Thursday, 3 March 2011
Denmark may join the euro before the summer
All EU countries are required to join the euro eventually, but Denmark and the UK have an opt-out from this requirement. But, as is the case with so many EU opt-outs, Denmark is actually a pseudo-member of the eurozone. Because Denmark is in the European Exchange Rate Mechanism, its currency is pegged to the euro. So essentially, Denmark is already on the euro, it just uses different pieces of paper. But because it doesn't technically use the euro, it can't take part in eurozone decisions. And now that Angela Merkel and Nicolas Sarkozy are pushing for the creation of Eurozone decision-making body, the situation has become quite undesirable for Denmark. It will be affected by the decisions made in this new body, but it won't be able to join it. And that is why, despite the eurozone trouble, this might be exactly the right time for Denmark to join the euro.
Politiken, after the meeting Rasmussen said the current situation of Denmark would limit its ability to participate in the special Eurozone member-only pact being formed now by Merkel and Sarkozy. He told the paper that he is considering calling a snap referendum on the euro before the summer, so that the result would be in before the Eurozone decision-making pact is created at the June summit of EU leaders. That way Denmark could join the pact right from its inception. He added that with Denmark taking over the EU rotating presidency next year, now is the perfect time to hold such a referendum.
According to Politiken, Rasmussen is in fact considering having a "big bang" referendum on all of Denmark's EU opt-outs: justice, defence and the euro. Many in Danish government see these opt-outs as having caused more problems for Denmark over the years than advantages, and polls show a large part of the public agrees. Right now polls show that 45% of Danes would vote 'yes' in a referendum to end all three opt-outs, 43% would vote 'no', and 12% are undecided.
The trick will be convincing those undecided voters, and trying to overcome all of the negative news about the european currency they've been hearing. The average Danish person may not understand that even though the country isn't technically on the euro, it effectively uses the currency anyway. And trying to explain the idea that Denmark needs to be represented on this new Eurozone decision-making body - one that was created in response to a euro crisis - may be a tough sell.
I would venture to guess that if Denmark did indeed say 'yes' to the euro in a referendum in the next few months it would be a big shot in the arm for confidence in the single currency. For one thing, it would remind people that this is still a strong currency for the moment and countries are still keen to start using it. Estonia became the newest country to start using the Euro in January
Schengen Zone it can't fully participate in the common justice and border security aspects of Schengen.
This lesson could apply to the non-EU countries of Western Europe as well, which as I've written about before are effectively pseudo-EU members. By not joining the EU while at the same time being in the common market, Norway, Switzerland and Iceland are being governed by institutions in which they have no representation. Not joining the EU might give their citizens a sense of autonomy, but this is largely illusory. The same could be said for Denmark's refusal to adopt the euro even though the kroner has become a sort of pseudo-euro. In the end, it's better to go all in than to adopt half-measures.