Norway Defies Predictions, Prospers After Rejecting EU Membership : Europe: Exports and industrial investment are up. Unemployment is down. Foreign debt is vanishing. And North Sea oil riches seem to multiply.

Norwegians, it turns out, can have their cake and eat it too.

Nine months after they defied warnings of economic doom and rejected European Union membership, Norway seems more prosperous than ever.

Exports and industrial investment are up. Unemployment is down. Foreign debt is vanishing. The Oslo Stock Exchange sets records almost daily. And Norway keeps finding it has more North Sea oil than it thought.

“If you write all that down on paper, it makes Norway look like the best pupil in the class,” said economist Camilla Teisen of MMS International in London, a subsidiary of Standard & Poor’s.

“They have to be the No. 1 pupil because they are outside the club, but nobody is supposed to see that they are outside the club.”

Flush with oil riches, Norway’s 4.3 million people can afford just to look in from the outside, for now.

Many of them didn’t believe the dire predictions of EU supporters and said they voted no for fear of eroding their sovereignty by accepting Europe-wide rules on everything from the economy to foreign policy. The vote split 52.2% to 47.8%.

But Prime Minister Gro Harlem Brundtland is still trying to get as close as possible to the 15-nation bloc without defying the voters by joining, said Teisen.

Brundtland already has bounced back from the worst defeat of her career to record the highest approval ratings for a modern Norwegian leader.

“Norway has a handicap, and it knows it has a handicap,” said Teisen, a specialist on Nordic countries. “It has no influence on the decisions being made, so it has to be the very best in preparing for them.”

Brundtland’s government expects to eliminate its budget deficit next year and pay off its foreign debt this summer. That’s more than enough to meet standards for joining the EU single currency, if Norway wants to.

Not even EU members such as Sweden can boast such economic achievements.

And, while Norwegians rallied to defeat what they saw as a threat to their independence, pro-EU legislation passed by Parliament apparently isn’t threatening enough to rouse their opposition.

Brundtland’s party controls only 67 seats in the 165-member Parliament, but she has been able to draw on opposition support to break up state liquor and pharmaceuticals monopolies--which would be a condition for joining the European Union.

Parliament also accepted another EU condition by agreeing to treat all oil companies equally when they bid on drilling rights, rescinding the state oil company’s automatic right to a share in new oil fields.

She also wants to join an EU passport-free zone.

“Since there is no realistic [parliamentary] opposition, the Labor Party government can just go ahead and openly adapt to the EU,” said Martin Saeter, a specialist in Oslo on European economic integration.

The issues of sovereignty and self-determination resonate in Norway, a country that didn’t gain full independence from Sweden until 1905, after centuries in various unions.

Fears about independence also guided Norwegians in 1972, when they rejected joining the European Economic Community, the EU’s predecessor.

Neighboring Sweden and Finland, which with Austria joined last year, can only look at Norway with envy as they struggle with an economic slump and high foreign debt. They hoped EU membership would help.

Polls in Sweden now find that voters wouldn’t approve EU membership today.

In Finland, voters are still positive, and studies say joining the European Union played a part in cutting inflation to less than 1% a year.

During the referendum, Brundtland and other proponents of EU membership promised similar benefits and warned that if Norway didn’t join, companies would close and move to the European Union.

Instead, Norway’s economy is booming. Exports to the European Union rose by 24.2% in the first five months of the year. Inflation is projected at 2.5% and unemployment 5.1%, with a 4.8% rise in the gross domestic product.

By comparison, EU members are expected to average 3.2% inflation next year and 3.1% growth, with unemployment of 10.7%.

And instead of leaving, Norwegian industries are projected to increase their investments within the country by a record 16.7% this year, according to the Central Bureau of Statistics.

Anticipating the skeptics, Brundtland said, “That’s not to say investments are higher because Norway did not join the EU.”

Instead, she said, her own policies are responsible.

Questions still loom if Norway wants to do business with the European Union without joining.

“Will it be possible for Norway to accept that all the decisions are being made outside the country, in [the EU headquarters in] Brussels?” asked Saeter, the European integration expert.

And petroleum production, which is 40% of exports, is expected to start falling early in the next century.

If the economy begins to slump, tiny Norway may have to go its own way in poverty as it did in prosperity.

“Norway has a very vulnerable economy,” said Teisen, the economic analyst in London. “The situation could change very quickly. . . . And if it does, no one is going to help them.”