Norway May Cut Its EU Association

Norway’s prime minister is concerned that some of the economic co-ordination measures that are to be discussed by EU leaders at a summit on Thursday may have an impact on the Norwegian economy, as all policies related to the internal market are automatically transposed into national legislation. Mr. Stoltenberg does not rule out a scenario where Norway reject its EU accession.

“This is a vicious circle.”

Jens Stoltenberg

Norway intends to stay outside the EU and the euro zone but fears that the bloc’s soaring unemployment rates and austerity measures will impact its economy, which is fully integrated in the union’s internal market, Norwegian Prime Minister Jens Stoltenberg says in an interview Thursday.

According to the, the Norwegian prime minister have been talking with the “trio” leadership of the EU – EU Council President Herman Van Rompuy, Commission chief Jose Manuel Barroso and the outgoing Belgian premier, Yves Leterme, whose country will be chairing the rotating EU presidency from July 1.

Norway is concerned that some of the economic co-ordination measures that are to be discussed by EU leaders at a summit on Thursday may have an impact on the Norwegian economy, as all policies related to the internal market are automatically transposed into national legislation.

“We are completely integrated in the EU economy, more than 70 percent of our exports go to Europe, therefore we are following the economic developments in Europe very closely. We have seen some positive growth rates, but there are two major challenges: one is unemployment and the other one is debt,” Mr Stoltenberg told the EUobserver and two other foreign newspapers during his visit to Brussels on Wednesday.

In his view, Europe is still far from over its economic slump and without tackling the issue of unemployment, deficit reduction measures will not work.

“With close to 10 percent unemployment in Europe, it is of course a big problem for those without a job – one in 10 – but also for the European economy and the Norwegian one, because it means lower economic growth, increased expenditures for unemployment benefits, decreased tax revenues and overall higher deficits. This is a vicious circle.”

The austerity measures announced by several EU countries, notably Spain, Portugal and Germany, are still at too early a stage to assess.

“We’ve seen some plans and ideas on deficit reduction, but actually most countries will still have a deficit increase in 2010 compared to 2009. The challenge will be 2011,” he notes.

The euro zone‘s recent troubles, starting with the Greek crisis and followed by the €750 billion rescue mechanism for the entire euro area, have decreased even more the single currency’s popularity in the oil-rich Nordic country.

Asked if Norway is considering joining the euro zone, Mr Stoltenberg laugh and says: “No. That’s absolutely not on the agenda.”

While refusing to speculate over what economic situation his country would be in had it joined the euro, the Norwegian politician notes that there are “big differences” between EU states in managing the economic crisis, with Scandinavian countries seeing lower unemployment and deficits than many others.

An EU Associate

Home of the second-highest GDP per capita in the world after Luxembourg, Norway has rejected EU membership in two separate referendums: one in 1972 and the other in 1994. But it joined the “European Economic Area” together with Liechtenstein and Iceland.

It is part of the EU’s passport-free zone and has board members in Europe’s defense co-operation agency (EDA), police and anti-terrorism body (Europol) and border control agency (Frontex).

The economic crisis has prompted Mr Stoltenberg’s center-left government to tap the billion-euro oil revenues set aside in offshore wealth funds in order to keep the economy afloat.

In non-crisis years, the government spending is capped at four percent of oil wealth.

May Cut EU Ties

With EU leaders on Thursday set to formalize Iceland’s EU-candidate status, after the small Nordic island applied for membership last year, Mr Stoltenberg does not rule out a “Norwegian scenario,” with a referendum rejecting the EU accession.

“Whether Iceland will be a member or not depends on the result of the negotiations, especially when it comes to fisheries, and that was one of the biggest challenges we faced during our negotiations,” the Norwegian Prime Minister says.

He also points to the fact that opinion has recently swung against the EU – a development that came about particularly after the bankruptcy of the Icesave bank.

The UK and the Netherlands suggested they would put hurdles in Iceland’s EU path unless the tiny nation compensates the savings lost by British and Dutch citizens.

“Not so long ago there was a majority in favor, now it’s a strong majority against. This can shift back and forth many times before Iceland will have an actual referendum. Again, it will be the Icelandic people who will decide at the end. It’s to early to say now, but I can say they have a lot in common with Norwegians,” he says.

And that’s one of the reasons why prime minister Stoltenberg might face another referendum about Norway’s assosiation with the European Union sooner than he thinks.

With pervasive economic reforms underway, all it takes is another EU directive that requires constitutional adjustments.

Such a referendum can easily turn in to a question about the already existing EMU agreements.

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Update: 1920-similarities


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Filed under International Econnomic Politics, National Economic Politics