Lisbon Treaty and Danish opt-outs

1. How does the future of the EU after the Irish ‘No’ look like?

 

In general, the solution to the ratification crisis was met with great satisfaction in Denmark and was conceived as a sign that the EU, despite crisis, is still able to find a common way forward. The renewed will to reach consensus and produce results was interpreted as a result of the effective leadership of the French Presidency, and as a result of the current financial crisis and the economic recession which have created a need for the member states to move closer together.[1]

Prior to the European Council meeting, the Danish Prime Minister, Anders Fogh Rasmussen, voiced satisfaction with Ireland holding a second referendum with concessions from the EU on the right to keep one Commissioner per country. The concession was easy to grant for the Danish government as the Danish debate on the Lisbon Treaty had also showed concerns about reducing the size of the Commission.[2]

The Danish government is concerned about a possible ‘No’ in the second Irish referenda. This will not only drag the Union into another crisis but would also have serious consequences for the possibility of abolishing the four Danish opt-outs. The Danish government has promised to hold a referendum on the opt-outs before the next national elections in 2011. Rasmussen has on a number of occasions declared that it is meaningless to hold a referendum on the Danish opt-outs before the ratification crisis is solved and the Lisbon Treaty has come into force.[3]

A second Irish ‘No’, together with an anti-European UK government is likely to lead to a multi-speed Europe. This might include the use of ‘enhanced cooperation’ involving closer cooperation amongst smaller groups of member states (such as EMU and the Social Chapter inside the EU; and the Schengen and Prüm Treaties outside the EU). The three most likely arenas for such closer cooperation are defence and security policy, the Eurogroup, and police and judicial cooperation, all areas from which Denmark has opted out.[4]

A possible Euro-referendum

Meanwhile, the financial crisis has changed the opt-out agenda of the government as the factual consequences of being outside the Eurozone have been revealed. A political debate on joining the common currency has been revived after the Danish National Bank was forced to increase interest rates twice to defend the Krone’s peg to the Euro. This caused a record interest rate spread between the Danish National Bank and the European Central Bank of 175 basis points compared to 25 basis points in May. This scenario is threatening to push property prices further down, hurt industry and further depress the economy. In an interview with “The Financial Times”, Nils Bernstein, Director of the Danish National Bank, declared that Denmark is paying the price of not adopting the Euro even though last month’s rise in interest rates has been successful in stopping pressure on the Krone. He noted: “The pressure on the currency seems to be over but you can´t be sure.” [5]

According to estimates from the Danish Industry Confederation (DI), Danes risk paying 4.5 billion Danish Krones for being outside the common currency due to the high interest rate spread. This is especially critical for flexible mortgage holders.[6] The Danish Metalworkers’ Union (Dansk Metal) argues that the interest spread has caused a significant decrease in salary advances among metalworkers and is therefore recommending a referendum on the Euro as soon as possible.[7]

The Danish Prime Minister, Anders Fogh Rasmussen, has initiated talks with opposition parties on the possibility of holding a referendum. On 22 January 2009, a hearing on the Euro was held in the Danish Parliament. The main obstacle for the Danish government is to get the leftwing Socialist People’s Party (SF) on board which ranks a strong third in opinion polls. The SF is still split on the issue. Rasmussen had indicated the beginning of 2010 as a good time for holding a referendum, after the Irish vote and before the next Danish Parliament elections in 2011. The SF has put forward three demands on changing the Euro construction before recommending a ‘Yes’. One is a demand for a stronger emphasis on high employment instead of low inflation.[8]

A new survey carried out by “Capacent Opinion” shows that 50 percent of Danes support the Euro while 39 percent are against it. Only 26 percent of the respondents said they want a referendum as soon as possible.[9]

The upcoming European Parliament elections

It is likely that one or more Danish parties will lose their seats in the European Parliament when the Danish number of parliamentarians will go down from 14 to 13.[10]

Denmark also expects to see a generational shift in the Danish Members of the European Parliament (MEPs) since a number of current MEPs are not running for re-election (Poul Nyrup Rasmussen, Karin Riis Jørgensen, Mogens Camre and Jens-Peter Bonde). The average age of the youngest candidates of the four largest parties is only 23 years.[11] The generational shift might put an end to the notion of the European Parliament as the last stop before ending the political career.[12]

The European election campaign has not yet begun and there has hardly been any debate in the media. The Danish Prime Minister, Ander Fogh Rasmussen, from the Danish Liberal Party has declared the possibility of a pact between the Liberals and the “European People’s Party – European Democrats” (EPP-ED) after the 2009 elections which would give the “Party of European Socialists” (PES) a minor say: “I favoured strongly the past alliance between the EPP and the Liberals in the Parliament […] in my opinion, this is the natural cooperation in the parliament. I will work in that direction.” [13]

The formation of the new Commission and the appointment of the High Representative

Neither topic has been subject to intense debates in Denmark. The Danish government has declared its support for the re-election of José Manuel Barroso as President of the Commission.[14] The Danish media still portrays the Danish Prime Minister, Anders Fogh Rasmussen, as a possible candidate for the position as President of the European Council if the Lisbon Treaty comes into force. Speculations about Rasmussen as a possible candidate for the position as the new Secretary General of NATO have also been highlighted.[15] Rasmussen has not formally announced his candidature to any of the mentioned international posts.

2. Transatlantic relations renewed after President Bush: top priorities

 

Denmark and the USA: allies under Bush – allies under Obama

The transition from President Bush to President Obama has been intensely discussed in Denmark in terms of Danish-US relations and transatlantic relations. The Danish government’s close relations to Bush had been demonstrated by Danish military participation in Afghanistan and Iraq – on his last day in office Bush spoke to Prime Minister Rasmussen by phone.[16] But while Rasmussen does not comment on Bush’s record as President, his fellow party member, Søren Pind, described the Bush era as ‘morally corrupt’ in reference to allegations of torture and mistreatment of terrorist suspects by US personal.[17] During the election campaign Barack Obama had been critical of US allies, including Denmark, for not doing enough to help the Iraqi refugee crisis.[18] Prime Minister Rasmussen hoped to maintain very close ties between the USA and Denmark, but in the first week of the Obama administration these hopes dissolved as Denmark (and the Netherlands) did not want to help take freed detainees resettled from Guantánamo Bay detention centre.[19]

Beyond the war on terror, the immediate Danish priority in transatlantic relations is the forthcoming United Nations Climate Change Conference “COP15” in Copenhagen in December 2009.[20] The transformation of the US position on global warming by President Obama has made productive talks at “COP15” far more likely.[21] The wider renewal of transatlantic relations between the US and the EU beyond “COP15” has not been a big issue in Denmark, reflecting Danish difficulties in dealing with major global issues such as reform of financial architecture because of non-participation in EMU politics.

3. Financial crisis and challenges of global governance: the EU response

 

Has the time come to join the Eurozone?

The global financial crisis has been of particular importance in Denmark because of its small, open economy and its exposure to global trade and investment. Related to this, Denmark’s economy, like that of the UK, tends to be further ahead in the economic cycle compared to the rest of the EU. Denmark was the first EU economy to enter technical recession in the 2nd quarter of 2008 and spent much of 2008 in recession.[22] The vulnerability of the Danish economy, based on global exposure and inflated housing sector, had been identified in 2007 as one of the three most fragile housing markets in the world, with similar vulnerabilities in its banking sector – in mid-2008 the official foreign reserves of the Danish National Bank as a percent of GDP were only about 10 percent (less than Iceland’s).[23]

The banking crisis hit Denmark with Roskilde Bank’s collapse in August 2008 – during 2008 nine small Danish banks were merged or wound up as liquidity tightened.[24] During 2008 the Danish National Bank was forced to repeatedly increase interest rates to support the Danish fixed exchange rate policy – by November 2008 the difference between the European Central Bank (ECB) and Danish interest rates were at an all-time high of 1.75 percent.[25] The Danish economic problems, downturn in housing market and consumer spending, and the relatively high interest rates have contributed to increased difficulties for domestic shop owners and Danish exporters with 2009 expected to be a particularly tough year for exports.[26]

Probably all small countries should join

The stagnating Danish economy, high interest rates, and banking risks all contributed to the attempts by the Danish Prime Minster, Anders Fogh Rasmussen, and the majority of parties in the Danish Parliament to move from a fixed exchange rate policy to full membership of the Euro. Mounting economic evidence reinforce the arguments for the Euro in Denmark, in particular the risks of being outside the Eurozone, the costs of maintaining the Krone, and the trade losses outside the Euro.[27] Paul Krugman, the Nobel Prize winner for economics, had commented in an interview that “the lesson of the crisis is that one should join the Euro […]. For good or evil should probably all the small European countries join”.[28] Sydbank’s Chief Economist, Jacob Graven commented that the financial crisis had “made it less attractive for investors to hold Danish Kroner rather than Euros”.[29] Niels Bernstein, the Danish National Bank Governor argued that “over a longer horizon, adopting the Euro will have a certain positive effect on growth in Denmark”.[30] The most comprehensive economic evidence came in January 2009 with the publishing of the SNS Economic Policy Group Report 2009 – EMU at Ten: Should Denmark, Sweden and the UK Join? which argued that Euro effect on exports (and analogously on imports) for Denmark joining can be calculated roughly as a 35 percent increase in trade.[31] The Report concluded that “Denmark is well positioned in terms of public finances, fiscal policy-making, labour market flexibility and the level of unemployment to participate in the monetary union. It has little or no monetary policy independence since it has tied the Krone to the euro. It would therefore clearly gain by joining the monetary union”.[32]

Beyond the discussion of Denmark fully joining the Euro, there has been relatively little Danish discussion of the EU response to the financial crisis and challenges of global governance, possibly reflecting Danish non-participation in EMU politics.[33] Prime Minister Rasmussen has argued that both the global finance and climate problems have the “same solution” – requiring “creating farsighted, long-term, sustainable green growth”, but without reference to the EU in this radical transformation already advocated in Brussels.[34]

 

 

 

[1] Berlingske Tidende: Krisen bringer det bedste frem i EU, available at: http://www.berlingske.dk/article/20081212/kommentarer/712120119 (last access: 23 January 2009).
[2] Berlingske Tidende: Ny irsk afstemning skal løse EU-krise.
[3] Jyllands Posten: Irland på vej mod ny afstemning.
[4] Mette Buskjær Christensen and Ian Manners, DIIS Brief: The Irish opt-outs from the Lisbon Treaty?: lessons of the Danish experience, available at: http://www.diis.dk/sw69770.asp (last access: 23 January 2009).
[5] Financial Times: Denmark is bearing the cost of being outside euro, available at: http://www.ft.com/cms/s/0/e8f45eb0-b05b-11dd-a795-0000779fd18c,_i_email=y.html (last access: 26 January 2009).
[6] DI Business: Euro-forbehold giver milliardregning, 3 November 2008.
[7] 3f.dk: Euro-forbeholdet koster metalarbejderne dyrt, available at: http://forsiden.3f.dk/article/20090122/NEWSPAQ/901220382 (last access: 26 January 2009).
[8] Kristeligt Dagblad: Søvndal og Fogh i kamp om euro –grundlov, available at: http://www.berlingske.dk/article/20090121/politik/901210422/ (last access: 26 January 2009).
[9] Ritzaus Bureau: Danskerne: Vent med euroafstemning, 21 January 2009.
[10] Jyllands-Posten: Europæiske vælgere sætter dagsordenen, 31 December 2008.
[11] Ritzaus Bureau: Unge stiller op til Europaparlamentet, 31 December 2008.
[12] Politiken: Unge danskere er vilde med EU, 21 January 2009.
[13] Euractiv.com: Interview: Danish PM warns against ’abuse’ of crisis, available at: http://www.euractiv.com/en/eu-elections/danish-pm-warns-abuse-crisis/article-176888 (last access: 26 January 2009).
[14] Ritzaus Bureau: Fogh støtter genvalg til Barroso, 15 October 2008.
[15] Politiken: Statsminister med træls udlængsel, 17 December 2008.
[16] Brian Knowlton: ‘Obama celebrates holiday with service’, International Herald Tribune, 19 January 2009.
[17] Copenhagen Post: ‘For PM, in the Obama means out with an ally’, 21 January 2009.
[18] Copenhagen Post: ‘Obama: Denmark has done ‘little’ for Iraqi refugees’, 10 November 2008; Natalie Ondiak: ‘Keeping faith with our Iraqi allies’, Guardian, 21 January 2009.
[19] Politiken: ‘Amnesty vil have en lukkedato for Guantanamo’, 8 January 2009; Copenhagen Post: ‘No help for terror suspects’, VOA News, 21 January 2009; Lisa Bryant: ‘Europeans in dilemma over Guantanamo prison closing’, 22 January 2009; Jim Brunsden: ‘EU to start talks on Guantánamo resettlement’, 23 Januar 2009.
[20] Michael McCarthy: ‘UN Climate Conference: The countdown to Copenhagen, The Indepdendent, 9 January 2009.
[21].Tony Barber: ‘Action is vital for a good transatlantic relationship’, Financial Times, 23 December 2008; Bibi Häggström: ‘Klimatet hettar till i danska politiken’ Sydsvenskan, 10 January 2009.
[22] Robert Anderson: ‘Denmark heads towards recession’, Financial Times, 1 December 2008.
[23] Copenhagen Post: ‘Denmark is one of the top three most fragile housing markets in the world’, 1 August 2007; Willem Buiter and Anne Sibert: The Icelandic banking crisis and what to do about it, Centre for Economic Policy Research, CEPR Policy Insight No. 26, October 2008.
[24] Lex: ‘Bank failures: Roskilde’, Financial Times, 25 August 2008; Robert Anderson: ‘Denmark unveils bank loan package’, Financial Times, 19 January 2009.
[25] Copenhagen Post: ‘Central bank opts for interest rate rise’, 22 May 2008; Robert Anderson: ‘Danish PM seeks backing for euro referendum’, Financial Times, 4 November 2008.
[26] Politiken: ‘Shop owners want out’, 20 January 2009; Julian Isherwood: ‘Markets drop Danish goods’, 27 January 2009.
[27] Ian Manners: Small, open €uro economies, Danish Institute for International Studies, DIIS Brief, January 2009.
[28] Johan Anderberg: ‘Paul Krugman – Nobelpristagaren – nästan som en svensk betongsosse’, Sydsvenskan, 16 November 2008.
[29] Copenhagen Post: ‘Central bank opts for interest rate rise’, 22 May 2008.
[30] Joel Sherwood: ‘Danish Central Bank Reinforces Euro Adoption Support’, Dow Jones Newswire, 22 January 2009.
[31] SNS Economic Policy Group Report 2009: EMU at Ten: Should Denmark, Sweden and the UK Join? (Stockholm: SNS Förlag, 2009), pp. 86-87.
[32] SNS Economic Policy Group Report 2009: EMU at Ten: Should Denmark, Sweden and the UK Join? (Stockholm: SNS Förlag, 2009), p. 16.
[33] Berlingske Tidende: ’Krisen bringer det bedste frem i EU’, 12 December 2008.
[34] Copenhagen Post: ‘PM: Finance and climate problems have ‘same solution’’, 27 January 2009.