Thursday, 3 March 2011

Denmark may join the euro before the summer

It might seem counter-intuitive given the ongoing tremors within Europe's common currency, but believe it or not Denmark is considering holding a referendum on joining the euro in the next few months. Though Danes rejected joining the common currency in 2000, the country's prime minister said yesterday that they may give it another shot. And poll numbers indicate that this time it could succeed.

All EU countries are required to join the euro eventually, but Denmark and the UK have an opt-out from this requirement. But, as is the case with so many EU opt-outs, Denmark is actually a pseudo-member of the eurozone. Because Denmark is in the European Exchange Rate Mechanism, its currency is pegged to the euro. So essentially, Denmark is already on the euro, it just uses different pieces of paper. But because it doesn't technically use the euro, it can't take part in eurozone decisions. And now that Angela Merkel and Nicolas Sarkozy are pushing for the creation of Eurozone decision-making body, the situation has become quite undesirable for Denmark. It will be affected by the decisions made in this new body, but it won't be able to join it. And that is why, despite the eurozone trouble, this might be exactly the right time for Denmark to join the euro.

Yesterday Danish Prime Minister Lars Lokke Rasmussen met with members of the European Parliament to discuss the issue. According to the Danish newspaper Politiken, after the meeting Rasmussen said the current situation of Denmark would limit its ability to participate in the special Eurozone member-only pact being formed now by Merkel and Sarkozy. He told the paper that he is considering calling a snap referendum on the euro before the summer, so that the result would be in before the Eurozone decision-making pact is created at the June summit of EU leaders. That way Denmark could join the pact right from its inception. He added that with Denmark taking over the EU rotating presidency next year, now is the perfect time to hold such a referendum.

According to Politiken, Rasmussen is in fact considering having a "big bang" referendum on all of Denmark's EU opt-outs: justice, defence and the euro. Many in Danish government see these opt-outs as having caused more problems for Denmark over the years than advantages, and polls show a large part of the public agrees. Right now polls show that 45% of Danes would vote 'yes' in a referendum to end all three opt-outs, 43% would vote 'no', and 12% are undecided.

The trick will be convincing those undecided voters, and trying to overcome all of the negative news about the european currency they've been hearing. The average Danish person may not understand that even though the country isn't technically on the euro, it effectively uses the currency anyway. And trying to explain the idea that Denmark needs to be represented on this new Eurozone decision-making body - one that was created in response to a euro crisis - may be a tough sell.

I would venture to guess that if Denmark did indeed say 'yes' to the euro in a referendum in the next few months it would be a big shot in the arm for confidence in the single currency. For one thing, it would remind people that this is still a strong currency for the moment and countries are still keen to start using it. Estonia became the newest country to start using the Euro in January

A Danish 'yes' might also provide some lessons for the other EU opt-out-loving country, the United Kingdom. People in Brussels often complain about a "two-speed Europe" which has been created by allowing these countries to have opt-outs. While the majority of EU members are progressing at one speed, you have a few reluctant members who are progressing at a slower speed. This becomes a problem for both the majority and the minority. While the countries on the faster speed feel like they're being held back by the non-committal minority, the minority of opt-out countries don't have a full say in the EU decisions that affect them. For instance, because the UK doesn't participate in the passport-free Schengen Zone it can't fully participate in the common justice and border security aspects of Schengen.

This lesson could apply to the non-EU countries of Western Europe as well, which as I've written about before are effectively pseudo-EU members. By not joining the EU while at the same time being in the common market, Norway, Switzerland and Iceland are being governed by institutions in which they have no representation. Not joining the EU might give their citizens a sense of autonomy, but this is largely illusory. The same could be said for Denmark's refusal to adopt the euro even though the kroner has become a sort of pseudo-euro. In the end, it's better to go all in than to adopt half-measures.

5 comments:

Jean-Yves said...

As much as I'd love all EU countries to use the euro and be much, much more unified, I'll miss that punctured coin enormously. A coin with a hole in the middle and little hearts around it? How could you not love that? And seeing the price list in the bars in Copenhagen listed in euros would definitely give the city a Paris feel. 8 euros for a fadøl? Oh yeah, sure. I'll have three.

Anonymous said...

I am Danish and I think it's absurd that we haven't joined the euro, since we are pegged to it anyway. But, I do think most Danish people know we are pegged, they just can't get over the psychological barrier of losing the kroner. But after 10 years of being "pseudo euro users" as you say, I think they are now ready.

jolyonwagg1 said...

Don't do it Denmark as a country you will regret it. Yes the euro as advantages,but it also as disadvantages? Denmark will not be able to control, its own interest rates% and national taxation.

You will be at the mercy of Brussels,Frankfurt and the ECB?

Dave Keating said...

Joly, taxation is a member state competence for all EU countries even those that use the euro, Denmark joining the Euro would make no difference to that. And because it is a member of the European Exchange Rate Mechanism Denmark already can't have its interest rates deviate from those set by the ECB.

http://www.nationalbanken.dk/C1256BE9004F6416/side/Monetary_Policy_in_Denmark/$file/kap04.html

Anonymous said...

I am an European living in Denmark, and I love it. It would be really nice to Denmark finally join the euro. However, sometimes the ultra-right conservative wing has such a cocky attitude (based on the ignorance of many) that is cool they are outside of the decision making.