Denmark banking union moves hold message for UK
Danes may be softening stance on EU integration
by John Stevens
Wed 27 May 2015
Denmark is the only EU member apart from Britain with an exemption from the Maastricht treaty obligation eventually to join the euro. So the growing likelihood that Denmark will join European banking union, bringing its banks under the oversight of the European Central Bank, is of great significance.
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At the end of last month the Danish government announced, following a report by its justice ministry, that the Danes will not have to hold a referendum on joining the banking union. With Danske Bank, for example, capitalised at some 200% of Danish GDP, the Danes recognise that adherence to banking union may be an appropriate way to limit financial risks.
This is one reason why, in a country that otherwise remains sceptical about economic and monetary union, opinions about further European economic integration may be softening. Upward pressure on the Danish krone following the January ending of the Swiss National Bank’s euro peg have now more or less ceased. But the Danes are still suffering some costs, in terms of distortions to Danish interest rates and bond issuance, from non-participation in EMU.
The probability of an enhanced ECB role in supervision of, and potential crisis support for, Danish banks does not in itself require Denmark’s eventual membership of the euro, but this development may bring it closer.
A referendum on removing a number of opt-outs in the areas of justice and home affairs is scheduled for before April 2016. If the outcome is positive for the European cause, a vote on the euro could possibly take place as early as the following year. Of course, given the often fraught history of Danish public attitudes towards Europe, most observers still believe that a much more cautious approach will prevail.
Clarity on the outcome of the long-running discord with Greece, and reversion of the ECB to a more normal, less expansionary, monetary policy, whenever this occurs, would make the Danish case for joining the euro more persuasive, increasing the chances of a favourable outcome of any future referendum.
The Danes may wish to avoid any referendum coinciding with the UK vote on membership of the EU, scheduled for some time in the next two years. David Cameron, the UK prime minister, appears to have chosen to make changes to the euro’s status as the EU’s currency a central part of his renegotiation shopping list. It would be surprising if Danish developments do not have some impact on the British EU debate.
The author, a former member of the European Parliament, is a member of the supervisory board of THS fund management.