The turmoil engulfing Cyprus that has rekindled European debt crisis concerns underscores Norway’s push to tighten banking regulations, the Nordic nation’s prime minister said.
“There are large differences between Cyprus and Norway,” Jens Stoltenberg said today in an interview at parliament in Oslo. “We have solid banks, we have a solid economy, but what is happening in Cyprus is nonetheless a reminder how important it is to have the banking sector in order.”
Norway is working on drafting legislation designed to prevent a property bubble after house prices doubled since 2002 and private debt burdens swelled to a record. Lawmakers are considering plans that include tripling risk weights assigned to mortgage assets and capping reliance on covered bonds.
As the euro area grapples with a recession, Western Europe’s largest oil exporter is struggling to avoid overheating from petroleum wealth that’s inflating wages and the krone’s exchange rate.
Cyprus’s economic woes have plunged the 17-nation euro area back into a debt crisis that had shown signs of easing. The euro sank as much as 0.9 percent against the dollar yesterday as investors questioned the bloc’s ability to surface from its turmoil. Cypriot lawmakers yesterday rejected a plan for a levy on bank deposits that would have paid for part of a bailout.
“This reminds us that the financial crisis isn’t over,” Stoltenberg said. “Cyprus is a small country with a small economy but a large banking sector. We must hope that this has limited contagion effects on the rest of Europe as it is a small economy, but it creates new uncertainty.”