European Affairs

Summer 2000

 

The Euro: The Doubting Danes Are at It Again
by Helle Bering

Was Shakespeare aware how close he came to the national stereotype when he created Hamlet, the indecisive Dane? In the coming weeks, the doubting Danes will be at it again, weighing the pros and cons in yet another agonizing European debate, this time over whether to adopt the European single currency, the euro. On questions European, the Danes have been positively schizophrenic ever since joining what was then the European Community with a paper-thin majority in 1973.

In setting September 28 as the date for a referendum on the euro, Prime Minister Poul Nyrup Rasmussen may be considered very brave or very fool-hardy. Defeat would be monumentally embarrassing for his Social Democratic government.

Still, the Danes may surprise everyone again, this time by establishing in the course of the euro campaign the principle that a member can withdraw from the euro zone by the same means as joining it, i.e. a national referendum. That would certainly mark a major departure from the original conception of the common currency.

In an interview with European Affairs, Mr. Nyrup Rasmussen explained why he had called for a national vote. "The crucial factor was that a new four-year agreement between employers and labor unions had just been completed," he said. "So there will be a period of peace and stability on the labor front. In addition, Denmark has had seven years of solid economic growth."

"Secondly, the common currency involves 11 countries that are of vital importance for Denmark. The euro is a reality that we must deal with. And thirdly, there really is nothing to be gained from postponing the referendum. We can afford to have this debate now."

If Denmark votes Yes, euros could be circulating in Danish stores within two and a half years, one year after the rest of the euro zone, which is due to introduce euro notes and coins in the first half of 2002.

If the vote is No, the Government will have a problem on its hands. Denmark would maintain its exchange rate link with the Deutsche Mark, and thus with the euro, the Prime Minister said, "but we may have to run a tighter monetary policy to calm the financial markets." In any event, the government is not planning to resign. "We will not abandon the field," Mr. Nyrup Rasmussen said. "We will try to save what can be saved."

As 2002 draws nearer, all four EU members that did not join the euro when it was officially launched at the beginning of 1999 have been examining their options. Three countries - Britain, Denmark and Sweden - declined to join, while Greece failed to meet the economic entry criteria. Greece, however, was declared fit to join this spring, to the infinite delight of the Greeks.

As the first of the three nay-sayers to vote on the issue, the Danes are being watched with great interest in other European capitals. The British Labour government of Prime Minister Tony Blair has promised a referendum. But Mr. Blair, who expertly keeps his finger on the pulse of public opinion, has not yet dared to put the question to the British public, which opposed the euro by 69 percent in one recent poll.

The Blair government says the referendum will happen after the next election, which need not be held until 2002, but is more likely to take place next year. In an apparent reversal of the Opposition Conservative Party's previously adamant, though chaotic, hostility to the euro, Michael Portillo, the Shadow Chan-cellor of the Exchequer, has pledged to stick with the currency, should his party come to power after Britain has joined.

The fact that the BBC, in May, actually covered the annual meeting of the executive committee of the Danish Social Democrats, which broadly endorsed the euro, says something about the significance attached in Britain to the Danish vote. The annual Social Democratic congress in Odense is hardly the stuff that international news is made of under other circumstances.

Sweden seems likely to adopt the euro in the longer-term, but caution abounds. Unlike Denmark, Sweden, one of the newest EU members, did not seek a formal opt-out from the euro. But there remain strong feelings in favor of keeping the Swedish krona independent: monetary policy is still perceived in Sweden as a crucial tool in labor and social policy.

In opinion polls, the Swedes are about one third in favor, one third against and one third undecided. Still, there is awareness of the vulnerability of a small currency in today' s markets. The experience of 1992, when the Swedish currency crashed along side the pound under pressure from currency speculators - after the Government had vainly hoisted interest rates to 500 percent overnight - continues to smart painfully.

What's more, Sweden is due to take over the EU presidency next January, and the Social Democratic government of Goeran Persson would like some positive indicators before then. It is expected that a referendum may take place after the 2002 parliamentary election, paving the way for Swedish entry into the euro zone by 2004.

Perched between Scan-dinavia and the European continent, Denmark has long hesitated to jump aboard the European train. It waited 15 years to join the European Community, and then did so less out of enthusiasm for the European cause than because it had little choice but to follow Britain, its largest agricultural market.

But for more than 20 years, Denmark was the only Scandinavian EU member. Norway has twice rejected membership in national referendums, and Sweden and Finland only joined in the mid-1990s.

When it came to the big step in European integration after the fall of the Iron Curtain, the Maastricht Treaty on European Union, Danes once again dug in their heels. In 1992, they voted narrowly against Maastricht, sending the entire EU into a tailspin of momentary doubts about European integration, and winning considerable accolades among euroskeptics in Britain and elsewhere.

As Danish Foreign Minister Uffe Ellemann-Jensen quipped after the Danish victory in the European soccer championship that year, "If you can't join them, beat them." It was cold comfort for his government though, which proceeded to negotiate opt-out clauses to four of the treaty's provisions, and then put it to the people again the following year. This time, the Danes, who had rather surprised themselves by taking such a bold stance, came up with a thin margin for a Yes - to everybody's tremendous relief.

Perspectives on European integration depend on your vantage point, and the Danish one is that of a small nation eager to reap the indisputable economic advantages of membership, yet always afraid of the loss of sovereign decision-making power in a wider, more integrated Europe. Such fears have played an important part in the Danish euro campaign.

In a sense there is little new here. The arguments bear a strong resemblance to those heard in previous referendums, and periodically in-between, from foes and friends of the EU. What is new, perhaps, is the configuration of supporters and opponents: Conservatives and moderates, the EU's traditional supporters, have grown less enthusiastic.

On the other hand, the governing Social Democrats, and with them the labor unions, have become the strongest proponents of the euro. According to the national organization of labor unions, 35,000 Danish jobs would be lost if the Danes vote No. This is a reversal of the old political alignments, following a pattern similar to that of Britain - though not of Sweden, where most opposition to the euro comes from the Left.

A newer element is the power of the nationalist, anti-immigrant far right, which is adamantly set against any closer ties with Europe or opening the doors wider to foreigners. At least on the EU issue, the far-right Danish People's Party, led by Pia Kjaersgaard, has been joined by the far-left Enhedsliste, an alliance of small far-left parties, which considers the EU to be a capitalist plot.

For this coalition, the euro is part of a sinister design to destroy Danish culture and national identity, a positively "un-Danish" phenomenon - which is about the worst insult you can fling at an opponent.

With such powerful emotions in play, the campaign is being described as the harshest in human memory. Even the phrasing of the referendum question has been contested. "Are you in favor of the European currency?" is considered by opponents to be deliberately vague and possibly even misleading.

Unrelated directly to the euro, but nevertheless particularly disturbing to citizens of the small Danish nation (just 5 million when everybody is home) was the condemnation of Austria when Joerg Haider's far-right Freedom Party joined the country's governing coalition earlier this year.

Even though the 14 other member governments acted outside the EU's official framework and suspended only bilateral relations with Vienna, the action was widely seen as the EU ganging up on a small member country. Few Danes (albeit a growing number due to anti-immigrant sentiments) would sympathize with Haider's views. But it is also true that few supported their government's public condemnation of the Austrians.

The action by the 14 governments made a burning issue out of the question of how a small nation can preserve its independence from its more powerful neighbors. Although the Austrian issue had no direct bearing on the euro, it inevitably became part of the referendum debate.

Of lesser importance, curiously, has been the decline of the euro against the dollar. The Danish currency's peg to the Deutsche Mark means that the monetary independence held so dear by opponents is somewhat of an illusion - to the point where rate hikes by the European Central Bank are followed within minutes by the National Bank in Copenhagen.

A report issued in May by the Danish council of economic advisers, popularly known as the Wise Men, actually said that the difference between joining the EMU and not joining was negligible for the Danish economy.

Mr. Nyrup Rasmussen disagrees. "What this report did not look at is what will happen in a period of economic downturn or in another global financial crisis, like the one we recently witnessed. As far as I know, there is no guarantee against another one down the road. If we are within the EMU, we are far better protected," he said.

The argument by euro advocates is that given the existing link to the currency, the Danes might as well have a seat at the table where decisions are made. This carries much weight, particularly in view of the greater degree of policy coordination by the Euro-11 that is being pushed by French Finance Minister Laurent Fabius and his Belgian counterpart Didier Reynders.

French talk of the need for an "economic government" for the euro zone has caused fears of exclusion from important decisions among non-euro countries, and Denmark could join these meetings by 2001 if the vote is Yes. Meanwhile the European Commission and the ECB itself now issue recommendations to EU countries on tax cuts and costly welfare policies, criticizing the Danish government in April for increasing domestic spending too fast.

That did not go down too well in independent-minded Co-penhagen. But realists argue that the influence of small countries over European decisions must inevitably decline as both the euro zone and the EU itself grow larger in the years ahead.

As the vote in Denmark draws closer, the opinion polls remain as divided as ever. The last thing the Danes need, however, is advice from abroad. It will be recalled that during the debate over the Maastricht Treaty, the then President of the Commission, Jacques Delors, managed to send the Yes campaign plummeting in the polls by appearing on Danish television and urging a vote in favor. This was immediately taken to be a huge national affront and foreign meddling.

No doubt recalling this unfortunate incident, Danish Economics Minister Marianne Jelved has begged members of the European Parliament to keep their views to themselves, please. Apparently she forgot to tell Romano Prodi, current Commission President, who informed a Danish delegation that once in the EMU, there is no way back.

"By definition, it is a permanent decision," he stated at a press conference in Copenhagen in May. The outcry was immediate, and the government leapt into action.

"I have maintained that Denmark is a sovereign state, based on its constitutional foundation," Mr. Nyrup Rasmussen said.

"That is also true in relation to the euro. Both according to constitutional law and international law, Denmark has the right to vote to leave the currency union. Mr. Prodi has later said that he agrees with this principle, and so has the current Portuguese presidency of the EU."

There is no provision in the EU treaties for leaving the euro, or, for that matter, for seceding from the EU itself. Mr. Prodi's comments have not been entirely consistent. He has also insisted that leaving the euro would only be a theoretical possibility in "extreme" circumstances.

Whether this is enough to turn the Danish vote in favor of the euro remains to be seen. But the Danes will certainly have left their mark on the future of European integration if it turns out that they have somehow managed to create an option for leaving the euro where none existed before.