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Thursday, May 13, 2010

Denmark and the euro

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. However, a referendum on the introduction of the euro is planned before the next national election, due in 2011.
Denmark borders one eurozone member, Germany, and one EU member that is obliged (de jure) to adopt the euro in the future, Sweden.


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 .
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 (July 2009) 0.7% -3.6% 4 30.0% joined ERM II on 1 January 1999 4.42%
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 [2]. 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 . This band, ±2.25%, is narrower than for most ERM II members ±15%. However, the exchange rate has kept within 0.5% of the defined rate, even less than the set limits.


Early monetary unions in Denmark (1873-1914)

Some Danish receipts state prices in euros as well as kroner
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. But the name of the currencies in each country remained unchanged.

Pre-eurozone documents (1992-1995)
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.
[edit]First euro referendum (2000)
Main article: Danish 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.

Usage today

At Copenhagen Airport prices are shown in both kroner and euros
A large number of shops, hotels and restaurants in Denmark accept the euro. This phenomenon is especially noticeable in Copenhagen.
Double DKK-EUR prices are used on all ferries going between Denmark and Germany. International airports in Denmark also use double prices.
[edit]Future euro referendum (no later than autumn 2011)
Wikinews has related news: Danish PM pushes for new referendum on euro
Further information: Danish European Union opt-outs 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. It remains unclear if people will vote on each exemption separately, or if people will vote on all of them together.Fogh Rasmussen also said he would seek a "noticeable reduction of income taxes" and improved conditions for asylum-seekers in Denmark as he presented the government's platform for the next four years.
Denmark was expected to vote on whether to join the euro in 2008 according to Anders Fogh Rasmussen's statement. It was thought this would occur in the autumn, but due to the result of the Irish Lisbon referendum, the debate may be postponed.
There has been some speculation that the result of the Danish referendum will affect the Swedish debate on the euro.
Due to the economic crisis of 2008, Anders Fogh Rasmussen expressed that Denmark is at a disadvantage being outside the eurozone. He also confirmed that a referendum on joining the eurozone will be held before the next parliamentary elections; all indications are that his successor, former Finance Minister Lars Løkke Rasmussen, will continue Fogh Rasmussen's policies. His idea of Denmark joining the eurozone was supported by Peter Straarup, general manager of Denmark's biggest commercial bank, Danske Bank.
On May 13, 2009, Danish PM Lars Løkke Rasmussen confirmed a referendum on the euro will be held before the next general elections (due in 2011). At the same point, he said that Denmark was already using the euro (because of the currency peg); only they have decided to call it "danske kroner". On October 30, 2009, he repeated this pledge, saying "The euro ensures political and economical stability in Europe and the current financial turmoil makes it evident that Denmark has to join the euro.". A referendum before the next elections seemed however less likely due to a high level in budget deficit.

Consequences of a euro adoption

If Denmark were to adopt the euro, the monetary policy would be transferred from the Danmarks Nationalbank to the ECB. 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 ECB". As a consequence the Danish monetary policy is in practice already set by the decisions of the ECB. However, Denmark does not have any representation in the ECB 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".Furthermore the ECB 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 a 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. 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.


Euroopinion in Denmark since August 2006 by Børsen.
blue - support of adopting the euro
red - against adopting the euro
green - 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
March 2007 56% 39% 5% 910 persons Greens Analyseinstitut published in Børsen
April 2007 53% 40% 7% 910 persons Greens Analyseinstitut published in Børsen
November 2007 54% 42% 4% Unknown Greens Analyseinstitut published in Børsen
26 November 2007 52% 39% 9% 1016 Danish adults Vilstrup Synovate published in Politiken
April 2008 55% 38% 7% 1009 Danish adults Greens Analyseinstitut published in Børsen
5 – 7 May 2008 54% 42% 4% 1009 Danish adults Greens Analyseinstitut published in Børsen
middle of June 2008 40% 48% 12% 1036 Danish Capacent Epinions
29 September – 1 October 2008 52% 44% 4% 1050 Danish adults Greens Analyseinstitut published in Børsen [26]
3 – 5 November 2008 54% 38% 8% 1098 Danish adults Greens Analyseinstitut published in Børsen
December 2008 54% 40% 6% >1000 Danish adults Greens Analyseinstitut published in Børsen
5 – 7 January 2009 56% 38% 4% 1307 Danish adults Greens Analyseinstitut published in Børsen
2 – 4 February 2009 57% 39% 4% 1124 Danish adults Greens Analyseinstitut published in Børsen
11 February 2009 42% 42% 16% Unknown Gallup Poll in Berlingske Tidende
2 – 4 March 2009 52% 38% 10% 1085 Danish adults Greens Analyseinstitut published in Børsen
30 March – 1 April 2009 51% 42% 7% 1007 Danish adults Greens Analyseinstitut published in Børsen
27 – 29 April 2009 52% 40% 8% 1178 Danish adults Greens Analyseinstitut published in Børsen
13 May 2009 43,7% 45,2% 11,1% Unknown Rambøll
25 – 27 May 2009 51% 42% 7% 951 Danish adults Greens Analyseinstitut published in Børsen
September 2009 50% 43% 7% 951 Danish adults Greens Analyseinstitut published in Børsen
October 2009 50% 43% 7% 1081 Danish adults Greens Analyseinstitut published in Børsen
2 – 4 November 2009 54% 41% 5% 1158 Danish adults Greens Analyseinstitut published in Børsen
30 November – 2 December 2009 50% 40% 10% 1001 Danish adults Greens Analyseinstitut published in Børsen
2 January – 4 January 2010 51% 42% 7% 1162 Danish adults Greens Analyseinstitut published in Børsen
1 February – 3 February 2010 49% 45% 6% 1241 Danish adults Greens Analyseinstitut published in Børsen
1 March – 3 March 2010 48% 46% 6% 552 Danish adults Greens Analyseinstitut published in Børsen
12 April – 14 April 2010 52% 41% 7% 988 Danish adults Greens Analyseinstitut published in Børsen
11 May - 13 May 2010 45% 43.2% 11.2% 1002 Danish adults Catinét Ritzau published in Fyens
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?").

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 plans to introduce the Greenlandic krone, a system similar to that of the Faroese one. 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 referendums.

Possible euro coin design

Before Denmark's 2000 referendum on the issue, Danmarks Nationalbank and the Royal Mint was asked by the Ministry of Economics to propose designs for the future Danish euro coins. The suggested design was based on the designs of the Danish 10 and 20 kroner, with Queen Margrethe II on the front, and the 25 and 50 øre, switching their back motif (a crown) to the front of the euro coins.
The design was merely meant as a possible suggestion, and since the referendum rejected the introduction of the euro, it is not clear if Denmark will use it, should the euro be adopted.

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