A Square Peg in a Round Euro

Of the Swiss National Bank's decision to abandon its euro peg, Thomas Jordan, the bank's leader, drily noted that "If you decide to exit such a policy, you have to take the markets by surprise." And boy, markets couldn't have been more surprised if he'd hired Russian currency traders to jump out of a cake in their birthday suits.

But this surprise has not been met with shouts of wild glee. Many eastern European homeowners suddenly have to repay their mortgages in now-much-more-expensive Swiss francs. Currency markets are in turmoil, banks are losing millions, and foreign exchange trading houses are flirting with insolvency. Paul Krugman, among other economists, says that it is abandoning its commitment to fight deflation, losing institutional credibility with markets, and in the process making it harder for other central banks to make credible commitments.