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 By Asger Aamund
Imagine the consequences if the state of Washington decided to abandon the U.S. dollar and introduce the Washington peso in its place.
This is, in effect, what tiny Denmark is about to do. If, in the referendum on September 28, we reject the euro and retain the krone, our country will in a few years time probably be the only member of the European Union still using its own national currency.
If Washington state were to go ahead with such as scheme, Microsoft, Boeing and hundreds of other high-tech companies so essential to the state's prosperity would likely disappear in a cloud of dust. If we vote "no" in Denmark, the exodus might not be quite so rapid, but it will happen nonetheless, with dire consequences for the entire country.
All across Europe, other nations have realised the importance of attracting high-tech companies onto their soil. They are positively scrambling to bring them in.
In Denmark, on the other hand, although we can boast a highly skilled workforce, competitive industry and an unpolluted environment, inward investors are being put off by the huge cost of maintaining our welfare state. We have a 60 percent income tax and a 25 percent VAT, as well as a government that refuses to introduce incentives such as founder's stocks and stock options for would-be entrepreneurs.
This sense of Denmark being an unattractive place to invest would be greatly exacerbated if we failed to join the euro. We would be in danger of becoming a high-tech desert, having produced only a handful of our own homegrown IT and biotech companies to date.
To allow this to happen would be disastrous, not least for our much-vaunted welfare system.
The system is already showing signs of strain. Cancer patients now have to stand in line for four months before they can get proper treatment. There are frequent news reports of Dickensian conditions in nursing homes across the country, with elderly residents feeling neither nursed nor particularly at home.
More worrisome, by the year 2020 approximately 45 percent of the Danish population will be 65 or older, placing a burden on the younger generation, which will have to foot the tax bill for pensions and health care.
To deal with these challenges and secure our country's welfare provision, indeed its whole economic future, we need to be a player in the new high-tech economy. And to do that we need to say yes to the euro. Splendid isolation is not the key to a prosperous future. We need to be inside euroland.
In fact, our economy needs a whole new approach. Instead of strangling every entrepreneur in sight, the government should cut income tax and introduce the same kind of incentives that propelled the U.S. biotech and IT industries into a world-leading position.
The question facing us at the moment is not so much what the euro can do for Denmark, but rather what on earth Denmark is going to do without the euro?
Unfortunately half the electorate still do not see it this way. They cannot wait to give the single currency the boot on referendum day. Comfortable in their secure little world they are oblivious to the storm clouds brewing on the horizon.
But then again, every cloud has a silver lining. If we turn our backs on euroland, perhaps we can win a Nobel Prize for math by proving that, when isolated, one invariably equals zero.
Asger Aamund is founder and chairman of Neurosearch, a biotech company, and is one of Denmark's leading industrialists.
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By Jesper Jespersen
There are, I believe, two major economic arguments why Denmark, for the time being at least, should retain its own currency rather than adopting the euro.
Firstly, economic and monetary union (EMU) is a politically unsettled construct that simply cannot support a common currency. Historically any similar monetary union within Europe without a political superstructure to support it has broken down.
The so-called Latin Union of the early 20th century, for instance, when Italy, France and Switzerland tried to introduce a common currency, was a failure, as was the attempt by Norway, Sweden and Denmark to develop a Scandanavian currency union during the same period.
The undermining effect of having no centralised European political body that can shadow the European Central Bank (ECB) and, if necessary, support the euro in the international financial markets has been shown by the current weakness of the euro. It has already lost 25 percent of its value in the first 18 months of its existence, demonstrating just how uncertain international investors feel about the whole project.
The fall of the euro has led to an effective devaluation of the Danish currency. Denmark has a "fixed exchange rate" arrangement with the ECB that keeps the exchange rate of the Danish krone within plus or minus 2.25 percent of an agreed value (7.46 krone to the euro). In other words, if the euro goes down, so does the value of the krone. This might be good for exports, but it is not so good for inflation.
The second reason I believe Denmark should retain its own currency is that our economy is in many ways independent of the eurozone. This is especially the case in the Danish labour market, where there is very little traffic across Denmark's borders (what traffic there is tends to go to and from Sweden, another non-euro member of the EU).
Accordingly, if the Danish economy suffers a serious economic downturn it is important that the Danish government be able to adopt a proactive and purposeful economic policy to prevent unemployment from rising. If Denmark joins the euro it will no longer be possible to use monetary and exchange rate policies to achieve this end.
Even fiscal policies, especially government spending, will be restricted by the so-called Stability Pact enforced by Germany on the other euro members, under which the public sector deficit is not allowed to exceed 3 percent of GDP -- an extremely narrow margin if the labour market is in recession and the government needs to step in to help it.
In the early 1990s, for instance, the rate of unemployment in Denmark was higher than 10 percent, and the public deficit had climbed to 4 percent of GDP. In those circumstances the government was able to step in and give the economy a "Keynesian Kick." This involved increasing government expenditure by 12 billion kroner (1.3 percent of GDP). This in turn increased effective demand for goods and services, and hence labour. As a result, unemployment fell.
Had Denmark been a part of the eurozone, however, and been forced to conform to the Stability Pact, it would not have been allowed to take this course of action.
It is because of the limits imposed by the Stability Pact, and the overall instability of the euro itself, that I consider it too risky for Denmark to enter into monetary union and give up our monetary sovereignty at this time.
Jesper Jespersen is a professor of economics at Roskilde University and is working with a group of economic experts on a report on the consequences of Danish membership in the euro.
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