Identifier
Created
Classification
Origin
09OSLO134
2009-02-27 14:36:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Oslo
Cable title:  

NORWEGIAN CENTRAL BANK WEATHERS GLOBAL CRISIS

Tags:  ECON EFIN NO 
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PP RUEHWEB

DE RUEHNY #0134 0581436
ZNR UUUUU ZZH
P 271436Z FEB 09
FM AMEMBASSY OSLO
TO RUEHC/SECSTATE WASHDC PRIORITY 7390
INFO RUEHCP/AMEMBASSY COPENHAGEN PRIORITY 2516
RUEHHE/AMEMBASSY HELSINKI PRIORITY 8060
RUEHRK/AMEMBASSY REYKJAVIK PRIORITY 0871
RUEHSM/AMEMBASSY STOCKHOLM PRIORITY 3372
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHMFIUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
UNCLAS OSLO 000134 

SIPDIS
SENSITIVE

EUR/NB

E.O. 12958: N/A
TAGS: ECON EFIN NO
SUBJECT: NORWEGIAN CENTRAL BANK WEATHERS GLOBAL CRISIS

UNCLAS OSLO 000134

SIPDIS
SENSITIVE

EUR/NB

E.O. 12958: N/A
TAGS: ECON EFIN NO
SUBJECT: NORWEGIAN CENTRAL BANK WEATHERS GLOBAL CRISIS


1. (SBU) Summary. During a February 27 meeting with Econ
Officer, Norwegian Central Bank (Norges Bank) Deputy Governor
Jan Qvigstad candidly discussed the tepid Norwegian economy
withstanding the global financial blizzard. Fending off icy
credit markets and snowballing unemployment claims, the GON
is hotly relying on a stimulus package to thaw stringent bank
lending practices. Discussing the Icelandic market meltdown,
Qvigstad had warm words for the interim Icelandic Central
Bank governor. End Summary.

Warming Up Bank Lending
--------------


2. (SBU) Qvigstad placed high hopes on the implementation
of an approximately 8 billion USD bank stabilization fund
launching in March, available for Norwegian institutions.
Qvigstad pointed out that the GON balances a fine line: lend
money to banks, but not be overly generous. Liquidity is the
key goal: pushing banks accepting the funds to increase
capital by extending their own loans. He warned that some
smaller banks will inevitably have problems, despite
available GON funds. Wrapping up his summary, Qvigstad
emphasized the financial services industry could not (nor
should not) rely solely on a GON bail-out.


3. (SBU) Qvigstad pointed out that the Scandinavian model
to rescue failing lending institutions should not be
misconstrued as permanent nationalization. Rather, the
Norwegian bank crash of the early 90s involved the GON buying
up banks but having a definite exit strategy. The GON's
prior strategy had a temporary ownership in they sold off its
equity interests in previously-rescued banks such as Nordea
and Fokus at sizable profits. (Note: Norway's largest bank,
DnBNOR, still remains majority owned by the GON). The GON
approach was not to create "bad banks" of toxic holdings.
Rather, the GON would inject capital and immediately tackle
writedowns. Qvigstad highlighted a February 3, 2009 Financial
Times article from Norges Bank Governor General Gjedrem,
outlining Norway's prior bank rescue and pointing out that a
profitable exit strategy is possible.


Other Chilling Issues
--------------


4. (SBU) The Deputy Governor painted some gloomy financial
statistics. Unemployment could reach up to 5%, a frigid
forecast for a country with massive gas/oil exports,
historically confronting functionally non-existent
unemployment. He mentioned that temporary workers,
collecting the GON's generous unemployment benefits (mostly
Polish) are placing short-term systemic strains. Foreign
workers are allowed a maximum of one year's worth of
benefits. He predicted Norway's GDP would fall, a sign of how
closely the energy economy was tied to the drastically
fluctuating hydrocarbon prices. Finally, Qvigstad sees home
prices on a steady decline.

Icing on the Cake: Iceland
--------------


5. (SBU) Discussing the European economic scene, Qvigstad
mentioned that the temporary Icelandic Central Bank Governor,
Svein Harald Oeygard, was a tough Norwegian who would be
ready on "day one." (Note: today really was day one:
Oeygard's appointment was announced this morning.) Qvigstad
saw Oeygard gathering a hardworking, new team which will
follow any stringent International Monetary Fund
recommendations.

Global Financial Mercury Rises, But Norway is a Cool Customer
-------------- --------------


6. (SBU) Comment: Norway's economic pressures are
ultimately tied to the rise and fall of oil and gas prices.
Compared to other European countries, including their
Scandinavian cousins (such as heavy-industry oriented Sweden
and financial market-dependent Iceland),Norway is in
excellent shape. Nevertheless, we question whether a
meteoric rise in unemployment, and a possible downward trend
in home prices, will cause insulated Norwegians to realize
the unaccustomed, biting sting of a glacial global economy.
WHITNEY