Brexit affects Norway
The NOK takes a hit against the dollar as Britain votes to leave the European Union
M. Michael Brady
On Thursday, June 23, the United Kingdom (UK) held a referendum on British membership in the European Union (EU). The result of it matched up to its popular name of “Brexit”: 52% for leaving and 48% for remaining in the EU. That astounded Europe, not least because in 1975 the vote in a referendum on continued British membership in the European Economic Community (EEC), a predecessor of the EU, had been 67% for remaining.
The Brexit vote to leave the EU sent a tsunami of shock across Europe and beyond. The most immediate effect was a weakening of many currencies in the global foreign exchange market, including the British Pound (GBP) and the Norwegian Krone (NOK), against the U.S. Dollar. For example, at closing time on June 23, the Norges Bank (central bank of Norway, equivalent to the Fed in the USA) NOK exchange rate against the dollar was 8.1652. At closing time on June 24, when the results of Brexit were known, the rate was 8.5126 to the dollar, a weakening of 4%. Since then, there have been fluctuations up and down, but overall the NOK is weaker. That may be good news for American tourists traveling to Norway, as dollars now buy more kroner, but for Norwegian importers of American goods it’s bad news, as more kroner now must be paid for goods priced in dollars.
Aside from a weakening of its currency, by a curious twist of history Norway remains prominent in the debate on the repercussions of Brexit. The country is well off, despite twice deciding by referendum not to join the EU, in 1972 and 1994. That said, as a member of the European Free Trade Association (EFTA) along with Iceland, Liechtenstein, and Switzerland, Norway has access to the European single market in return for allowing the free movement of people from EU countries and contributing to the EU budget. That sets a precedent for Britain, which though it has voted to leave the EU, cannot leave Europe.
The Economist, the venerable periodical published in London since 1843, argued in a leader in its July 2nd-8th issue (Further reading) that the conundrum can be untangled if Britain adopts a Norwegian option. In addition to being the least disruptive economic alternative, it “would also be the best chance to preserve the union with Scotland and Northern Ireland, both of which voted to Remain.” Furthermore, the preference of nearly half the voters in the referendum to remain in the EU suggests that most Britons might now “prefer a Norwegian compromise to complete isolation.”
It’s also possible that Brexit will falter and lead to it being put again to the public, in a second referendum, a general election, or both. As of this writing, more than four million people have signed a petition to Parliament calling for a rerun of the referendum. Should Parliament not act on the petition or should it act and the result of a second referendum be for Brexit, a Norway-like deal with the EU seems likely.
Further reading: “Adrift, Leaderless and divided, Britain has its first taste of life unmoored from Europe,” The Economist, July 2nd-8th issue, Leaders page 11, link to online article at www.economist.com/news/leaders/21701479-leaderless-and-divided-britain-has-its-first-taste-life-unmoored-europe-adrift.
M. Michael Brady was educated as a scientist and with time turned to writing and translating.
This article originally appeared in the July 15, 2016, issue of The Norwegian American. To subscribe, visit SUBSCRIBE or call us at (206) 784-4617.