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Norway is located on the Scandinavian Peninsula in the west part of Europe. The country covers 385,199 square kilometers, though only 70% of it is inhabited. The territory is made up of mountains, rivers, and glaciers. The country is famous for hundreds of fjords cutting into the coastline. It is a constitutional monarchy and has three official languages; the Norwegian language, which has two forms --Bokmål and Nynorsk, and the Sami language. By 2010, it had a population of about 4.9 million people.

Norway is among few Western countries, which are not members of the European Union. On the two referendums, the first in 1972 and the second in 1994, a slim majority of the nation’s population discarded the option of membership. In 1994, 52% were opposing while 48% of citizens were supporting this step. As thus, the linkages with the union are based on co-operation and close contact. This allows for a soaring status for economic integration and political co-operation with other EU members (Bouchet, 1987).

The European Economic Area agreement (EEA) is the key document signed by Norway, which joins the country with the other EU nations and the European Free Trade Area (EFTA) states. The agreement seeks to come up with an increased and widespread EU internal market. Amongst other important documents are the Schengen Agreement, which makes contribution to border control, same passport usage, and other areas, which support the EU policy of Freedom, Security, and Justice. This entails the NATO, where Norway is a member state and takes part in the EU and NATO operations, such as improvement of policies and use of resources. Other areas where Norway and EU work together are scientific research, traditions, and education (Kopka, 2010).

Norway is considered to possess steady-state economy; though the sovereign wealth fund suffered losses of about 2.5%, because of the Euro zone debt fears that had hit most of equity markets. The country has a $600 billion fund, which is among the largest in Europe; it invests abroad, the state’s practice tax return, especially those received from oil and gas activities. The equity investments accounting for about 60 per cent lost 8.8% over the year. This was because more than half of all funds were invested in the European equities, which took an enormous decline due to foreign debt worries. This is marked by the 13% failing of the FTSE Eurofirst 300 index. There were reports of recovery near the end of the year where the funds bonds and investments recorded a 4.4% increase in the last quarter of the year (Goertzen, 1997).

Sovereign debt is a national government debt, like those held in bonds under foreign currencies. It is taken to be free of risk since the government can choose various measures to confirm repayment, such as increasing taxes or printing money. There has been the case where some governments did not manage to comply with the agreements and had to overlook them. As a result, investors requested for a number of returns across countries. When a country’s repayment ability is questionable, the sovereign debts become riskier; this, in turn, increases the returns. Sovereign debt changes within and across nations.

The ongoing debate in Norway, which has taken the center stage, focuses on advantages and disadvantages of joining the European Union (EU), which has attracted the interest of both leaders and the public. In 1990, the Labor government under Brundtland took power and sought for Norwegian membership in the EU. For the ones who raised questions about Norway's inability to keep up an economic growth, EU membership promised more access to the European market and a chance to air their views in the EU decision-making processes. By then, the country was a member of the European Economic Area (EEA), which provided a controlled measure of admission to the EU market, though it did not allow independent-minded Norway to influence the EU's regulatory machinery (Bouchet, 1987).

One of the conditions for membership in the EU was demand that Norway opens its waters for fishing by vessels from present member countries. Additionally, cheaper agricultural inputs from the EU would open a competitive ground with the expensive products from Norway's local population. Although both fishing and farming do not contribute a significant role in the country's economy, almost every Norwegian has a well-built cultural connection to the waters and to the land. This connection to the allegedly straightforward and pure values linked with the hard lives of fishermen and farmers was indispensable to most Norwegians, coastal communities, and rural villages. They explain the philosophy of Norway's customs and beliefs, and independence, hence, playing a significant role in shaping the national identity. EU membership was overpowered again in 1994 by a referendum, when 52.4% declined the option (Gstöhl, 2002).

Domestic policy, also known as public policy, is decisions, laws, and programs made by the government that are unswervingly connected to all occurrences and activities within the country. Domestic policy covers issue concerning health care, law enforcement, business, education, natural resources, and human rights. Norway, for example, has changed the foreign policy recently, because the government stake on the world political affairs. Norway does not use the Euro as its currency; it uses the Norwegian krone. Norway banks may be faced by tight capital requirements on mortgage lending. This is because the government looks for ways to lower household debt burdens from a two-decade high (Lissakers, 1991).

Norway is the world’s second-richest nation per capita after Luxembourg and has been largely secured from the fallout of the Europe’s debt crisis. This is because its oil wealth aided to feed a 10.5 percent budgetary excess of gross domestic product. In addition, it has Europe’s lowest unemployment rate of 2.7 per cent. Household praise increased by 7.1 percent, in July, retaining a 2 1/2-year high. The central bank estimates customer debt burdens will hike to more than 204 percent of non-refundable income next year, the highest since 1988, at least.

One appraise may be put a threshold on so-called risk weightings assigned to mortgages, Norway’s central bank said in May. In Norway, the Financial Supervisory Authority came up with defined ways, recommending lenders not to make loans exceeding 90 percent of a home’s value. That failed to reduce the property market, and house prices rose in annual 8 percent in the first half of the year. In the early 1990’s, Norway took control of its largest banks, partly because of a real estate slump that followed a rush in lending growth started by deregulation, in the 1980’s.

The impact of public sector austerity on the budgetary process in local government proposes that squeezing resources determines the criteria of resource allocation. Most particular suggestions are made that austerity mostly seeks to come up with a greater focus on performance-based criteria. This included cost-benefit assessments, as arguments concerned with production costs, earlier commitments and relative terms and conditions of service supply seemed to have less impact.

The phase of tension in Europe, and more so the Eurozone, have changed since the second half of 2011. The likelihood of multiple down turn alternating with that of a sovereign-debt crisis has reintroduced the issue of fiscal austerity. European governments have been steadfast since the last part of the most critical phase of the crisis in 2009.

Norway’s Sovereign Wealth Fund (SWF), which is the largest SWF in the world, and is regarded as having “infinite” time horizon, should be able to make remarkably solid returns in the world of illiquid assets. Nevertheless, up to now, the fund has been exceedingly conformist, choosing convectional assets mixes and foregoing illiquid assets, like private equity and infrastructure, although this has to be changed. This is because, with a sizeable fund; there are numerous management challenges. It is quite complicated to invest in properties, transport, and communication rather than equity and bonds, which can be bought daily on every market.

It is recommended that the fund’s investment space should be prolonged to take in less liquid reserves in concealed equity and infrastructure, and real estate. Reserves in real estate, transport, and communication, give direct rights of real assets and predictable benefits in the form of constant, inflation-adjusted cash flows. A boost in this type of real asset in the selection should be aimed at since this will help decrease doubt about improvements in the fund’s international purchasing control. If the fund is prepared well in taking the risk and tapping prospective returns from reserves in less liquid assets, since the fund does not have long-term liquidity requirements. The fund under rules could involve changes to the selection at inopportune periods. Investments in convectional infrastructure projects, in selection terms, would be likely to help in stabilizing inflation-adjusted cash flows and, therefore, assist in safeguarding the fund’s long-term international purchasing power.

Norway is considered to have a stable economy, based on its big sovereign funds invested to other countries. The funds, got from trading oil resources, play a role in stabilizing the nation economy even as other European nations suffer losses due to the global recession, witnessed recently.

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