Denmark euro 20150111
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Should Denmark adopt euro? 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.
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Denmark euro 20150111
- 1. 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
- 2. • 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 2 Content
- 3. 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. 3
- 4. 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. 4
- 5. 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 banknotes 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 5
- 6. 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. 6
- 7. Euro zone in 2014 7 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 map note no.2.: Lithuania was joined to euro zone on 1st of January 2015
- 8. 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
- 9. Denmark fulfilled criteria Convergence 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 values Max. 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 Reference values Max. 2.7% (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 2013) Max. 3.0% (Fiscal year 2012) Max. 60% (Fiscal year 2012) Denmark 1.8% Open 14 years, 3 months 0.1% 1.33% 4.0% 45.8% 2014 ECB Report Reference values Max. 1.7% (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 2014) Max. 3.0% (Fiscal year 2013) Max. 60% (Fiscal year 2013) Denmark 0.4% Open (Closed in June 2014) 15 years, 3 months -0.2% 1.78% 0.8% 44.5% 9
- 10. Crisis of euro Those 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. 10
- 11. 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
- 12. 12 • 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
- 13. • 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. 13 Clear advantage of using euro for Denmark
- 14. • 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
- 15. 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. 15
- 16. 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. 16
- 17. 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. 17
- 18. 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. 18
- 19. 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. 19
- 20. 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
- 21. Thank you for your attention! 21
Editor's Notes
- Good afternoon! I’m Attila Németh and This is my European Management and Business Strategy presentation. The topic, I have chosen, is: Should Denmark introduce euro as its currency or not?
- When I started to examine the topic, at first I would be eager to know much about Denmark, euro zone the Maastricht Treaty and the convergence criteria, and in my course work mainly I critically discuss about those issues. In my presentation there is some new aspects like the crises of euro, the effects which a country has to be faced when it joins to the European Monetary Union, and I inspected the topic from administrative aspects, and finally I formed stronger opinion as I did in my course work.
- It is no doubt, Denmark is a traditionally conscious country with lots of own habits, features and historical facts. Examining the currency of Denmark, I found some interesting and really old evidence for it. The oldest Danish coins are minted in the late 10th century, and for almost 1000 years Danish kings issued coins with their names, monograms or even their portrait. The krone is in the circulation nearly 400 years.
- There are other proofs which are highlighted the importance of krone as a symbol of social sensitivity and national feelings. Karin Birgitte Lund who is an artist, has chosen bridges as a theme of banknotes in 2006, to interpret the links between various parts of Denmark and as the links between the past and the present. Furthermore Danish people use nicknames for some banknotes, as the expression of their close emotional bond of krone.
- There is other historically established relationship between krone and Denmark. Kingdom of Denmark contains Faroe Islands and Greenland, in where krone as a localised but not independent currency is used. Faroe Islands and Greenland are not part of the European Union, like Denmark, and probably when we think about the adoption of euro, this fact should be taken into account as well.
- This slide shows the main stages of euro and euro zone in conjunction with Denmark. Now, Denmark is exceptional position, as the country is part of European Union, but opt-out from the obligation to adopt euro. What is more, Danish currency has fixed exchange rate which has to be within 2,25% band on either side of the euro, which brings relatively better predictability to Danish krone, than to the other currency outside euro zone.
- As we see on the map 5 types of country exists in European Union the context of euro zone. The participants who are using euro, the participants of European Exchange Rate Mechanism II, who have fixed exchange rate, the countries with an opt-out of the obligation to join euro zone, and 2 more variants of the latter two types. Denmark is the only country which is part of the ERM2, and opt-out of the obligation to join euro zone. As I noted Lithuania has just introduced euro, and the country is the last one who was joined from that region (after Estonia was joined in 2011, and Latvia was joined in 2014), but they have quite different economical circumstances and position than Denmark, just to think about their relationships with Russia.
- The Maastricht criteria, also known as the convergence criteria, are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union and adopt the euro as their currency. The four criteria are defined in article 121 of the treaty establishing European Community. They impose control over inflation, public debt and the public deficit, exchange rate stability and the convergence of interest rates.
- Denmark, in fact, has fulfilled these criteria, but the country has the right, on account of their opt-out to decide when they would like to join euro zone. According to the data of European Central Bank, the inflation rate, the long term interest rate, the debt to GDP ratio and the national budget deficit to GDP rate, in Denmark are lower than the required, in the last 3 years.
- There is an ongoing multi-year long debt crisis happening in some euro zone members since the end of 2009. These states are Greece, Ireland, Portugal and Cyprus which were unable to repay or refinance their government debt. The structure of the euro zone as a currency union, which only means using one currency, without fiscal union, which would bring more calculated future to euro zone, for example using same taxes and public pension rules, contributed to the crisis and it is harmed not only the entire euro zone, but the entire European Union. The euro at the moment is continually weakening compared to US dollar, due to the uncertainty of the Greek elections and the decision about Greeks would be stay inside the euro zone or not.
- According to Robert Mundell the introduction of euro cause more positive effect of the member state’s economy: first if the candidate country has smaller size compared with other European Union states, second if the candidate has higher state debt, than average in European Union, third if the candidate has similar economy in structure to the European Union economy, and finally if the candidate has stronger integration aim of European Union’s economic and political structure.
- I would argue with Mr Mundell in some aspects, because the country size or the similar economy structure are not always an affecting factor, moreover the location of the country and the economic partners of the country are belonging to the factors which influence how positive effects will be exposed for a country if it would introduce euro. The economy of Denmark is export oriented so everything which is related to the euro exchange rate definitely effect the Danish economy. But as we know Denmark is member of ERM2, so their economy is safe enough, and they would loose independency if they step up one more stage and join euro zone.
- Despite, until now we have not found strong arguments why Denmark should adopt euro, I listed some clear advantage of using euro: Traveling is much easier within the euro zone. Comparability is much easier on the prices of goods, sources and services, which support healthy competition, and it also holds consumers benefit. The influence of the euro zone continues are growing, because the size of the common market. Or Denmark might be reduce the dependence of some current economic partners and might build new business relations too.
- If we have clear advantages obviously we have to seek for disadvantages. We have already discussed about the traditions, the value which are attached to Danish krone, and the stable financial situation and the highly developed economy of Denmark. Risking this values and status would be disadvantage of the adoption. What I haven’t mentioned yet is the extensive welfare system, which provides a high standard of living for the population. The possibility to loose this standard of living is the most dangerous disadvantage which will be almost irreversible, such as to bring back krone after the adoption of euro.
- As another new aspect I’m investigated in the topic, the administrative side. Denmark would need to prepare a National Changeover Plan, which is time-consuming and in which lots of players need to be involved. In addition, all the related preparation and the primary duties and responsibility belong to the Government, which, as we know, is a politically oriented organization.
- The politicians usually be afraid of the risk, the negative changes or the restrictions. I suppose to convert krone to euro would affect all areas of economic and social spheres, and more decisions should be made which are determinate the futures of Denmark by the politicians. Beside all the previous statements, if Denmark says “no” to euro, it expresses the fact that the individual nationals are more important than common European Union’s interests.
- If even Danish government would like to introduce euro, the initial step of the practical preparations should be based on a comprehensive large-scale common interests of the nationals and European Union. They would have find the answers to: how to choose their own way in many areas of introducing euro? How to maintain their strong social safety net beside the strict administrative tasks? or How to support the position of euro for example through the European Financial Stability Facility and European Stability Mechanism?
- Summarising the findings, if Denmark would adopt euro, there will not be left any unanswered questions, and the politicians, the government, and the economists need to find comforting answers to the citizens. After this, Denmark definitely have to hold a referendum, because it must be a national decision. 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.
- To adopt euro in Denmark, in my opinion, is not a good decision at the moment. Denmark should not adopt euro at this stage of the European, and we can bravely state that, the World political, and economic situation. Honestly speaking, I would be surprised if Denmark adopt euro in a couple of few years.
- I hope you enjoyed the presentation. Thank you for your attention! Good bye!