Norway Won’t Be Haven From Greek Default

Norway won’t be an investor haven should Greece default as the world’s second-richest country per capita will be sucked into the turmoil that would follow such a credit event, Trade Minister Trond Giske said.

“While most people see that the Norwegian krone can be boosted by high oil prices and the strength of the Norwegian economy, we are still very closely connected to the euro because 80 percent of our exports go to the European Union,” Giske said in an interview in Oslo yesterday. “Things can’t go very badly with Europe and very well in Norway.”

The krone has gained 5 percent against the euro since a November low, as investors turned to the currency of the world’s seventh-largest oil exporter as an alternative to the crisis- stricken euro. Even though Norway’s banks hold little in the way of Greek debt, according to the country’s financial regulator, the fallout of a Greek default on banks in Germany and France would pass through the whole region and hit even Europe’s richest economies, Giske said.

The krone pared earlier gains to trade down 0.3 percent against the euro at 7.8343 by 9:32 a.m., versus a 0.2 percent gain before Giske’s comments.

Europe will remain at risk of descending into crises as long as its leaders don’t address failures in the currency bloc’s design, according to Giske.

Euro `Misconstruction'

“The euro is a misconstruction, I think we can all agree on that,” he said. “You can’t have a monetary union without having a fiscal union, you can’t have a common interest rate and currency without at the same time having a common management of the budgets. And when you get external shocks to a common currency area that doesn’t have shock absorbers to handle it, you’re in trouble.”

Greek lawmakers are due to vote on a five-year austerity plan this week needed to get another loan payment from the country’s 110 billion-euro ($157 billion) bailout. Failure to pass the 78 billion-euro plan may lead to the euro area’s first sovereign default. At the same time, European leaders and the European Central Bank are discussing how to involve private investors as part of a second rescue package.

“For the time being we’re pushing a lot of the problems in front of us and solving the acute crises and liquidity problems one period at a time,” Giske said. “We haven’t found any fundamental solutions.”

Soros Verdict

Billionaire investor George Soros on June 26 said it’s “probably inevitable” that a mechanism will be put in place to allow weaker economies to exit the euro. The chairman of Soros Fund Management LLC, which has about $28 billion in assets, earlier this year expressed concern the currency union would dissolve and urged European policy makers to address their two- speed economy.

Norwegian banks have “insignificant” holdings in Greece and limited capital placed in Ireland, Portugal, Spain and Italy, the country’s Financial Supervisory Authority said yesterday.

The six largest banks hold less than 1.3 percent of their managed capital in Greek, Irish, Italian, Portuguese and Spanish assets, primarily in private companies and banks, it said. The five largest insurance companies have 2.1 percent of their capital invested in government debt of the five countries, it estimates.

No Swiss Franc

Norway, which like Switzerland isn’t a member of the European Union, will post a 12.5 percent budget surplus of gross domestic product this year, the Organization for Economic Cooperation and Development said in May. That compares with an average deficit of 4.2 percent of GDP in the 17 countries sharing the euro, the OECD said.

Norway’s mainland economy, which strips out the effect of oil and shipping revenue, will grow 3.3 percent this year, compared with euro-area expansion of 2 percent, the Paris-based organization said last month.

“I don’t think the Norwegian krone and the Norwegian economy is big enough to become a safe haven for the large investors,” Giske said. “We’re not the Swiss Franc.”

To contact the reporter on this story: Marianne Stigset at mstigset@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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