Denmark contemplates switch to euro

March 01, 2011

Danish officials are not excluding the possibility of holding a new referendum on entering the Eurozone. Ten years ago the Danish were the first in the EU to say "No" to the common currency. But now Copenhagen is certain that it is worth "revising the current state of affairs in terms of the euro."

The Danish authorities are not eliminating the option of switching from the national currency to the euro. Lars Loekke Rasmussen, Prime Minister of Denmark, raised the issue of the Scandinavian state's transition to the common currency in a recent Parliamentary address.

"Prospects of closer cooperation between European states prompt us to revisit the idea of holding a referendum (on introducing the euro)," the Head of State said.

"We are not living in a eurocountry in the full sense of the word, even though our national currency is tied to the euro," Mr. Loekke Rasmussen said commenting on the Competitiveness pact proposed by Germany and France establishing common economic standards for Eurozone countries.

"There are exceptions. But now we can see new frameworks for cooperation with the Eurozone countries that are growing wider and deeperеr, and could lead us to revise our position on the euro," the Danish Politiken quotes the PM as saying.

At the same time, Loekke Rasmussen noted that the Government hasn't passed any resolutions regarding the euro. All changes to the monetary policy shall call for a referendum in the country, he assured.

"Even if Denmark does decide to enter the Eurozone, it will not happen in the short or even the mid-term," says Alexandre Osin, Chief Economist for Finam Management. "Denmark's strong economy would make it a donor country within the Eurozone, meaning that it would have to sponsor the weaker economies," he told EUROMAG.

"On the other hand, in the long term, entering the Eurozone could be beneficial, opening opportunities for cheaper loans and expanding sales markets," the expert added. Strong countries are forced to sponsor the weak ones to support their own exports, he says. "It's like in Russia where the Federal budget is supporting regional budgets to maintain consumption levels. The same in Europe: Germany's economy, for instance, won't grow if it can't sell its products. In this sense, the Danish have a choice: they can either live comfortably today, withholding from bailing out Greece or Ireland, or they can expand sales markets to further stimulate the growth of their own production," Alexandre Osin explains.

"But there is no doubt that right now the Danish would say no in a referendum. That's why I think that Denmark's entering the Eurozone lies in the long term," he said.

Maxim Tishin, Leading Portfolio Manager with UFG Asset Management, thinks that Denmark's entering the Eurozone will not have a significant impact on the euro rate. He reminded that from 1999 the Danish krone is pegged to the euro at a stable 7.46 krones per euro. "As a rule, the policy of the Danish Central Bank has been consistent with the decisions of the European Central Bank. Therefore the consequences of adopting the euro will be more of a formality," he said in an interview to EUROMAG.

"Denmark's GDP is only 1.9% of the Eurozone's total GDP, and in terms of the budget deficit and state indebtedness Denmark is in line with the other strong states in the zone, that's why it won't have a significant economic impact on the Eurozone," he added.

Ten years ago Denmark became the first EU country whose citizens rejected the adoption of the common currency in a referendum. In the 2000 vote 53.2% were against, and 46.8% were for. Therefore the country's currency is still the Danish krone, introduced back in 1873. Of the old EU members at the time, Great Britain and Switzerland also rejected adopting the euro. However, a survey conducted among Danish citizens in 2007 revealed that 52% of the country's inhabitants were no longer against switching to the euro. 32% said a definite “no” to the euro three years ago, while 9% were undecided.

The Eurozone currently unites 17 states, with the last member - Estonia - switching to the euro from January 1 this year. Before the crisis hit, the new EU countries (admitted in 2004 and 2007) were actively trying to enter the Eurozone with only Cyprus, Malta, Slovakia and Slovenia succeeding in doing so.

Now because of the crisis many analysts are not excluding the possibility of Eurozone's fall. For instance, EUROMAG has already reported that in mid-November Luis Amado, Portugal's Foreign Affairs Minister, did not exclude the possibility of his country exiting the Eurozone.  Just a month later a similar statement was made by the Slovak Parliament speaker Richard Sulik.

Kirill Komarov