Given the highly respected reputation of Swiss banks, it seems impossible to think that the country could go bankrupt.

But those very same banks that have contributed so much to this reputation are now in danger of bringing the country to its knees. At least according to one economist…

Artur Schmidt says even Swiss banks succumbed to the rash of overly exuberant lending that has marked American banks over the past couple of years. In fact, they’ve run such a loose credit line to emerging markets economies in Eastern Europe that the country is now in danger of going bankrupt because these emerging nations, crippled by the economic crisis, now can’t pay the money back.

While this lending fueled Eastern European economic growth (because countries often found it cheaper to loan money in Swiss francs than in their own currencies) and further boosted the franc’s existing “safe haven” reputation at a time when other currencies were struggling, there are some serious ramifications now.

As Eastern Europe’s emerging market foundations crumble amid the global crisis, borrowers can’t repay the money. And with currencies now sliding, Swiss debt has shot up by more than one-third, says Schmidt.

That could result in the unthinkable: A huge drop in the value of the Swiss franc and even a downgrade to its famed credit rating. Or, in Schmidt’s words, the franc could become a “soft, unstable currency.”

So far this year, the ETF that represents the Swiss franc - the CurrencyShares Swiss Franc Trust (NYSE: FXF) has suffered from the situation, dropping by 8.5%. If you’d like to play this trend, the ETF trades just like a stock and also has options available. Meantime, the iShares MSCI Switzerland Index (NYSE: EWL) ETF, which represents the price and yield performance of publicly traded Swiss companies, has fared even worse, plunging 25% this year.