Denmark as a country in Europe with a population around 5.8 million people and with a GDP per capita of more than 60 thousand dollars. Since 1973, Denmark has been a part European Union, which at that time was called the “European Community.” Despite being a part of EU, Denmark is not a part of Eurozone, and it looks like Denmark won’t be joining any time soon.
The Voters Say No
According to the public opinion surveys in the European Union (research held in Spring 2018) only 29% of Danish responders were in favor of accepting the Euro as potential National currency. EU-wide, this number was 61%. The vast majority — 65 percent — of Danish responders were against monetary union. EU-wide, this number was 32 percent. The only area where the Danish are in line with European average is the 6% of respondents that do not have opinion on that topic.1
Moreover, in Danish modern history two referendums have taken place in regards to Euro implementation. The first referendum was held in June 2, 1992 and was a “proxy referendum.” The vote was for or against ratification of the Maastricht Treaty, which established the Economic and Monetary Union of the European Union. The idea of the Maastricht Treaty was minimally rejected by Danish voters — 50.7 percent of the voters were against while 49.3 percent where in favor. The rejected referendum had impacted further negotiations, leading to the Danish-government negotiating limitations on EU mandatesknown as the Danish Opt-outs. One of these opt-outs was the decision to not adopt the europ. In 2000, Danish voters voted on whether or not the country should join the euro zone or stay with its national currency the Danish krone. The measure was rejected by 53.2 percent of voters.
Why There is Opposition
One advantage to joiuning the euro zone would be a decrease of the interests rates on Danish government bonds, despite the fact that since 2014, the interest rate of 10 years government bond is below 1%. (Denmark’s government bonds are rated with rating AAA with stable outlook.)
On the other hand, a disadvantage of adopting the euro — as the voters see it — would be a loss of domestic control over monetary policy. However, under current policy, the independence of the Danish krone is only an illusion. Since 1982 ,the currency of Denmark has had fixed exchange rate with the German mark. When the mark was changed to the euro, the Danish central bank joined the ERM II (European Exchange Rate Mechanism). This mechanism fixes the currency exchange rate at 1 euro to 7.460 Danish krone with the possibility of fluctuation of 2.25 percent. Naturally, this limits the independence of the Danish central bank. Each deviation above or below 2.25 percent triggers intervention by the Danish Central Bank.
By the standards of the EU itself, Denmark is more than qualified to join the euro zone. All the criteria have been met, including the inflation rate, the size of the budget deficit, the Debt-to-GDP ratio, and more. But it looks like the Danish voters are not yet prepared to hand over control of monetary policy to the EU’s central bankers.
Further reading:
- “Danish Central Bank Stumbles with Its Currency Peg to the Euro“ by Uffe Merrild.
- “Whither the Euro?“ by Hans Sennholz
- The Tragedy of the Euro by Philipp Bagus
- 1“Standard Eurobarometer” Spring 2018, European Commission
