In These New Times

A new paradigm for a post-imperial world

Danes Warm to Euro amid Financial Crisis

Posted by seumasach on November 3, 2008

Businees Week

3rd November, 2008

The financial crisis “makes it evident” that Denmark needs to join the euro, Danish Prime Minister Anders Fogh Rasmussen said on Thursday (30 October), while recent polls show that 50 percent of Danes are now in favour of scrapping the krone.

“The euro ensures political and economical stability in Europe and the current financial turmoil makes it evident that Denmark has to join the Euro,” Mr Rasmussen said at the European Liberal Democrats annual conference in Stockholm.

Due to the financial crisis, Denmark’s national bank had to intervene in the foreign-exchange market to support the krone, which is closely pegged to the euro, and to drive up interests rates to 5.5 percent, a historical high that translates into considerably higher mortgages and credits for Danish citizens.

Mr Rasmussen said that a referendum to switch to the euro could be held in 2011. Initially the Prime Minister was planning to organise a referendum this autumn, but the Irish No vote on the Lisbon treaty boosted the euroscepticism in the country, FAZ reports.

Danish voters already rejected several times the switch to euro. In 1992, they voted no to the Maastricht treaty which was only passed with an opt-out for euro-adoption. A referendum in 2000 on adopting the single currency was also lost by 53.2 percent to 46.8 percent.

Yet a recent poll showed that a slim majority of 50.1 percent of the Danes were now in favour of the euro.

The financial crisis may yet see Iceland join the EU itself to seek shelter. But Denmark’s neighbouring country Sweden, who also rejected the euro in a 2003 referendum faces similar currency problems, has no plans to re-run the vote for some years from now, foreign minister Carl Bildt said earlier this month.

The euro debate has also heated up in eastern Europe. In Poland, President Lech Kaczynski at first supported government plans to shoot for euro adoption by 2012, but later appeared to change his mind.

“I have serious doubts. We have to think of those who have no savings and for whom the price rises linked to euro adoption could take away 10 percent or more of their income,” he said on Thursday, Gazeta Wyborcza reports.

The Kaczynski-friendly head of the Polish Central Bank, Slawomir Skrzypek, also said the 2012 date may be too ambitious, with his remarks causing the zloty to dip against the euro in trading.

Business leaders in the Czech Republic have also called for swift entry, but the message was quashed by the country’s central bank chief Zdenek Tuma on Thursday, who said the financial crisis is not a good time for policy-making.

“At a time when the waters are stormy, even a good swimmer will not take a dive. For me, no decision should be made now,” Tuma said, AFP reports. “We will know better next year.”

Conditions to join the euro are tough, with countries being required to have inflation and budget deficits at sustainable low levels, something many eastern European countries are failing in due to unreformed public finances and soaring budget deficits.

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