BERLIN -- Denmark may be a small, peaceful and prosperous country, but the Danes are famous for throwing monkey wrenches into the wheels of European integration.
They voted down the Maastricht Treaty -- which turned the
-- on the first go in 1992. And the coming week could see the persnickety Scandinavians show their independent streak again when they go to the polls Thursday to decide whether Denmark will give up the krone, its currency, for the euro.
If they do come bearing wrenches, the euro could be in for a rocky time, despite the intervention Friday by the
European Central Bank
Bank of Japan
Bank of England
to support it. A "no" vote could re-ignite negative sentiment toward the euro and might even renew its long slide, which caused it to lose nearly 30% of its value vs. the dollar since its inception in 1999. On Friday, the euro jumped 5% to over 90 cents after the intervention, but then settled back to 87.94 cents late in the European session.
"Of course there's a risk the Danes will vote 'no,' " says Klaus Baader, economist for
in London. That could quickly undo Friday's gains, but, he adds, "Monetary authorities aren't dumb. I think they were aware of that possibility and are willing to intervene again if they have to."
How Danes vote will be of special interest to the vast number of U.S. companies with operations in Europe, and, in turn, their investors. Many of these companies have watched the euro's fall erode profits: As it declines against the dollar, the value of profits sent home from European operations also falls. In recent weeks alone, euro-related problems have helped spur earnings warnings from companies including
On its economic merits, many observers believe the euro should be an easy sell for the Danish government, which supports joining the other 11 European countries that make up the euro area. (Greece plans to join, but missed the first entry wave for economic reasons; Sweden and the U.K. remain in the EU but don't use the euro.)
The debate in Denmark has a distinctly emotional tone and the Danes could choose to use the referendum to send a signal to Brussels that they are opposed to greater integration with the rest of Europe. As the euro has plunged in recent weeks, the anti-euro faction has gained a slight edge in opinion polls, but the undecided vote remains large enough to leave the referendum's outcome up in the air. How the Danish electorate will react to the coordinated intervention orchestrated by the
European Central Bank
is anybody's guess.
Danes could see the move as proof that the euro is a weak currency needing official support, or they could interpret it as a vote of confidence in a battered currency by not only Europe's monetary authorities but by the Bank of Japan and, more important, the
Fed, as well.
Danish Prime Minister
Poul Nyrup Rasmussen
"said he expected the euro intervention to have no effect on the vote -- though he would clearly prefer it did, assuming it were in a positive direction," muses Alison Cottrell, head economist for
Other observers point out that Denmark ceded an independent monetary policy years ago to the German
and even if the Danes vote "no" to the euro, the krone's fate will always be closely tied to whatever the rest of Europe's central bankers decide together at the ECB's headquarters in Frankfurt. But if the country voted to join in the euro, at least the governor of the Danish central bank would be able to add his two cents to the debate on interest rates.
Still, anti-euro movements in both Sweden and Britain would naturally rejoice and politicians in both countries would likely put plans for joining the single currency on ice for the foreseeable future should Denmark opt to keep the krone.
So it's possible last week's intervention will help the euro finally find a bottom against the dollar. Unfortunately for the currency's enthusiasts, it may not be enough to make Danes any more eager to stuff their wallets with euro coins and bills.