Denmark and the euro · Lablypedia

Several Danish political parties favour adopting the euro, and a second referendum has been proposed several times since 2000. However, some important parties such as the Danish People's Party, Socialist People's Party, and Red–Green Alliance do not support joining the currency. Public opinion surveys have shown fluctuating support for the single currency, with the majority in favour for a few years before the 2008 financial crisis, with support falling further due to the euro area crisis in 2011.

International finance scholars generally consider currency pegs to be fragile; however, Denmark has been able to maintain the krone's peg to the euro consistently since its introduction in 1999.

Current status

Opt-outs

The Danish government held a referendum in 1992 to approve ratification of the Maastricht Treaty, as required by the Danish constitution for any transfers of sovereignty which are not approved by 5/6 of parliament (Folketing). The coalition government of Denmark in 1992 consisted of the Conservatives and Agrarian Liberals, which together with the Social Democrats in opposition held approximately 80% of the seats in parliament leading them to believe that the referendum would be easily approved. However, the referendum resulted in 50.7% of the population voting against the ratification of the Maastricht Treaty, while only 49.3% voted in favour.

Ratification of the Maastricht Treaty required unanimous approval by all the member states in the European Union. The Danish "no", therefore, posed a significant issue for further integration. Denmark was not the only country issuing a referendum for the ratification of the Maastricht Treaty. In France, the public supported the treaty by only a small margin, while the Irish also voted in favour of the Treaty. The Danish "no" and the French "petit oui" are known in scholarly circles as the erosion of the permissive consensus regarding public support for European integration.

The solution to the lack of public support for further European integration in Denmark is known as "the National Compromise". 7 out of 8 parties in the Danish parliament came together in support a proposal to request 4 opt-outs: Union citizenship, Common Security and Defence, Justice and Home Affairs and participation in the last phase of the European Monetary Union. At the European Council summit on 11–12 December 1992 in Edinburgh, the European leaders agreed to these four opt-outs. This led to the Maastricht Treaty being accepted in a second referendum on 18 May 1993.

Exchange Rate Mechanism II

While Denmark chose not join the eurozone due to its opt-out, it participates in the Exchange Rate Mechanism II (ERM II), a fixed exchange rate regime in which the Danish currency and other participating countries' currency are pegged to the euro.

The krone has been part of the ERM II mechanism since 1 January 1999, when it replaced the original ERM. This policy marks continuation of a similar peg from 1982 to 1999 with the Deutsche Mark. Following Bulgaria's adoption of the euro on 1 January 2026, Denmark is the only European Union member state participating in the ERM II.

Denmark is required to ensure that the kroner trades within 2.25% either side of a specified rate of 1 euro equal to 7.46038 kroner (making the lower rate 7.29252 and the upper rate 7.62824). However, in practice the exchange rate has kept within 0.5% of the defined rate, even less than the set limits. If the Krone goes beyond the limits, the Danmarks Nationalbank is mandated to intervene and bring it back within the fluctuation band, with the European Central Bank obliged to intervene if the Danish central bank is unable to do so. Two approaches are used to adjust the money supply and exchange rate. The first tool is intervention through the purchase and selling currencies to adjust the available money level. The second tool is an adjustment of the interest rates.

The European Central Bank conducts monetary policy independently of the national governments in the eurozone, resulting in loss of independence in monitary policy in favour of price stability. The ECB is committed to maintaining 2% inflation in the middle to long run. The decrease in fluctuations of currency reduces uncertainty for traders.

Denmark has had a fixed exchange rate since the end of the Second World War and has participated in several monetary cooperation systems. Therefore, participating in ERM II was not a change in this sense, and the lost autonomy in monetary policy and associated inability to respond to domestic economic shocks with monetary policy tools, had existed since the creation of the Bretton Woods system.

Convergence status

Criterion fulfilledCriterion potentially fulfilled: If the budget deficit exceeds the 3% limit, but is "close" to this value (the European Commission has deemed 3.5% to be close by in the past), then the criteria can still potentially be fulfilled if either the deficits in the previous two years are significantly declining towards the 3% limit, or if the excessive deficit is the result of exceptional circumstances which are temporary in nature (i.e. one-off expenditures triggered by a significant economic downturn, or by the implementation of economic reforms that are expected to deliver a significant positive impact on the government's future fiscal budgets). However, even if such "special circumstances" are found to exist, additional criteria must also be met to comply with the fiscal budget criterion. Additionally, if the debt-to-GDP ratio exceeds 60% but is "sufficiently diminishing and approaching the reference value at a satisfactory pace" it can be deemed to be in compliance. Criterion not fulfilled

Notes

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History

Early monetary unions in Denmark (1873–1914)

On 5 May 1873 Denmark with Sweden fixed their currencies against gold and formed the Scandinavian Monetary Union, with Norway joining in 1875. Prior to this date, Denmark used the Danish rigsdaler divided into 96 rigsbank skilling. The union had the currency pegged to gold at the rate of 2.48 kroner per gram of gold, or 0.4032 grams per krone. An equal valued krone of the monetary union replaced the three legacy currencies at the rate of 1 krone = ½ Danish rigsdaler = ¼ Norwegian speciedaler = 1 Swedish riksdaler. The new currency became a legal tender and was accepted in all three countries. This monetary union lasted until 1914 when World War I brought an end to it.

European Monetary System and pre-euro monetary co-operation

The collapse of the Bretton Woods system destabilised European markets, and monetary integration among the member states of the European Economic Community (now European Union). Under the Bretton Woods system, the dollar was pegged to the gold standard. Following the collapse of the Bretton Woods system, the European Currency Snake system came into force on 24 April 1972 with Denmark joining on 1 May 1972. Shortly after, the Danish Crown came under speculative attacks, and was forced to abandon the system, but the joined again a few months later.

The European Monetary System was established in 1979 to maintain stability in EEC countries with Denmark being one of the 8 participating countries. The EMS created an Exchange Rate Mechanism with fixed bands for currencies of participating countries. The Danish economy experienced recession in 1980, forcing the government to introduce several economic reforms. The most significant reform was the decision to opt for a fixed exchange rate policy in 1982 and stopping currency devaluation by pegging it against the German D-mark.

As the Danish people did not vote in favour of the 1992 Treaty, it did not adopt the euro, However, in 1998 Denmark agreed to participate in Exchange Rate Mechanism II with a narrow fluctuation band of ± 2.25% (instead of the ± 15%, which is the standard fluctuation band in the mechanism). The agreement was negotiated and finalised in the ECOFIN Council 25–27 September 1998. The difference between ERM and ERM II is that the currencies participating in ERM II are no longer linked to bilateral parities with other participating currencies as they were in the original ERM system, but rather they are pegged to the euro instead.

Euro referendum (2000)

A referendum was held on 28 September 2000, proposing that Denmark join the eurozone on 1 January 2002. While most political parties, media organisations and economic actors in Denmark campaigned in favour of adopting the euro, the referendum was rejected. Turnout was 87.6%, with 46.8% voting in favour of adopting the euro and 53.2% voting against. Some analysts believe that the significant weakening of the euro against the US dollar preceding the referendum directly contributed to its rejection.

Possible second euro referendum

On 22 November 2007, the newly re-elected Danish government declared its intention to hold a new referendum on the abolition of the four opt-outs, including the opt-out from the euro, by 2011. It was unclear if people would vote on each exemption separately, or if people would vote on all of them together. However, the uncertainty, both in terms of the stability of the euro and the establishment of new political structures at the EU level, resulting first from the 2008 financial crisis and then subsequently from the related euro area crisis, led the government to postpone the referendum to after the end of its legislative term. When a new government came to power in September 2011, it decided to not hold a referendum.

As part of the European elections in 2014, it was argued collectively by the group of pro-European Danish parties (Venstre, Konservative, Social Democrats and Radikale Venstre), that a euro referendum would not be held until the "development dust had settled" from the establishment of multiple initiatives in response to the euro area crisis. When a new Venstre-led government came to power in June 2015, its manifesto did not include any plan for holding a referendum on euro adoption. During the referendum to abolish the defence opt-out in 2022, the prime minister of Denmark, Mette Frederiksen, promised not to hold an additional euro referendum during her tenure as prime minister. No plans for holding a euro referendum were included in the government manifest of 2022.

There has been some speculation that the result of a Danish referendum would affect the Swedish debate on the euro.

Usage today

The euro can be used at some locations in Denmark, usually in places catering to tourists, such as museums, airports and shops with large numbers of international visitors. However, change is usually given in kroner. Double krone-euro prices are used on all ferries going between Denmark and Germany.

On 10 January 2020, the 500 euro note was phased out in Denmark as part of the fight against money laundering and terrorism financing. At the time, the banknote was worth 3,737 Danish kroner (DKK), more than three times the highest denomination of the domestic currency, the thousand-kroner banknote. The European Central Bank had stopped issuing the banknote in 2019, but was critical of the law. In an opinion published in February 2019, it was argued that it conflicted with the principle of "sincere cooperation" set out in Article IV of the Treaty on European Union, and noted that no ban was planned for other high-value units of currency, such as the highest Swiss franc banknote, worth more than 6,500 DKK at the time.

Impact of potential euro adoption

If Denmark were to adopt the euro, the monetary policy would be transferred from the Danmarks Nationalbank to the ESCB, limiting its ability to have an independent monetary policy. However, a study of the history of the Danish monetary policy shows that, "while Denmark does not share a single currency, its central bank has always tracked changes made by the ESCB".

While outside the euro, Denmark does not have any representation in the ESCB direction. Non-participation in the eurozone has been criticised by the former Prime Minister Anders Fogh Rasmussen, who stated that: "De facto, Denmark participates in the euro zone but without having a seat at the table where decisions are made, and that's a political problem". The ESCB has no obligation to defend the Danish krone exchange rate, which is the responsibility of the Danmarks Nationalbank and Danish government. In a crisis, a small country's national bank can defend the exchange rate only to a limited extent.

The expected practical advantages of euro include lower transaction costs, transparency of foreign markets for Danish consumers, and possibly a lowering of interest rates.

During the euro area crisis, European leaders established the European Financial Stability Facility, a special purpose vehicle to maintain financial stability in the eurozone by providing financial assistance to member states in difficulty. It has two parts, the first establishing a €60 billion stabilisation fund (European Financial Stabilisation Mechanism) with contributions from European countries on a pro-rata basis, regardless of their membership in the eurozone. The second part consisted €440 billion worth government-backed loans to improve market confidence. All eurozone economies will participate in funding this mechanism, while other EU members can choose whether to participate. Unlike Sweden and Poland, Denmark has refused to help fund this portion of the EFSF.

Public opinion

There have been numerous opinion polls on whether Denmark should abolish the krone and join the eurozone, with varied wordings of the questions. Polls generally favoured euro adoption from 2002 to 2010; however, they showed a rapid decline in support during the euro area crisis, reaching a low in May 2012 with 26% in favour versus 67% against, and 7% being doubtful. In March 2018, 29% of respondents from Denmark in a Eurobarometer opinion poll stated that they were in favour of the EMU and the euro, while 65% were against. The same poll conducted in May 2024 signaled a gradual rise in support for the euro from the previous level recorded in 2012 and 2018; with 34% now in favour, 58% against, and 8% undecided.

Polls from 2002 to 2016:

Greens Analyseinstitut, a public opinion research company, has generally asked "How would you vote at a possible new referendum about participation of Denmark in the common currency?" ("Hvad ville du stemme ved en evt. ny folkeafstemning om Danmarks deltagelse i den fælles valuta?").

Public support for the euro in Denmark according to Eurobarometer polls

Danish autonomous territories

The Faroe Islands currently use the Faroese króna, a localised version of the Danish krone, but legally the same currency. It is normally not accepted by shops in the mainland Denmark, or foreign exchange bureaus, however they can be exchanged 1:1 in Danish banks. Greenland uses ordinary Danish kroner, but has considered introducing its own currency, the Greenlandic krone, similar Faroese króna. Both territories continue to use Danish coins.

It remains unclear if Greenland and the Faroe Islands would adopt the euro should Denmark choose to do so. Both are parts of the Kingdom of Denmark, but remain outside the EU. They usually do not take part in EU related referendums.

Possible euro coin design

Before Denmark's 2000 referendum on the issue, Danmarks Nationalbank and the Royal Mint were asked by the Ministry of Economics to propose possible designs for the future Danish euro coins. The suggested design was based on the designs of the Danish 10- and 20-krone coins, with Queen Margrethe II on the front, and the 25- and 50-øre coins, switching their back motif (a crown) to the front of the euro coins. However, Denmark did not adopt the euro during the reign of Margrethe II, so an updated design, revolving around her son King Frederik X, would be possible, should Denmark adopt the euro during his reign.