Denmark and the euro


Denmark and the euro
  EU Eurozone (17)
  EU states obliged to join the Eurozone (8)
  EU state with an opt-out on Eurozone participation (2)
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Denmark uses the krone as its currency and does not currently use the euro, having negotiated an opt-out from participation under the Edinburgh Agreement in 1992. In 2000 the government held a referendum on introducing the euro, which was defeated with 46.8% voting yes and 53.2% voting no. The Danish krone is part of the ERM-II mechanism, so its exchange rate is tied to the euro ± 2.25%.

Most of the large political parties in Denmark favour the introduction of the euro and the idea of a second referendum has been suggested several times since 2000. However, some important parties such as the Danish People's Party and Socialist People's Party do not support it. Public opinion surveys have shown fluctuating support for the single currency with majorities in favour for some years after the physical introduction of the currency. However, following the financial crisis of 2008 support began to fall, and in late 2011 support for the euro crashed in light of the escalating European sovereign debt crisis.[1]

Denmark borders one eurozone member, Germany, and one EU member that is obliged (de jure) to adopt the euro in the future, Sweden.

Contents

Status

The Maastricht Treaty originally required that all members of the European Union join the euro once certain economic criteria are met. Denmark ratified this treaty on 18 May 1993 but with the addition of the Edinburgh Agreement which gives it an exception and allows it to not adopt the euro if it does not want to. However, Denmark meets all five criteria and could join the euro if it chooses.[2]

Convergence criteria
Inflation rate 1 Government finances ERM II membership Long-term interest rate 2
annual government deficit to GDP gross government debt to GDP
Reference value 3 max 3.2% max 3% max 60% min 2 years max 6.5%
 Denmark (FY2010) 2.3%[3] -2.7% 4[4] 41.6%[5] joined ERM II on 1 January 1999 2.96%[6]
  criteria fulfilled
  criteria not fulfilled

1 No more than 1.5% higher than the 3 best-performing EU member states. HICP rate as published by the ECB.
2 No more than 2% higher than the 3 best-performing EU member states.
3 Values from May 2008 report [9]. To be updated each year.
4 Negative value is a surplus.

Since 1 January 1999, the krone has been part of the ERM II mechanism, under which it is required to trade within a 2.25% either side of a specified rate of €1 = DKK 7.46038 making the lower rate 7.29252 and the upper rate 7.62824 kroner for 1 euro.[7] This band, 2.25%, is narrower than the 15% band used for most ERM II members. However, the exchange rate has kept within 0.5% of the defined rate, even less than the set limits.[8] The independence of the Danish central bank is therefore limited in practice. Its aim is to keep the crown within this exchange rate band. This policy marks a continuation of the situation that existed from 1982-1999 with regard to the Deutsche Mark, which provided a similar anchor currency for the DKK. The ECB is also obliged to help protect the Danish currency in the case of speculative attacks.

History

Early monetary unions in Denmark (1873-1914)

On 5 May 1873 Denmark with Sweden fixed their currencies against gold and formed the Scandinavian Monetary Union. Prior to this date Denmark used the Danish rigsdaler divided into 96 rigsbank skilling. In 1875, Norway joined this union. A rate of 2.48 kronor per gram of gold, or roughly 0.403 grams per krone was established. An equal valued krone of the monetary union replaced the three legacy currencies at the rate of 1 krone = ½ Danish rigsdaler = ¼ Norwegian speciedaler = 1 Swedish riksdaler. The new currency (krone) became a legal tender and was accepted in all three countries - Denmark, Sweden and Norway. This monetary union lasted until 1914 when World War I brought an end to it.[why?] But the name of the currencies in each country remained unchanged.

European Monetary System and pre-euro monetary cooperation

The Danish krone was fixed to a basket of European currencies during the 1980s. This was formalised in the European Monetary System (EMS). [9] Prior to that Denmark had participated in the "European currency snake" in the years after the collapse of Bretton Woods.

Pre-eurozone documents (1992-1999)

The Maastricht Treaty originally required that all EU member states except the UK join the euro. However, following a referendum on 2 June 1992 in which Danes rejected this treaty, Denmark negotiated the Edinburgh Agreement, under which Denmark was also allowed to opt-out from eurozone membership, which was accepted in a referendum on 18 May 1993. As the result Denmark is not required to join the eurozone. Denmark did however participate in Stage 2 of EMU, which was considered the preparatory phase for the introduction of the euro.[10] As a part of this process the National Bank of Denmark participated in various aspects of the planning of the euro as it was still considered to be very important for future Danish economic policy. According to a history published by the central bank, "Firstly, it was important to create a solid framework for price stability in the euro area, making it an appropriate anchor for the Danish fixed-exchange-rate policy. Secondly, Denmark had an interest in developing an expedient framework for exchange rate cooperation between the euro area and the non-euro area member states. Thirdly, Denmark had a general interest in the formulation of the ground rules for Stage 3 of EMU to ensure that Denmark would be able to adopt the single currency at a later stage on the same terms as those applying to the initial euro area member states."[10]

Euro referendum (2000)

A referendum held on 28 September 2000 rejected membership of the eurozone. 87.6% of eligible voters turned out, with 46.8% voting yes and 53.2% voting no.[11] Most political parties, media organisations and economic actors in Denmark campaigned in favour of adopting the euro. However, a couple of major parties campaigned against. Had the vote been favourable, Denmark would have joined the eurozone on 1 January 2002, and introduced the banknotes and coins in 2004. The immediate run-up to the referendum saw a significant weakening of the euro vs. the US dollar. Some analysts believe that this resulted in a general weakening of confidence in the new currency, directly contributing to its rejection. The bank believes that the debate was "coloured by the view that, on account of its fixed-exchange-rate policy, Denmark had already reaped some of the benefits of joining the euro area." [12]

Possible second euro referendum

Double kroner and euro prices in Magasin (da:Magasin du Nord) (2009)

On 22 November 2007, the newly re-elected Danish government declared its intention to hold a new referendum on the abolition of the four exemptions, including exemption from the euro, by 2011.[13] It was unclear if people would vote on each exemption separately, or if people would vote on all of them together.[14] However, this referendum did not take place before the 2011 parliamentary election, and the new government does not intend to hold a referendum on the euro.[15]

There has been some speculation that the result of a Danish referendum would affect the Swedish debate on the euro.[16]

Usage today

At Copenhagen Airport prices are shown and can be paid in both kroner and euros

The euro can be used in some locations in Denmark, usually in places catering to tourists, such as museums, airports and shops with large numbers of international visitors. However, change is usually given in kroner. Double kroner-euro prices are used on all ferries going between Denmark and Germany.

Consequences of a euro adoption

If Denmark were to adopt the euro, the monetary policy would be transferred from the Danmarks Nationalbank to the ESCB. In theory this would limit the ability of Denmark to conduct an independent monetary policy, however a study of the history of the Danish monetary policy shows that, "while Denmark does not share a single currency, its central bank has always tracked changes made by the ESCB".[17]

However, whilst outside the euro, Denmark does not have any representation in the ESCB direction. This motivated the support for an adoption of the euro by former Prime Minister Anders Fogh Rasmussen: "De facto, Denmark participates in the euro zone but without having a seat at the table where decisions are made, and that's a political problem".[18] Furthermore the ESCB does not defend the Danish krone exchange rate. This is done by Danmarks Nationalbank, and the Danish government. In a crisis it can be tough for a small country to defend its exchange rate.

The expected practical advantages of euro adoption are a decrease of transaction costs with the eurozone, a better transparency of foreign markets for Danish consumers, and more importantly a decrease of the interest rates which has a positive effect on growth.[17] However, when joining the euro, Denmark would abandon the possibility to adopt a different monetary policy from the ECB. If ever an economic crisis were to strike specifically the country it would have to rely only on fiscal policy and labour market reforms.

In the wake of the 2010 European sovereign debt crisis European leaders established the European Financial Stability Facility (EFSF) which is a special purpose vehicle[19] aimed at preserving financial stability in Europe by providing financial assistance to eurozone states in difficulty.[20] It has two parts. The first part expands a €60 billion stabilisation fund (European Financial Stabilisation Mechanism).[21] All EU countries contribute to this fund on a pro-rata basis, whether they are eurozone countries or not.[22] The second part, worth €440 billion consists of government-backed loans to improve market confidence. All eurozone economies will participate in funding this mechanism, while other EU members can choose whether to participate. Unlike Sweden and Poland, Denmark has refused to help fund this portion of the EFSF.[23][24] If Denmark joined the eurozone it would then be obliged to help fund the second portion.

Polls

Euro opinion in Denmark since August 2006 by Børsen.
green - support of adopting the euro
red - against adopting the euro
blue - undecided
DKK-EUR exchange rate since 1999

Polls on the question whether Denmark should abolish the krone and join the euro. The actual wording of the question may have varied.

Date YES NO Unsure Number of participants Held by Ref
29 March – 30 April 2002 47% 33% 20% Unknown Eurobarometer [25]
March 2007 56% 39% 5% 910 persons Greens Analyseinstitut published in Børsen [26]
April 2007 53% 40% 7% 910 persons Greens Analyseinstitut published in Børsen [26]
November 2007 54% 42% 4% Unknown Greens Analyseinstitut published in Børsen [27]
26 November 2007 52% 39% 9% 1016 Danish adults Vilstrup Synovate published in Politiken [27]
April 2008 55% 38% 7% 1009 Danish adults Greens Analyseinstitut published in Børsen [28]
5 – 7 May 2008 54% 42% 4% 1009 Danish adults Greens Analyseinstitut published in Børsen [28][29]
middle of June 2008 40% 48% 12% 1036 Danish Capacent Epinions [30]
29 September – 1 October 2008 52% 44% 4% 1050 Danish adults Greens Analyseinstitut published in Børsen [31]
3 – 5 November 2008 54% 38% 8% 1098 Danish adults Greens Analyseinstitut published in Børsen [32]
December 2008 54% 40% 6% >1000 Danish adults Greens Analyseinstitut published in Børsen [33]
5 – 7 January 2009 56% 38% 4% 1307 Danish adults Greens Analyseinstitut published in Børsen [33]
2 – 4 February 2009 57% 39% 4% 1124 Danish adults Greens Analyseinstitut published in Børsen [34]
11 February 2009 42% 42% 16% Unknown Gallup Poll in Berlingske Tidende [35]
2 – 4 March 2009 52% 38% 10% 1085 Danish adults Greens Analyseinstitut published in Børsen [36]
30 March – 1 April 2009 51% 42% 7% 1007 Danish adults Greens Analyseinstitut published in Børsen [37]
27 – 29 April 2009 52% 40% 8% 1178 Danish adults Greens Analyseinstitut published in Børsen [38]
13 May 2009 43% 45% 11% Unknown Rambøll [39]
25 – 27 May 2009 51% 42% 7% 951 Danish adults Greens Analyseinstitut published in Børsen [40]
September 2009 50% 43% 7% 951 Danish adults Greens Analyseinstitut published in Børsen [41]
October 2009 50% 43% 7% 1081 Danish adults Greens Analyseinstitut published in Børsen [42]
2 – 4 November 2009 54% 41% 5% 1158 Danish adults Greens Analyseinstitut published in Børsen [43]
30 November – 2 December 2009 50% 40% 10% 1001 Danish adults Greens Analyseinstitut published in Børsen [44]
2–4 January 2010 51% 42% 7% 1162 Danish adults Greens Analyseinstitut published in Børsen [45]
1–3 February 2010 49% 45% 6% 1241 Danish adults Greens Analyseinstitut published in Børsen [46]
1–3 March 2010 48% 46% 6% 552 Danish adults Greens Analyseinstitut published in Børsen [47]
12–14 April 2010 52% 41% 7% 988 Danish adults Greens Analyseinstitut published in Børsen [48]
3–5 May 2010 48% 45% 7% 1004 Danish adults Greens Analyseinstitut published in Børsen [49]
11–13 May 2010 45% 43.2% 11.2% 1002 Danish adults Catinét Ritzau published in Fyens [50]
31 May – 2 June 2010 45% 48% 7% 1079 Danish adults Greens Analyseinstitut published in Børsen [51]
27 September 2010 45% 48.3% 6.7% Unknown Jyllands-Posten [52]
1 October 2010 46% 48% 6% 1025 Danish Adults Greens Analyseinstitut published in Børsen [53]
1 November 2010 44% 49% 7% Unknown Greens Analyseinstitut published in Børsen [54]
1 December 2010 46% 48% 6% 1006 Danish Adults Greens Analyseinstitut published in Børsen [55]
1 January 2011 43% 50% 7% 1336 Danish Adults Greens Analyseinstitut published in Børsen [56]
1 February 2011 43% 48% 9% 1053 Danish Adults Greens Analyseinstitut published in Børsen [57]
1 March 2011 47% 46% 7% 1060 Danish Adults Greens Analyseinstitut published in Børsen [58]
1 April 2011 43% 50% 7% 1286 Danish Adults Greens Analyseinstitut published in Børsen [59]
1 May 2011 44% 48% 8% 1133 Danish Adults Greens Analyseinstitut published in Børsen [60]
1 August 2011 37% 54% 9% 1143 Danish Adults Greens Analyseinstitut published in Børsen [61]
September 2011? 22.5% 50.6% 28.1% unknown Danske Bank [62]
October 11. 2011 29% 65% 6% 1239 Greens Analyseinstitut published in Børsen [63]

Greens has generally asked "How would you vote at a possible new referendum about participation of Denmark in the common currency?" ("Hvad ville du stemme ved en evt. ny folkeafstemning om Danmarks deltagelse i den fælles valuta?").

Danish dominions

The Faroe Islands currently use the Faroese króna, a localized version of the Danish krone but legally the same currency. Such notes are normally not accepted by shops in Denmark proper, or foreign exchange bureaus, but exchanged 1:1 in Danish banks. Greenland currently uses ordinary Danish kroner but has considered introducing its own currency, the Greenlandic krone in a system similar to that of the Faroese one.[64] Both continue to use Danish coins.

It remains unclear if Greenland and the Faroe Islands will adopt the euro should Denmark choose to do so. Both are parts of the Kingdom of Denmark, but remain outside of the EU. For this reason, they don't take part in EU referenda.

Possible euro coin design

Before Denmark's 2000 referendum on the issue, Danmarks Nationalbank and the Royal Mint were asked by the Ministry of Economics to propose possible designs for the future Danish euro coins.[65] The suggested design was based on the designs of the Danish 10- and 20-kroner coins, with Queen Margrethe II on the front, and the 25- and 50-øre coins, switching their back motif (a crown) to the front of the euro coins.

See also


References

  1. ^ "Danskerne siger nej tak til euroen" (in Danish). Business.dk. 27 September 2011. http://www.business.dk/oekonomi/danskerne-siger-nej-tak-til-euroen. Retrieved 29 September 2011. 
  2. ^ Travel Document Systems - Denmark Economy: Denmark meets, and even exceeds, the economic convergence criteria for participating in the third phase (a common European currency–the euro) of the European Monetary Union (EMU)
  3. ^ [1]
  4. ^ [2]
  5. ^ http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-22042010-BP/EN/2-22042010-BP-EN.PDF
  6. ^ Long-term interest rate statistics for EU Member States, June 2011
  7. ^ Upper and lower limits of the exchange rate of the DKK
  8. ^ The lowest and highest rates as posted by the ECB are 7.4234 (0.49% off) and 7.468 (0.1% off) DKK per euro, posted on 2003-04-25 and 2000-09-18 respectively. See [3] (previous rates: CSV zipped).
  9. ^ "Monetary and Exchange-Rate Policy". Danmarks Nationalbank - Report and Accounts 1998. Danmarks Nationalbank. http://www.nationalbanken.dk/C1256BE9004F6416/side/Report_and_Accounts_1998/$file/kap03.htm. Retrieved 25 October 2011. 
  10. ^ a b Abildgren, Kim (2010). Monetary History of Denmark 1990-2005. Copenhagen: Danmarks Nationalbank. pp. 216. http://www.nationalbanken.dk/DNUK/Publications.nsf/side/Monetary_History_of_Denmark_1990_2005/$file/Monetary_History_Denmark_web.pdf. 
  11. ^ "Folkeafstemning om euroen den 28. september 2000" (in Danish). Folketinget. 2006-08-08. http://www.eu-oplysningen.dk/dkeu/dk/afstemninger/afstemning/2000/. Retrieved 2008-12-23. 
  12. ^ Abildgren, 221.
  13. ^ Stratton, Allegra (2007-11-22). "Danes to hold referendum on relationship with EU". London: Guardian Unlimited. http://www.guardian.co.uk/eu/story/0,,2215481,00.html. Retrieved 2007-11-22. 
  14. ^ Dagens Huvudledare (2007-11-24). "Danmark går före" (in Swedish). Dagens Nyheter. http://www.dn.se/DNet/jsp/polopoly.jsp?d=573&a=718468. Retrieved 2008-12-23. 
  15. ^ Brand, Constant (13.10.2011). "Denmark scraps border-control plans". European Voice. http://www.europeanvoice.com/article/2011/october/denmark-scraps-border-control-plans/72315.aspx. Retrieved 18 October 2011. 
  16. ^ Henrik Brors (2007-11-22). "Utspelet kan höja temperaturen i den iskalla svenska EU-debatten" (in Swedish). Dagens Nyheter. http://www.dn.se/DNet/jsp/polopoly.jsp?d=148&a=718135. Retrieved 2008-12-23. 
  17. ^ a b http://www.konferencja.edu.pl/ref8/pdf/en/Fic-Warszawa.pdf
  18. ^ http://www.bloomberg.com/apps/news?pid=20601085&sid=a7HNDE8bkkUE&refer=europe
  19. ^ [4] "The Council and the member states decided on a comprehensive package of measures to preserve financial stability in Europe, including a European financial stabilisation mechanism, with a total volume of up to EUR 500 billion."
  20. ^ [5] "European Financial Stability Facility, the special-purpose vehicle (SPV) set up to support ailing euro-zone countries, is even being run by a former hedgie. But this is one fund that will never short its investments."
  21. ^ [6] "Media reports said that Spain would ask for support from two EU funds for eurozone governments in financial difficulty: a €60bn ‘European financial stabilisation mechanism', which is reliant on guarantees from the EU budget."
  22. ^ "Debt crisis Q&A: How the EU bailout will work". The Guardian. 10 May 2010. http://www.guardian.co.uk/business/2010/may/10/eu-rescue-package-q-a. Retrieved 12 May 2010. 
  23. ^ "France attacks UK over attitude to bail-out fund". EUObserver. 11 May 2010. http://euobserver.com/9/30060. Retrieved 12 May 2010. 
  24. ^ "EU's lånepakke kan koste Danmark ni milliarder kroner" (in Danish). Politiken. 10 May 2010. http://politiken.dk/politik/article968137.ece. Retrieved 12 May 2010. 
  25. ^ http://ec.europa.eu/public_opinion/archives/eb/eb57/eb57_denmark.pdf
  26. ^ a b http://web.archive.org/web/20071203092905/http://img.borsen.dk/img/cms/cmsmedia/514_content_2_5737.pdf (Danish)
  27. ^ a b http://www.angus-reid.com/polls/view/29186/many_danes_willing_to_switch_to_euro
  28. ^ a b http://www.angus-reid.com/polls/view/danes_still_willing_to_adopt_euro/
  29. ^ http://www.eubusiness.com/news-eu/1210342625.71/
  30. ^ http://www.dr.dk/Nyheder/Politik/2008/06/20/044801.htm (Danish)
  31. ^ http://img.borsen.dk/img/cms/cmsmedia/693_content_2_8211.pdf (Danish)
  32. ^ http://img.borsen.dk/img/cms/cmsmedia/857_content_2_3629.pdf (Danish)
  33. ^ a b http://img.borsen.dk/img/cms/cmsmedia/877_content_2_7366.pdf (Danish)
  34. ^ http://img.borsen.dk/img/cms/cmsmedia/881_content_2_5141.pdf (Danish)
  35. ^ http://politiken.dk/newsinenglish/article647257.ece
  36. ^ http://img.borsen.dk/img/cms/cmsmedia/588_content_2_1524.pdf
  37. ^ http://img.borsen.dk/img/cms/cmsmedia/370_content_2_8723.pdf
  38. ^ http://img.borsen.dk/img/cms/cmsmedia/514_content_2_6992.pdf
  39. ^ http://jp.dk/indland/indland_politik/article1692022.ece (Danish)
  40. ^ http://img.borsen.dk/img/cms/cmsmedia/426_content_2_6034.pdf
  41. ^ http://img.borsen.dk/img/cms/cmsmedia/693_content_2_2076.pdf
  42. ^ http://img.borsen.dk/img/cms/cmsmedia/857_content_2_3900.pdf
  43. ^ http://img.borsen.dk/img/cms/cmsmedia/372_content_2_355.pdf
  44. ^ http://img.borsen.dk/img/cms/cmsmedia/877_content_2_2936.pdf
  45. ^ http://img.borsen.dk/img/cms/cmsmedia/881_content_2_8045.pdf
  46. ^ http://img.borsen.dk/img/cms/cmsmedia/962_content_2_7125.pdf
  47. ^ http://img.borsen.dk/img/cms/cmsmedia/964_content_2_4340.pdf
  48. ^ http://img.borsen.dk/img/cms/cmsmedia/970_content_2_8243.pdf
  49. ^ http://img.borsen.dk/img/cms/cmsmedia/981_content_2_8009.pdf
  50. ^ http://www.fyens.dk/article/1599936:Indland-Fyn--Danskere-tvivler-paa-euro-efter-graesk-krise
  51. ^ http://img.borsen.dk/img/cms/cmsmedia/980_content_2_8134.pdf
  52. ^ http://www.jv.dk/artikel/961205:Indland--Voksende-modstand-mod-at-indfoere-euroen
  53. ^ http://www.borsen.dk
  54. ^ http://www.borsen.dk
  55. ^ http://www.borsen.dk
  56. ^ http://www.borsen.dk
  57. ^ http://www.borsen.dk
  58. ^ http://www.borsen.dk
  59. ^ http://www.borsen.dk
  60. ^ http://www.borsen.dk
  61. ^ http://www.borsen.dk
  62. ^ [7]
  63. ^ [8]
  64. ^ Parliament of Denmark, 2006-2007 session, law no. 42
  65. ^ Folketingets EU-oplysning - Illustration af danske euromønter (Danish)

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