Debt Crisis Hangover Wipes Euro Off Vote Agenda for Denmark

Danish Prime Minister Helle Thorning-Schmidt signaled her country is no closer to considering euro adoption than it was at the height of Europe’s debt crisis.

“We, as a government, are in favor of the euro but you have to have the right time to take that discussion with the electorate,” she said in an interview after meeting with her Nordic counterparts in the north Icelandic town of Akureyri. “And the way we see it, the time is not now.”

Danish opposition to adopting the euro reached fever pitch in late 2011, when the no side would have won a referendum by 44.6 percentage points, calculations by Danske Bank A/S show. Back then, yields on AAA-rated Danish 10-year debt plunged well below those on similar-maturity German bunds as investors fled Europe’s core fearing the region’s crisis might degenerate into a break-up of the single currency bloc.

Denmark, which pegs its krone to the euro, was forced to fight off the capital influx at the time by lowering rates into uncharted territory. In July 2012, the central bank took the unprecedented step of cutting its deposit rate below zero.

Since then, a recovery among Europe’s most indebted nations has restored investor appetite for risk and weakened the appeal of low-yielding bond markets like Denmark’s. The central bank in April raised its deposit rate above zero for the first time in more than 1 1/2 years, marking the end of an era that had tested the limits of monetary policy.

Seeking Influence

Denmark, which last rejected the euro in a 2000 referendum, would fare better inside the single currency bloc than out of it, Thorning-Schmidt said. The nation’s current status leaves it with less influence, she said.

“It’s very clear for us in the government that the opt-outs that Denmark has are not good for Danish influence in Europe,” Thorning-Schmidt said.

A report today showed Danish gross domestic product expanded 0.9 percent in the first quarter after contracting 0.5 percent in the fourth. Thorning-Schmidt’s government predicted this week that GDP will expand 2 percent next year after growing 1.4 percent in 2014.

The economy of the euro area is estimated to grow 1.2 percent this year and 1.7 percent next year, the European Commission said May 5.

Denmark’s first-quarter GDP figures were “very strong on paper, but in reality” the improvement is “more moderate,” said Las Olsen, an economist at Danske Bank A/S, in a note.

Private Debt

Danske, Denmark’s biggest bank, estimates the government’s prediction that consumers will drive an acceleration in economic growth next year is optimistic, given households’ high debt burdens. The Organization for Economic Cooperation and Development estimates Danes owe their creditors more than 300 percent of disposable incomes, a rich-world record.

Denmark negotiated an opt-out from the euro in 1993 a year after Danes rejected full monetary union. The Danish central bank’s sole mandate is to adjust interest rates and currency reserves to defend the krone’s peg to the euro.

Married to Stephen Kinnock -- son of former U.K. Labour Party leader Neil Kinnock and Labour’s candidate for Aberavon in Wales -- Thorning-Schmidt has faced dwindling support as voters balk at efforts to means test some welfare services. The Social Democrats would win 20.1 percent of votes in a general election today, compared with 24.8 percent in the 2011 election, according to a poll of polls published by Berlingske.

Leading Denmark

Thorning-Schmidt, whose Social Democrats lost a seat at this month’s European Parliament elections, said she intends to lead her party to national elections due to take place by the end of next year.

“Yes, I think I will. Yes I will,” she said.

The Danish party that fared best in the weekend’s European Parliament elections was the anti-immigration Danish People’s Party, garnering more than 26 percent of the vote, compared with 19 percent for the Social Democrats.

“We have to remember that all votes are equal,” Thorning-Schmidt said.

The European Parliament vote result was “a reaction to the crisis we’ve seen in many countries,” Swedish Prime Minister Fredrik Reinfeldt said in an interview. Still, the trend is unlikely to affect voting in national elections, he said. Swedes go to the polls in September.

Welfare Focus

Thorning-Schmidt’s government, which in January lost a coalition partner amid disagreement over Goldman Sachs Group Inc.’s purchase of a stake in a national utility, is lagging behind a Liberal-led coalition bloc. A poll of polls published by Berlingske showed that the government and its allies would get just 44.3 percent of the vote, compared with 55.7 percent support for the opposition. The opposition has managed to maintain its advantage even as its leader, Lars Loekke Rasmussen, fights off media allegations he misstated some expenses and paid too little in tax.

Thorning-Schmidt said her party will seek to win over voters by offering more focus on traditional welfare services.

“It’s always jobs and welfare and our healthcare, which is what we find important,” she said. “I think that will be a big part of the debate next time we meet the electorate.”

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