Financial Times Editorial Comment: Mount Midas

Financial Times Editorial Comment: Mount Midas
Copyright The Financial Times Limited 2009
Published: March 20 2009 20:25 | Last updated: March 20 2009 20:25
http://www.ft.com/cms/s/0/eb44c59e-1580-11de-b9a9-0000779fd2ac.html


Are Norway and Switzerland twins? The Swiss have their snow-capped peaks, green valleys and fat cows; so do Norwegians, with blue fjords thrown in for good measure. As hardy mountain people, both are content to sit on the sidelines of European integration, prizing a self-sufficiency based on foreigners’ need for their bank vaults or oil.

There are darker similarities too. Norway may be clean of Swiss-style entanglements with Nazi gold but it gave the world the word (and the man) “quisling”. Switzerland irks the world with bank secrecy; Norway’s predilection for whale hunting upsets a lot of people.

This week, Norway edged past Switzerland in one important respect. The krone, according to analysts, has usurped the franc’s position as the ultimate safe haven. In fact, it was Switzerland’s to lose. The authorities’ overt move to pull down the value of the franc marks a break with a granite-hard past.

Norway must be gratified to see the sceptre handed its way. But becoming “the new Switzerland” portends danger as well as benefit. Other countries were crowned Switzerlands of their regions – Lebanon in the Middle East, Uruguay in South America – only to come to an unhappy end.

Yet Norway is surely the real thing. Its sovereign wealth fund contains unspent oil revenues of some £50,000 per capita. The government estimates only a third of the oil and gas has been extracted. Risk-weary investors need not worry about a Norwegian default.

Being too attractive, however, can be a curse in disguise. Perversely, Norway’s good work to prevent oil from destabilising the economy may itself become a cause of instability. A country of fewer than 5m people hardly has enough investment opportunities for the whole world’s safety-seekers. Large capital inflows could throw financial markets into turmoil and squeeze non-oil exports to extinction.

The inherent peril for a super-currency is that it one day stops being one. When you sit on top of a mountain, the only way is down.