Denmark Extols Euro Peg as Currency Gains Hurt Nordic PeersPeter Levring
Denmark’s government underscored its commitment to a fixed exchange rate as neighboring Sweden and Norway endure currency appreciations that threaten to stall exports and kill jobs.
The euro peg that AAA rated Denmark defends has helped the nation’s exporters sell their goods in Europe’s single currency bloc even as the region stays mired in a recession. Since the height of the global financial crisis in March 2009, the krona of neighboring Sweden has soared 39 percent against the euro, while Norway’s krone has risen 18 percent in the same period, hampering the two countries’ trade competitiveness.
“Confidence in the krone’s exchange rate is worth its weight in gold,” Economy Minister Margrethe Vestager said in an e-mailed reply to questions. “That’s much more interesting than fluctuations up and down.”
Sweden’s exporters have pleaded with the government and central bank to prevent the krona appreciating further, warning the competitive disadvantage its gains create will force them to cut jobs. In neighboring Norway, the central bank has resorted to rate cuts to stem the krone’s ascent. That’s underpinned credit growth and pushed house prices to records, prompting warnings from the financial regulator that Norway’s overheated property market may end in a bubble.
Unemployment in Denmark, including people in vocational training programs, eased to 6.1 percent in January, according to the statistics office. In Sweden, the jobless rate rose to 8.5 percent last month, official data showed yesterday.
Denmark’s central bank, which has defended the krone’s peg to the euro since the single currency’s debut in 1999, last year pushed rates to record lows to counter a capital influx that had threatened to breach the peg. It cut the deposit rate to an unprecedented minus 0.2 percent in July, forcing investors to pay to hold most short-term krone-denominated assets.
Other central banks in AAA rated economies have also resorted to pegs after the euro area’s debt crisis triggered a capital flight out of southern Europe and into the continent’s richest nations. The Swiss central bank yesterday pledged to keep up its defense of the franc cap introduced in September 2011 after almost doubling its foreign currency holdings.
The Danish krone’s peg to the euro has also brought depreciations against the Swedish krona and Norwegian krone. Since the end of last year, Denmark’s krone has lost 2.5 percent against the krona. It’s down 0.7 percent against Norway’s krone.
The Danish krone traded at 7.4576 per euro as of 9:39 a.m. in Copenhagen today, unchanged from yesterday. Norway’s krone slipped 0.2 percent to 7.5458 while Sweden’s krona gained 0.1 percent to 8.3558 per euro.
“In the short term, currency swings led to improving Danish competitiveness,” Jacob Graven, chief economist at Sydbank A/S, said in a phone interview. “This is particularly the case versus neighboring currencies like kronor and kroner. Swedish kronor make up a significant part of Danish exports.”
Denmark sends about 60 percent of its exports to the European Union, with 12 percent destined for Sweden. Denmark’s trade surplus grew 61 percent to 6.6 billion kroner ($1.1 billion) in January, the statistics office estimates.
“Our krone peg has kept rates low and held a hand under the jobs market since the crisis started,” Vestager said.