Good Times Roll For Norway, Scotland Faces Austerity


by Alex Porter
Economy Editor

Norwegian economists are forecasting continued buoyancy in the Norwegian economy based on increased revenues from North Sea oil.

With crude oil prices passing the $90-per-barrel mark economic growth, at an annualised rate of 3.7 percent according to the Norwegian State Statistics Bureau SSB, the oil sector is predicted to boost growth and employment in 2011.

By contrast Scotland, a North Sea oil producer, faces austerity cuts to the Scottish block grant from London next year. The cuts, which the Scottish Finance Secretary John Swinney is compelled to administer, come despite a surplus in Scotland’s national accounts already being transferred to the UK treasury.

With figures such as the internationally renowned economist Andrew Hughes-Hallet and prominent business leaders calling for economic independence, the issue of why Scotland must suffer austerity cuts at all will resonate with the electorate. Scots, in poll after poll, have expressed the desire for increased economic powers for Scotland. Economic independence is opposed by a Labour/Tory/LibDem coalition.

In the run up to Christmas the falling value of the pound will also put a major dent in Scottish consumers’ purchasing power. The pound has lost 40 percent of its value against the Norwegian kroner in the last 4 years.

This alarming pound depreciation is causing volatility and uncertainty for Scottish business and institutions who are finding it increasingly difficult to plan for the future and employ staff. This raises the question of how prudent it is for Scotland to continue with sterling instead of opting for its own currency.

The impending combination of austerity cuts and the devaluation of the pound is a dangerous mix. Many economists warn that evidence suggests that austerity will cause tax revenues to drop further and therefore increase the already unprecedented deficits in Britain’s public finances. Increased government deficits will see Westminster and the Bank of England extend quantative easing (money printing) and so intensify the pound crisis.

The prospect of simultaneous sovereign debt, financial and currency crises will concern international investors. Investment will naturally gravitate towards creditor states in the developing world away from debtor states in the west like the UK.

“For the first time since the finance crisis began we’re in an upward cycle,” Harald Magnus Andreassen, chief economist for First Securities told Dagens Næringsliv (DN). Norwegian optimism has seen the Christmas shopping season get off to a flying start with household purchasing power increasing retail sales by 5 percent compared to the same week last year.