Tag: Banking

Based on forecasts from experts and analysts this month, the eurozone economy is expected to see modest, stable growth in 2026. Such growth will be driven by domestic demand, with inflation close to the ECB (European Central Bank) target of 2%, with various models showing an inflation rate of between 1.8% to 1.9%. It is expected that the zone will continue to enjoy low unemployment; however, the outlook is clouded by persistent global trade tensions, persistently high government debt levels, and heightened geopolitical risks.

Germany

Analysts suggest that over the next ten years, Germany will run an annual budget deficit of circa 4% of GDP, increasing its debt-to-GDP ratio by between 20 and 30 percentage points. However, Germany has a current debt ratio of under 65% and it is felt that in 2026, there is little to worry about regarding the country’s fiscal health, with an estimated growth in GDP of 1.2% – 1.4% due to increased spending on defence and infrastructure. This is higher than predictions made earlier in 2025, where the figure was circa 0.8% in potential growth. Experts predict that the government will use part of its fiscal package to invest in technology-related growth areas (less susceptible to trade tensions), rather than relying on traditional industries such as auto manufacturing.

France

Experts predict that the French economy will grow modestly at about 0.9% (below the eurozone average), against a backdrop of rising unemployment, political instability, and fiscal uncertainty, reflecting a government budget that has already failed to pass through parliament four times this year. Inflation has been forecasted to rise to circa 1.30% – 1.60%, which analysts have attributed to higher energy and food prices. Public debt is set to increase to 120% of GDP by the end of 2026, whilst the government deficit is expected to decline to circa 4.9% of GDP.

It is expected that a rebound in the services sector will offer some relief, whilst currently the industrial sector is on the wane, especially in the aeronautical market. On the domestic front, budget uncertainty and political instability have had a negative impact on business and consumer confidence; however, the economy on the whole is shielded from many global trade issues due to a more diverse export profile.

Spain

Predictions for growth in the Spanish economy are somewhat at variance with analysts and experts who predict growth from anywhere between 1.9% (OECD – Organisation for Economic Co-operation and Development) to 2.3% (European Commission). Growth will be primarily driven by strong investment and private consumption supported by purchasing power gains and employment growth. Experts suggest that inflation is expected to be moderate and hit an average of 2.0%, with drivers being a reduction in energy inflation as well as a moderate decrease in the price of food. The housing market is expected to continue enjoying the current upward trend, which is being driven by a fall in interest rates, population growth, improved purchasing power, and buyers from overseas.

The government budget deficit is expected to decrease to 2.1% of GDP, and the debt-to-GDP ratio is expected to fall below 100% for the first time since 2019. According to several analysts, negative impacts on growth are expected from global uncertainty, which may be driven by weaker economic activity among some of Spain’s key trading partners in the eurozone and tensions in the global trading arena. However, the continued implementation of the NGEU (Next Generation EU Funds) will help boost investment, particularly in construction and urban renewal.

The Netherlands

Experts suggest that in 2026 the Dutch economy will experience a decline in growth with predictions of a circa 1.00% – 1. 30% increase, primarily driven by strong domestic demand from household consumption and government investment and spending. On the domestic front, household consumption and government spending are expected to be the main drivers of economic growth, supported by rising real wages and public investment programmes. Inflation is expected to gradually recede but will remain above the eurozone average of 1.8% – 1.9%, mainly due to prices in the services industry and potential tax changes. The government deficit is predicted to widen to around 2.70% of GDP, whilst public debt is expected to remain below 50% of GDP.

On the unemployment front, the labour market is expected to remain tight with unemployment only marginally rising between 4.0% – 4.2%. Negative impacts on growth are expected from exports and business investments, which are projected to be suppressed by ongoing global uncertainties, including trade tensions and a political landscape with the potential to impact long-term investments in defence, energy, and housing. Indeed, geopolitical uncertainty and potential US tariffs on imports of EU goods pose a significant downside risk to the Dutch economy, which is highly export-oriented, and any escalation could lead to a reduction in export growth and reduced business investment.

Italy

Analysts predict that in 2026, the Italian economy will enjoy a modest growth in GDP of circa 0.80%, driven by public investment from the NRRP (National Recovery and Resilience Plan), with growth also being driven by domestic demand rather than by net exports. Predictions for inflation in 2026 vary, with the European Commission anticipating a figure of 1.30% whilst the OECD and the IMF (International Monetary Fund) predict figures of 1.80% and 2.00% respectively. The government deficit is projected to recede to an estimated figure of 28% of GDP, whilst estimates vary for gross public debt, with the IMF and the European coming in at 137.90% and 138.30% respectively of GDP.

Experts suggest that a negative impact on growth may come from the employment sector, where declining labour productivity is a persistent issue for the Italian economy. Global factors such as geopolitical tensions, potential trade tariffs from the United States, and weaker demand in key European markets will also pose risks to Italy’s growth and export performance. Analysts expect Italy’s net external trade to have a slight negative impact on growth, as imports are likely to outpace exports in 2026.

Greece

Analysts predict the Greek economy is projected to continue its GDP growth in 2026, with the European Commission expecting a figure of circa 2.20%, whilst the Greek Fiscal Council estimates a growth figure of 2.40%. Growth is expected to be driven by domestic consumption and government investment supported by European Union funds. Inflation is expected to decrease to circa 2.30% to 2.40% whilst unemployment is predicted to fall to approximately 8.6%. Also, the debt-to-GDP ratio is expected to continue its downward path, falling below 140% by year-end 2026. The European Commission has predicted that the government’s general balance is expected to be a surplus of 0.3% of GDP.

Positive factors that may influence growth are EU funds, including RRF (Recovery and Resilience Facility), that are expected to support investment and consumption, and the government’s final budget for 2026 includes a focus on tax reform and social support to boost growth and household incomes. Several analysts have suggested that tourism will continue its strong performance into 2026 and is expected to be a significant driver of the Greek economy. It should be noted that under the EU RRF, the Greek government is under pressure to complete projects by the August 2026 deadline, or else funds may be withdrawn.

Belgium

Experts suggest that the outlook for the Belgian economy in 2026 is one of moderate growth with estimates around the 1.10% – 1.20% mark. This marks a gradual recovery from 2025, where growth, according to data released, is currently at 1.00% and growth is expected to be supported by a rebound in exports, moderating wage growth and a pick-up in import demand. However, this is dependent on political stability and the effective implementation of structural reforms to address fiscal challenges, plus a potential risk from a slower-than-expected recovery in demand from the European Union.

Inflation is expected to reduce to circa 1.60% – 1.80% due to lower prices of goods and energy, whilst the unemployment rate has been projected as a small increase to 6.20% due to a short-term consequence of reforms in both the labour market and pension arena. Analysts advise that the budget deficit is expected to rise to 5.5% GDP, mostly due to increased spending in the defence sector and rising interest payments on the public debt, which is predicted to continue upward to circa 109.80% of GDP.

Key economic drivers for 2026 are increased investment, where analysts advise that gross fixed capital formation is expected to rebound, supported by improved financial conditions. Further boosts to investment will come in the form of significant public expenditure on infrastructure projects financed by the European Union’s RRF, plus increased spending on the defence sector. Increased export growth is predicted for 2026, helped by improving cost competitiveness; however, as with other countries, U.S. tariffs and continuing trade uncertainty could dampen the outlook for exports to the United States and key eurozone partners.

Turkey

According to a number of financial commentators, the outlook for the Turkish economy is a continuation of the disinflation process, along with a moderate and resilient GDP growth, which is expected to grow by 3.80% rising to USD 1.84 trillion. Inflation forecasts suggest a figure of 23% by the end of 2026, with the central bank setting a target of 20% for the same period. The economy of Turkey is expected to maintain its monetary easing cycle throughout 2026; however, the government must guard against key risks, which are domestic political uncertainty and persistent inflationary pressures. The budget deficit is expected to narrow, with the World Bank advising a figure of 3.60% of GDP, with other projections suggesting that the labour market will remain stable.

Positive signs for the economy are the continued implementation of orthodox economic policies by the government, which is seen as crucial for restoring fiscal discipline and reducing inflation. Furthermore, the government’s medium-term economic programme outlines structural reforms aimed at transitioning towards high-value-added industries and a green economy.

Poland

Experts are predicting that in 2026, the Polish economy will continue its strong growth, forecasting a growth rate of 3.50% of GDP, supported by public investments and European Union funds. The forecast for inflation is expected to be in the region of a decrease of 2.90% – 3.80%, whilst wages are expected to rise by circa 7.60%. However, due to persistent government spending, the public debt-to-GDP ratio is expected to increase in 2026, whilst rising further to 70% in 2027.

There are several risk factors to be considered, and whilst the absorption of EU funds is critical for growth, the successful implementation depends on meeting certain reform requirements. On the fiscal front, excessive government spending, especially on social and defence programmes, is increasing debt levels and putting pressure on the budget, despite fiscal consolidation plans by the government. As already advised, inflation is expected to fall, but persistent wage growth and other price pressures could have a negative impact on reducing inflation.

In 2026, the Polish economy is expected to outperform the European Union average, with primary drivers being strong domestic demand based on rising wage growth and significant public investment financed by EU funds, especially RRF (Recovery and Resilience Facility). However, as mentioned above, the government cannot afford to miss the deadline.  The national currency (Zloty) is expected to remain stable, benefiting from prospects of strong growth. However, predictions may well be subject to external pressures such as geopolitical tensions and global trade policy, where U.S. tariffs could potentially affect demand from Germany.

On the equities front, analysts suggest that the outlook for the Eurozone in 2026 is one of cautious optimism, with modest gains being driven by strategic spending and attractive valuations, but caution is advised due to a strong euro and political uncertainty. European equities are trading at a significant discount compared to their counterparts in the United States, making them an attractive option for investors. The ECB (European Central Bank) has finished (or just about finished) its quantitative easing or rate-cutting cycle, with many analysts predicting that rates will remain stable at 2% throughout 2026, and an environment containing stable rates is usually conducive and supportive of equity markets.

In an update to our UBS (Union Bank of Switzerland) note in June of this year, the collapse of Credit Suisse in 2023 and its emergency takeover by UBS remains one of the most consequential events in recent financial history. Two years on, the Swiss government is moving decisively to prevent such a systemic crisis from recurring. At the heart of this effort lies a controversial proposal: requiring UBS to hold significantly more equity capital, potentially in the range of USD 20–30 billion, with particular focus on its sprawling foreign subsidiaries.

This initiative, if implemented, could reshape not only UBS’s balance sheet but also Switzerland’s position in the global financial landscape. It raises critical questions about systemic stability, competitiveness, and whether regulation is moving too far, too fast.

Why Switzerland Is Tightening the Screws

Switzerland’s reputation as a global banking hub rests on stability, prudence, and investor confidence. The sudden implosion of Credit Suisse challenged that reputation, exposing weaknesses in oversight, risk management, and contingency planning.

UBS’s government-brokered takeover prevented a financial panic, but it also created a new challenge: Switzerland now hosts one of the world’s largest “too big to fail” banks, whose balance sheet exceeds the country’s GDP by several multiples.

Regulators argue that requiring UBS to raise additional equity serves three goals:

1. Enhancing resilience – More equity capital provides a thicker buffer against losses, reducing the likelihood of taxpayer-funded rescues.

2. Protecting Swiss financial stability – With UBS dominating the domestic landscape, its failure would have systemic consequences for households, corporates, and the national economy.

3. Aligning with international reforms – post-2008, regulators worldwide have tightened capital rules. Switzerland, often stricter than its peers, wants to ensure it is not the weak link.

The Scale of the Proposal

Reports suggest that UBS could be required to raise between USD 20–30 billion in additional equity. To put this in context:

• UBS’s current Common Equity Tier 1 (CET1) ratio is already above international minimums.
• However, the Swiss government and FINMA want to impose additional requirements on the group’s international subsidiaries.
• The reasoning is that risks at overseas branches could, in a crisis, flow back to the Swiss parent, creating liabilities for the Swiss state.

By tightening the screws on foreign operations, Swiss authorities are signalling they want a greater safety margin across the entire UBS ecosystem, not just in its home market.

UBS’s Pushback

UBS executives have responded cautiously but firmly. The bank acknowledges the need for strong safeguards but warns that excessive capital burdens could undermine its competitiveness.

Key arguments from UBS include:

• Shareholder dilution – Raising tens of billions in equity could depress returns and shareholder value.
• Global competitiveness – If UBS is forced to hold more capital than peers such as JPMorgan or HSBC, it may be disadvantaged in international markets.
• Strategic risk – UBS has hinted it may consider relocating its headquarters outside Switzerland if regulation becomes too heavy-handed. While such a move is unlikely in the short term, even raising the possibility reflects the tension between the regulator and bank.

This tug-of-war highlights the delicate balance Switzerland must strike in protecting its financial system without driving away its crown jewel institution.

Lessons from Credit Suisse

The debate cannot be separated from the shadow of Credit Suisse. For years, Swiss authorities were criticised for not acting sooner on governance failures, risk scandals, and capital erosion at the bank. By the time the rescue was engineered, confidence was shattered.

Critics argue that if Credit Suisse had been required to hold more capital earlier, the collapse might have been mitigated or avoided. Proponents of the UBS reforms frame them as a direct lesson learned: act before the cracks widen, not after.

However, opponents counter that Credit Suisse’s downfall was primarily about governance and trust, not raw capital levels. Simply piling more equity onto UBS, they say, risks addressing the wrong problem.

Broader Implications for Switzerland

1. Competitiveness of the Swiss Financial Centre

Switzerland thrives on being a global wealth and asset management hub. If regulation is seen as disproportionate, wealthy clients and financial institutions might seek friendlier jurisdictions—Singapore, Luxembourg, or even London.

2. Investor Confidence

On the flip side, stronger capital buffers may enhance Switzerland’s reputation for safety, making UBS and the Swiss financial centre more attractive for conservative investors seeking stability.

3. Geopolitical Dimensions 

UBS’s global operations span the United States, Europe, and Asia. Stricter capital rules on foreign subsidiaries could strain cross-border relationships, especially if host regulators feel Switzerland is overstepping.

4. Moral Hazard vs. Market Discipline

Requiring more capital aims to prevent moral hazard—where banks take excessive risks knowing the state will bail them out. Yet markets may still assume that UBS, given its size, is “too big to fail,” regardless of how much capital it holds.

International Context

The UBS debate mirrors global conversations. After 2008, banks were forced to raise capital, shrink balance sheets, and simplify structures. But memories fade, and some regulators have since softened rules to encourage lending and growth.

Switzerland’s move goes against the grain, positioning it as one of the strictest jurisdictions. Other countries will watch closely: if UBS adapts without losing ground, it could set a precedent. If not, Switzerland risks being seen as overly punitive.

Meanwhile, discussions about central clearing, liquidity rules, and “living wills” for systemic banks continue in the U.S. and EU. The fate of UBS may influence how regulators elsewhere treat their own giants.

Strategic Options for UBS

 Faced with these proposals, UBS has several possible paths:

1. Raise Equity Proactively – Issuing new shares or retaining earnings to meet requirements.

2. Restructure Subsidiaries – Streamlining international operations to reduce capital burdens.

3. Lobby for Phased Implementation – Negotiating with regulators for a gradual timeline.

4. Relocation Threats – Keeping the option of moving headquarters on the table as a bargaining chip.

 Each option carries costs and risks. The bank’s management must weigh the benefits of compliance against the potential erosion of shareholder trust and strategic freedom.

What’s at Stake

The UBS capital debate is more than a technical matter of balance sheets. It strikes at the core of Switzerland’s identity as a financial hub. The country has long prided itself on stability, discretion, and competitiveness. Yet those values can come into conflict when global shocks demand tougher safeguards.

If Switzerland can strike the right balance, it may emerge stronger, with UBS positioned as the world’s safest global bank. If not, it risks alienating its largest institution and undermining the sector that is central to its economy.

Conclusion

The call for UBS to raise an additional USD 20–30 billion in equity capital underscores how deeply the Credit Suisse collapse has shaken Swiss regulators and policymakers. Stability and reputation are priceless in finance, and Switzerland is determined to protect both. 

Yet the challenge lies in implementation. Too much pressure could handicap UBS in global competition or even push it to reconsider its Swiss base. Too little, and Switzerland risks repeating the mistakes that led to Credit Suisse’s downfall.

The debate will continue in parliament, boardrooms, and international forums. What is clear is that the world is watching Switzerland’s next move closely. In the post-Credit Suisse era, the stakes could not be higher.