the EU enlargement and Switzerland's cooperation with the EU. Exchange rate stability, on the scale that has been experienced so far, is not guaranteed to last forever. However, the risk of erratic movements seems limited because the presence of large currency blocks has lowered the attractiveness of the Swiss franc as a reserve currency.

It is not appropriate to qualify the euro and the Swiss franc as "sister currencies". They should rather be considered as travel companions: they share the same objective - a sound macroeconomic development - and follow the same road towards price stability. It is up to their relative fitness whether they will continue hand in hand.