Outside, Looking In, Amid a Financial Storm

It was heartening to read, from this European vantage-point, the article about Suddenly, Europe Looks Pretty Smart in the New York Times last Saturday, mainly describing the European “bailout plan that has now set the pace for Washington, not the other way around, as had been customary for decades.” At the same time, so far the poster-child victim of the financial crisis has been poor Iceland, a country that is rapidly running out of foreign exchange with which to pay for any imports and so is in contact with the International Monetary Fund for a rescue. But Iceland has gotten some company in the IMF petitioners’ ante-room recently from (among others, but just to name a European country) Hungary. The three Baltic states – Estonia, Latvia, and Lithuania – are likely soon to join them there, although of course the European Union is also offering its own assistance.

So Europe may look “pretty smart,” but still European countries can suddenly find themselves in a deep financial hole in the present dire international conditions – yes, even EU member-states like Hungary and the Baltics. The one common denominator that seems to remove a European state from vulnerability, though, is membership of the Euro-zone, i.e. those 15 states out of the 27 member-states of the EU who use the euro as their common currency. Hannes Gamillscheg of the Frankfurter Rundschau recently picked up on this phenomenon (The guardians of the crown – alone) but from the point-of-view of a couple of those countries now outside the Euro-zone who in the past have explicitly rejected opportunities to come inside, namely Denmark and Sweden. (So the “crown” in the article’s title refers to the two different “crowns” that are those countries’ currencies.)

Gamillscheg’s article’s lede captures the main point rather well: “Danes and Swedes as outsiders are feeling increasingly uncomfortable. Without the euro they don’t count, are not asked [i.e. for input] in crisis-consultations.” But he also does a good job in painting how rosy it used to be for these Scandinavians being outside the euro. So far, for most of the 2000-naughts, their economies in fact did even better than those of the Euro-zone nations in terms of growth, low unemployment and low inflation. The only “penalty” anyone could see were interest rates that were inevitably higher than the rate for the euro, but usually only fractionally so.

That is no longer true: now the European Central Bank’s rate for the euro is 3.75% while the rate for the Danish krone is a full 5%. (No rate is given in the article for the Swedish krona, but for linguistic and other reasons we’re going to concentrate here on Denmark anyway.) But Gamillscheg prefers to focus on the absence of political influence on key Euro-zone decisions suffered by these outsiders. He quotes Danish premier Anders Fogh Rasmussen: “When the 15 euro-lands met in Paris, I would have liked to have been there, too.” But neither he nor his Swedish counterpart, Fredrik Reinfeldt, were invited (nor was Britain’s Gordon Brown, for that matter*), even though the decisions made there definitely would have important repercussions in their own countries. It turns out that Rasmussen has long had plans to try to redress this, in the form of another referendum on Euro-zone entry for Denmark that he had penciled-in for next year. That was to be part of Denmark’s official consideration of the Lisbon Treaty, which however is now beside the point (at least temporarily) because of Ireland’s rejection of it in June. But Rasmussen still intends to have such a referendum, “sometime in this legislative period” he says, which probably means in 2010.

What Do the Danes Say?

Of course, this is after all a German article, and the Germans were among the euro’s first adopters back in 1999 (when it took effect as a currency of account). Shouldn’t we discount this sort of article, coming from a member inside of a club that tells all about how sorry those outside of the club are to be there? For one thing, that current 1.25% gap in national interest rates remains a real and cruel numerical fact that you would have to think Danes are sorry about, no matter what its cause. And a look into the leading Danish business newspaper, Børsen shows that that is right: Euro-no costs Danish house-owners 12,000 extra. That amount is in mortgage-payments per year (i.e. the extra they have to pay compared to if they enjoyed euro interest rates), and amounts these days to €1,600/$2,150 at interbank rates of exchange. Meanwhile, in a separate Børsen article (The euro gives shelter from the finance troubles; note that the article originally comes from the Danish press agency Ritzau) another Rasmussen, namely Danish Finance Minister Lars Løkke Rasmussen (no relationship to the premier), tells a similar tale to his constituents in their own language: “Financial trouble in the world always goes beyond the borderline-currencies [randvalutaer] and the small, independent economies come under pressure. . . . Right now we are paying a price for being a little independent economy by and large in line with the Swedes and Norwegians.”

So would the Danes now say “Yes” in a new referendum to adopt the euro? It’s hard to say; as we read in Politiken (Danske Bank: Slight euro-yes; note that this article is also sourced from Ritzau), opinion surveys taken by Denmark’s largest bank have almost 20% of the population still unsure on the question. In specific numbers, 40% are “Yes” while 41.7% are “No” – but if you take the 10.1% undecided who lean “Yes” and the 6.2% who lean “No,” then “Yes” wins, if only “slightly”!

I know: all of that seems rather a stretch. It seems that the jury is still out when it comes to Danish public opinion, no matter how much more house-owners are having to pay for their mortgages. It really appears that, for all the fuss and bother in the newspapers, whether German or Danish, there will really have to be much greater economic damage than this, and damage that can clearly be attributed to Denmark’s absence from the Euro-zone, before minds and votes in that country will truly be changed.

*Correction: It turns out that Britain’s Gordon Brown has indeed been present at those recent meetings of Euro-zone leaders – even though the UK does not use the euro, nor is there any prospect that it will anytime soon.

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