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Is Norway Preparing for a European Bond Disaster?

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LdF | Vetta | Getty Images

Norway is dumping the debt of Europe's periphery, most likely because it fears the spread of the "Greek" solution.

Norway's sovereign debt wealth fund was one of the best known holdouts against the Greek debt swap. And now, it has sold all of its Irish and Portuguese government bonds, and reduced its holding of Spanish and Italian debt.

To add insult to injury, it is adding to its holdings in Brazil, Mexico and India. Take that, alleged "developed world!"

So what's going on here?

Most accounts of the sale portray it as a "protest" against the Greek debt swap, as if the fund were a Park Slope mom who won't buy coffee unless it is "fair-growth" branded.
(Editor's note: To the uninitiated, Park Slope is a neighborhood in Brooklyn where every single person is prosperous, vociferously liberal and has a stroller. Or so it seems.)

But this isn't really a protest. It is very likely a decision about the economics and politics of European debt.

As Warren Mosler has explained on his website, the "private sector involvement" in Greece's debt swap was essentially a tax on its bondholders. It seems increasingly likely that the governments of other European countries will feel pressure to reduce the tax hikes and spending cuts inflicted on their citizens by imposing a Greek-style bond tax on bondholders.

As Mosler put it:

Greece did it, and sanctioned by the EU. They cut their deficit by 100 billion euro by decree, by what was called ‘private sector involvement’ which was, functionally, a bond tax.

Instead of another 100 billion of public sector service cuts and tax hikes on the population, they just taxed the holders of Greek bonds.

And ostensibly nothing ‘bad’ happened, apart from a few banks changing a few numbers down on their books. Nor did the euro go down or inflation go up or anything else ‘monetary’ go wrong.

Pretty tempting for a new socialist govt in any euro member nation?

No more austerity, just a bond tax instead?

If Greece doesn’t have to pay, why do we?

It looks to me like Norway is attempting to get out of the way of a possible Sovereign Debt Tax train wreck.

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