denmark euro 20150111

Critically discuss whether Denmark

should adopt the euro as its currency or not

Attila Németh 02/01/2015

Source of picture: http://us.123rf.com/ginasanders130600177/19987641-danish-crowns-currency-from-denmark-in-europe-and-euro-banknotes-money.jpg

• Denmark traditions and money• Kingdom of Denmark and EU

• Euro zone• Euro zone in 2014

• Maastricht Treaty• Denmark fulfilled criteria• Crises of euro

• Effects of joining EMU • Administrative requirements

• National interests• Common interests

• Conclusion• References

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Content

Denmark …

• Denmark is a traditionally conscious country.• The oldest Danish coins are the so-called

korsmønter or "cross coins" minted by Harald Bluetooth in the late 10th century.

• For almost 1,000 years, Danish kings – with a few exceptions – have issued coins with their name, monogram and/or portrait.

• In 1619 a new currency was introduced in Denmark, the krone.

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Denmark …

• The 'Bridge' banknotes was initiated in 2006 by the Danish National Bank

• Danish people use nicknames for some banknotes• The 100-krone note sometimes referred to as a hund (dog)

shortening the word hundrede (a hundred). • The 500-krone note can be referred to as a plovmand

(ploughman) because previous circulations of the note featured a picture of a man with a plough.

• The 1000-krone note, too, can be referred to as a tudse (toad) taken from a wordplay on the word tusinde meaning a thousand.

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Kingdom of Denmark and EU…• Denmark has not introduced the euro, following a

rejection by referendum in 2000.• The Danish krone is pegged closely to the euro in

ERM II, the EU's exchange rate mechanism. • The Faroe Islands uses a localized, non-independent version of the Danish

krone, known as the Faroese króna pegged with the Danish krone at par, using the Danish coin series, but have their own series of distinct banknotes, first being issued in the 1950s and later modernized in the 1970s and the 2000s.

• Greenland adopted the Act on Banknotes in Greenland in 2006 with a view to introducing separate Greenlandic banknotes. The Act entered into force on 1 June 2007. In the autumn of 2010, a new Greenlandic government indicated that it did not wish to introduce separate Greenlandic bank notes and Danmarks National bank ceased the project to develop a Greenlandic series. Still, Greenland continues to use Danish kroner as sole official currency. Historically, Greenland under the colonial administration issued distinct banknotes between 1803 and 1968, together with coins between 1926 and 1964

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Euro zone• 1995, Madrid Summit, decision the name of the single currency. • The euro was introduced on 1st of January 1999.• 11 out of 15 Members of the EU joined to euro zone.• In 2000, decisive referendum was held in the introduction of the

euro in Denmark (with turnout of 86%), and the majority (53.1%) rejected the single currency.

• 1st of January 2002, euro coins and banknotes entered into the circulation.

• Denmark merely entered into the European Exchange Rate Mechanism II (ERM II) and fixed the exchange rate of krone, it may fluctuate within a 2.25% band on either side of the euro.

• Denmark enjoy dispensation under Maastricht Treaty, and opt-out from the obligation to adopt euro.

• Denmark is considering to hold another referendum on the issue.

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Euro zone in 2014

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Table 1 : Euro zone

Participation in the Euro zone: EU member states participating EU member states in ERMII obliged to join EU member states not in ERMII but obliged to join EU member states in ERMII with an opt-out EU member states not in ERMII with an opt-out Non-EU member states using the euro with a monetary agreement Non-EU member states using the euro unilaterally (Commission, 2013)

note no.1: Greenland is not on the mapnote no.2.: Lithuania was joined to euro zone on 1st of January 2015

Maastricht Treaty (1992, base of monetary union)

• Stability of the single currency, strict convergence criteria:• Inflation can be higher up to 1.5% than the average of

the three lowest rates of the Member States.• The long-term government bond interest rate should

not exceed 2 percentage points more than the State of the three lowest interest rates.

• The annual budget deficit should not exceed 3% of GDP.

• The debt can’t be more than 60% of GDP.8

Denmark fulfilled criteriaConvergence criteria

Assessment month Country HICP inflation

rate

Excessive deficit procedure Exchange rate

Long-term interest rate

Compatibility of legislationBudget

deficit to GDP

Debt-to-GDP ratio

ERM II member Change in rate

2012 ECB Report

Reference valuesMax. 3.1%

(as of 31 Mar 2012)

None open (as of 31 March 2012) min. 2 years

(as of 31 Mar 2012)

Max. ±15%(for 2011)

Max. 5.80%(as of 31 Mar

2012)

Yes(as of 31 Mar

2012)Max. 3.0%(Fiscal year

2011)

Max. 60%(Fiscal year

2011)

Denmark 2.7%Open 13 years, 2

months -0.4% 2.39%1.8% 46.5%

2013 ECB Report


(as of 30 Apr 2013)

None open (as of 30 Apr 2013) min. 2 years

(as of 30 Apr 2013)

Max. ±15%(for 2012)

Max. 5.5%(as of 30 Apr

2013)

Yes(as of 30 Apr


2012)


2012)

Denmark 1.8%Open 14 years, 3

months 0.1% 1.33%4.0% 45.8%

2014 ECB Report


(as of 30 Apr 2014)

None open (as of 30 Apr 2014) min. 2 years

(as of 30 Apr 2014)

Max. ±15%(for 2013)

Max. 6.2%(as of 30 Apr

2014)

Yes(as of 30 Apr


2013)


2013)

Denmark 0.4%Open (Closed in June

2014) 15 years, 3 months -0.2% 1.78%

0.8% 44.5% 9

http://en.wikipedia.org/wiki/Denmark_and_the_euro

Crisis of euroThose countries, outside the euro zone, who are used to their own currency, suffer the greatest damage. The reason is that their currency were used fewer internationally, and many bank liabilities are denominated in EUR. Because of this, euro is limited available for them. The national banks at this time need new creditors. Those small countries, where most of the obligations in some other currency is missing this kind of security. The only opportunity to draconian control the banking system or join the euro zone. Despite such difficulties occurred surround euro, and the single market constraints, Denmark, thanks to their strong economy, and that they are opt-out, has the opportunity to choose joining or not to euro zone.

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Effects of joining EMU

• According to Robert Mundell the introduction of euro has more positive effect of the member state’s economy if:• the candidate country has smaller size compared

with other EU states,• the candidate has higher state debt, than average in

EU states,• the candidate has similar economy in structure to

the EU economy,• the candidate has stronger integration aim of EU’s

economic and political structure.11

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• Strong euro may get in trouble for exporters , like Denmark, and discourage foreign investment in the euro zone, but helps importers and euro zone investments around the world.

• Currency stability issue and economic growth use to be the main argument for joining euro zone, but • Denmark is member of ERM II, so exchange rate uncertainty or lower

transactions costs are not an issue in this case. It has the same effects just as within euro zone.

• The accession might help to EU lower interest rates to stimulate investment or boost the value of savings and to support the euro position.

• Danish economy becomes more uniform using a strong currency, but it lost its independency.

Effects of joining EMU

• EU citizens are able to travel much easier within the euro zone.

• Comparability the prices of goods, sources and services, which make the people to decide easier amongst the products, and it facilitates better functioning of the single market and it supports healthy competition, and it also holds consumers benefit.

• Euro zone tolerates a more price volatility as a separate state, in addition, the influence of the euro zone continues are growing.

• Economy of Denmark based on the high-tech modern agriculture and Denmark, as an exporter, now strongly depend on foreign trade. This dependence may be reduced by they join to euro zone.

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Clear advantage of using euro for Denmark

• Difficult to protect Denmark’s special identity as an individual nation.

• The financial situation of the country is still among the most solid ones in the EU, so difficult to find economic reasons to join.

• Denmark has a highly developed economy, which allows to operate extensive welfare system, and it provides a high standard of living for the population. Possibility to loose this standard of living.

• To give up using krone, euro as the new currency must use in any circumstances. It is no way to bring back krone.

• Euro would cause damages to the national economy (export oriented) and the traditions which are attached to Danish krone.

• Krone has stable value in the mind of Danish citizens.14

Clear disadvantage of using euro for Denmark

Administrative requirements• The new entrants need to produce National Changeover Plan, which

will allow the country for the smooth conduct of the currency exchange.

• The changeover is time-consuming, diverse in nature of tasks and it is multi-player.

• It needs strict segmentation of the information and communication phases and it needs precise related definition which are coordinated by national level.

• The development of a preliminary schedules is essential. • Related to preparation for the introduction of the euro, the primary

duties and the responsibility belong to the Government.

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National interests• Due to Denmark would convert krone to euro, this transition would

affect all areas of economic and social spheres. • Considering for both the historical significance of the task, as well as

its comprehensive nature, it is not an overstatement, this is a highly determining the future of the Denmark.

• The conversion can not be implemented successfully without the citizens (as consumers in other aspect), financial institutions, commercial enterprises, parties and other economic steak holders. They need to involve to find out the specific tasks and solutions, to work out the necessary measures for the design and the implementation of the conversion.

• If Denmark says “no” to euro, it expresses the fact that the individual nationals are more important than common EU’s interests.

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Common interests• Initial steps of the practical preparations based on a comprehensive large-

scale common interests. • Denmark must hold the right to choose their own way in many areas of

introducing the euro, and EU needs to give many options to certain solutions.

• If Denmark joins the euro zone, its strong social safety net may not be weakening or the taxes might not be increasing, although EMU requires more strict administrative tasks.

• The accession might help to support the euro position. • Declining politicians popularity is strongly influence the power of the

government.• European Financial Stability Facility (EFSF) is obligatory for EMU

members, so Denmark must provide financial assistance to Ireland, Portugal and Greece.

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Conclusion• Before Denmark adopts euro, definitely have to hold a

referendum, because it must be a national decision, highlighted the reason of the traditions, which belong to Danish krone, as a national currency.

• At the moment there are too many unanswered questions, and at first, the government, the politicians and the economists need to find comforting answers to the citizens in the next couple of years, which are dispel every concerns before Denmark introduce euro, as a national currency.

• In communication perspective, the government should formulate messages and they convey clear explanations and information (facts, figures, statistics, data, knowledge) to the nationals about the future of Denmark and the sustainable high standard of living.

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Conclusion• The Danish people must be involved and validate the

introduction of euro in Denmark, before any act is happening refer to the adoption.

• To adopt euro in Denmark is good for EU and euro zone, but I’m not sure if it is good for Denmark at the moment, because of Denmark has a strong economy, and the monetary situation surround EU and euro is volatile.

• Overall, Denmark should not adopt euro at this stage of the European, and we can bravely state that, the World political, and economic situation.

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References• Atkins, R., 2007. Europeans still take a dim view of the euro. The Financial Times , 28 January. • Barre, M. R., 1969. Commission Memorandum to the Council on the co-ordination of economic policies

and monetary co-operation within the Community, Brussels: COMMISSION, SECRETARIAT OF THE - EEC.

• Commission, E., 2005. EUR-lex. [Online] • Available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1418490400715&uri=URISERV:l25079• [Accessed December 2014].• Commission, E., 2013. EUR-lex. [Online] • Available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?

qid=1418490681946&uri=URISERV:co0011#text• [Accessed December 2014].• Folketinget, 2011. The Danish Parliament and the European Union - Fact sheet, Copenhagen: s.n.• Hetland, J., 2009. EuropeanVoice. [Online] • Available at: http://www.europeanvoice.com/article/denmark-to-review-opt-outs/• [Accessed 2014].• Wallerstein, I., 2007. Europe, 2057. [Online] • Available at: http://www.agenceglobal.com/index.php?show=article&Tid=1235• [Accessed 2014].• Wienberg, P. L. a. C., 2013. Denmark’s Inflation at Four-Decade Low After Economy Stagnates, New

York: Bloomberg Businessweek.• Wikipedia, 2014. Danish euro referendum, 2000. [Online] • Available at: http://en.wikipedia.org/wiki/Danish_euro_referendum,_2000• Wikipedia, 2014. Denmark and the Euro. [Online] • Available at: http://upload.wikimedia.org/wikipedia/commons/c/c6/Eurozone_participation.svg 20

Thank you for your attention!

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