Denmark wants in on the Euro

Danish Prime Minister Fogh Rasmussen is preparing Denmark for admission to the Eurozone.  Despite my skepticism about the Euro as a currency, I would say that Denmark is a perfect candidate for entry.  The Danish economy is already very well harmonized with “core” Europe of France and Germany. Their business cycle, monetary policy, political economy, and per capita GDP are all similar to France and Germany.

Below is my translation of part of a German-language article from Financial Times Deutschland which discusses the upcoming referendum in Denmark for joining the Euro in which Fogh Rasmussen makes some interesting contrasts between Denmark and the UK.

The Danish Prime Minister Anders Fogh Rasmussen is moving aggressively toward an early referendum on Denmark’s accession to the Eurozone. The financial crisis demonstrates the problems of a small currency, says Rasmussen.

“I think it would stabilize the Danish economy in times of crisis, if we had the Euro. I have no doubt about that,” Rasmussen said in a newspaper interview. However he did not offer a specific timetable.

Unlike the much-discussed entry of Britain, the entry of Demnmark into the Eurozone would not be a burden on currency stability. The EU Commission has said that Denmark is currently the only country that could join the Euro in a very short period .

On Thursday, the Danish parliament began a debate about the euro, during which EU Monetary Affairs Commissioner Joaquin Almunia praised the benefits of the Euro. Unlike in 2000, when the Danes rejected the euro in a referendum, there prevails today in the major parties general agreement that candidacy is overdue. However, the Danish People’s Party DF, on which the liberal-conservative minority government is based, is EU-sceptical. The leftist Party SF rejects the single currency as well….

As a main argument for the Euro, Rasmussen points to the interest rate policy of the Danish central bank as compared to the ECB. “In order to stimulate the economy, currently the interest rates should be reduced, but in order to protect the currency, one is forced to raise interest rates. That’s a paradox,” Rasmussen told the newspaper “Politiken”. In recent months, Danish interest rates were significantly higher than in the euro zone — at times, the difference was 1.75 percent points. At present, it is about one percent.

The national currency, the Danish Krone, is already linked to the common currency. Compared to the British Pound or the Swedish Krona, it has not fallen as much in recent months. “My conclusion is that Denmark should be there at the heart of Europe. That’s were we belong,” said Rasmussen. “I believe that in the Danish population there is strong agreement.”

Other Eurozone members which are well-placed as members of the Euro include the Benelux countries and Austria.  Sweden is another country which would be an appropriate addition to the Eurozone.  On the other hand, poor macro fundamentals make Greece, Portugal and Italy a burden on the Eurozone.  Unsynchronized business cycles in Ireland, the UK and Spain make these three countries equally problematic for the Eurozone.

Ultimately, the Euro does have benefits for small countries. It reduces overhead from foreign exchange, it increases markets for financial assets and it protects against currency attacks. If any country outside the Eurozone is well-placed for entry, it is Denmark.  Anyone following developments in the European political economy should watch what happens here.  It will be instructive for future events elsewhere.

Note: I failed to mention that Denmark has rejected the Euro once and current opinion polls suggest they would do so again now despite the Prime Minister’s claims to the contrary.

Source Dänemark mobilisiert für den Euro – Financial Times Deutschland

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Originally published at Credit Writedowns and reproduced here with the author’s permission.

One Response to "Denmark wants in on the Euro"

  1. Sage99   January 25, 2009 at 4:43 am

    I live in England and I well remember the fuss over decimalisation, the cries of fury, the defiance, the threats of bloody revolution to protect our currency, our country, our freeeedommm!!But who care now? Anyone who suggests that we convert our present currency to one of pounds, shillings, pence, and farthings, with four farthings to a penny, twelve pennies to a shilling, and twenty shillings to a pound, would attract derision, and would get little support. Apart from anything else, this would be completely beyond our modern educated youth (and their teachers) to cope with.What we call our unit of currency doesn’t matter at all. What does matter is whether or not it is stable and holds it’s value. The Euro is far more stable and reliable, as the latest devaluation of the old pound has just proven.There are no practical or sensible reasons why we should not have the Euro, as the wild assertions and inaccurate claims of other comments prove. But there are real reasons why we should seek the stability, convenience and power of the wide spread Euro.The pound just is not soundit is the Euro which is the hero!Sage99