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Greece Debt Crisis Pushes Danish Euro Opposition to Record

Danish Central Bank May Raise Rates to Defend Krone
Denmark’s central bank may raise interest rates as early as this week as it seeks to defend the krone’s peg to the euro. Photographer: Chris Ratcliffe/Bloomberg

Danish opposition to joining the euro rose to a record high as the currency bloc’s debt crisis made voters favor the krone, according to a poll published by Danske Bank A/S.

The lead of the ‘no’ bloc widened to 16.5 percentage points to reach 56.7 percent in June, compared with a 9.9 point lead in March, according to the poll released today by Denmark’s biggest bank and conducted by Copenhagen-based Statistics Denmark. The poll puts opposition to the euro at the highest since the currency was introduced in 1999.

Danes, who rejected the euro in a 2000 referendum, have grown more skeptical of euro adoption as Greece’s debt plight puts Europe’s single currency through its toughest test since its inception. The region’s monetary union may not survive as taxpayers in Germany balk at the prospect of bailing out governments that failed to comply with Europe’s fiscal rules, the Centre for Economics and Business Research said yesterday.

“As well as the debt crisis in southern Europe and Ireland, the ‘no’ camp surge is probably also due to the Danish central bank having narrowed the official interest rate spread to the eurozone,” Steen Bocian, chief economist at Danske Bank, said in the statement. “Hence, the costs of not being part of the eurozone appear significantly less than just a little more than two years ago.”

Next Referendum?

The central bank on April 7 raised its benchmark lending rate to 1.3 percent from 1.05 percent, matching a quarter-point increase by the European Central Bank to 1.25 percent and keeping the spread between the rates at 5 basis points. In October 2008, Denmark raised its rate to an eight-year high of 5.5 percent to protect the krone as the credit crisis spread. That increase brought the difference between Danish and euro area benchmark rates to 175 basis points.

Denmark’s central bank uses monetary policy to maintain the krone’s peg to the euro in a 2.25 percent band. Governor Nils Bernstein has said he supports joining the currency.

“The next euro referendum shouldn’t be held until it’s clear that the answer will be yes, because otherwise it’ll be a long time before one can hold another vote on the matter,” Bernstein said yesterday in an interview. The comments were made before Danske Bank's survey was published and aren't a response to the poll.

Standard & Poor’s on June 13 cut Greece’s credit rating by three levels to CCC, the world’s lowest debt grade. The Greek government needs a parliamentary vote on a 78 billion-euro ($112 billion) five-year package of budget cuts and asset sales by next month to ensure the country receives a new European Union aid package to avoid the euro-area’s first default.

Bond Yield

Greek Prime Minister George Papandreou faces a confidence vote later today as lawmakers decide whether to accept the austerity package.

Greek 10-year yields jumped 40 basis points yesterday to 17.34 percent as speculation the country may face bankruptcy continues. The yield on Denmark’s 10-year bond eased 2 basis points yesterday to 3.12 percent, compared with a 1 basis point decline on Germany’s 10-year bund to 2.95 percent. The difference between yields on Danish and German government debt is smaller than that of any euro member.

“It remains uncertain when the Danes will again vote on joining the euro,” Bocian said, adding there won’t be a referendum before the country’s general elections, due to be held no later than November.


Social-Democrat leader Helle Thorning-Schmidt, whose opposition bloc is ahead of the government in most opinion polls, has said she won’t hold a euro referendum in her first four-year term if she wins.

Denmark should hold a plebiscite on joining the euro and eliminating two other European opt-outs this year if the government stays in power following elections, Deputy Prime Minister Lars Barfoed said, Politiken wrote today.

Denmark should still work to join the euro, though a referendum shouldn’t be held now, Prime Minister Lars Loekke Rasmussen said.

“There’s no point in holding a referendum to get another no,” Rasmussen said in an interview broadcast today by TV2.

According to the poll, 56.7 percent of respondents would reject or would be inclined to reject the euro, while 40.2 percent said they would support or be inclined to back the currency switch, Danske Bank said.

Statistics Denmark interviewed 981 people in the first two weeks of June for the survey. The lender didn’t provide a margin of error.

Pressure on the krone may force Denmark’s central bank to raise two of its non-benchmark interest rates, the current account rate and the rate for certificates of deposits, Nykredit A/S said today in a note. Denmark may lift both rates by 10 basis points independently of the ECB, according to Nykredit.

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