Norway Dumps Bonds as Elections Loom

As the possibility of drastic change hovers over France and Greece, with elections to be held Sunday, Norway has warned that Europe is in for a rough ride. It has also shed all of its bonds from Portugal and Ireland in the wake of rejecting the Greek debt swap.

Bloomberg reported Friday that the sovereign wealth fund of Norway sold off all its Portuguese and Irish government bonds, and also cut its holdings in Italy and Spain as part of a strategy to gradually reduce European investments. The fund had also voted against the debt swap worked out for Greece, protesting any subordination to the European Central Bank (ECB).

Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, was quoted saying, “Predictability is important for a long-term investor and the euro area faces considerable structural and monetary challenges.”

Predictability may be in short supply. Europe faces potentially major changes in its debt crisis, depending on election results. As protests surge all over the euro zone against harsh austerity measures, France may see President Nicolas Sarkozy go down in defeat to the Socialist candidate, Francois Hollande, who is expected to win on Sunday, according to a Reuters report.

Hollande is expected not only to emerge victorious, but also to be granted a left-wing working majority in Parliament after those elections are held on June 10 and 17. Sarkozy has moved increasingly further right over the past several weeks, and the centrist Francois Bayrou threw his support behind Hollande on Thursday, angering Sarkozy.

Votes for the far-right candidate Marine Le Pen could fracture Sarkozy’s party beyond repair. “It’s the people who are really struggling financially who vote for Le Pen,” Dominique Reynie, a professor at Sciences Po University and head of the liberal think tank Fondapol, said in the report. Le Pen’s National Front party has gained support from French voters over the economic crisis, Europe’s debt problems and pressure on household incomes.

Reynie added, “For the runoff, people voting for Sarkozy are thinking about somebody who can lead in Europe and handle the crisis. Those who vote for Hollande are thinking about their own purchasing power and social well-being.”

In Greece, the situation looks far riskier, as the center-right New Democracy party and the PASOK Socialists between them barely look to have enough support to win a majority. If they fail to do so, they will have to attempt to work with anti-austerity parties determined to fight back against rules imposed by the euro zone.

“Political paralysis in Greece following the elections could lead to a default and even threaten a euro exit, in our view,” Bank of America strategist Athanasios Vamvakidis was quoted saying in a research paper released Tuesday. “We believe that the troika may have little choice but to stop funding Greece if there is no government in place,” he added. The troika is the monitoring group consisting of the ECB, the International Monetary Fund (IMF) and the European Commission (EC).