29th May 2022

Denmark embraces euro-pact

  • Denmark's Rasmussen does not want his country to be left on the outside of the euro-pact (Photo: florriebassingbourn)

Denmark is to sign up to a pillar of the 'comprehensive solution' to the EU's debt crisis, the so-called euro-pact, despite not being a member of the eurozone. The move comes as EU ministers agreed to boost the firepower of a eurozone bail-out fund.

Copenhagen is sufficiently eager to get on board, that the Danish prime minister, Lars Lokke Rasmussen, has signed guarantees assuring parties that some of the euro-pact's key features regarding retirement age hikes and EU intervention in collective bargaining will not alter policies regarding these subjects in Denmark.

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After intense negotiations on the weekend between the centre-right Rasmussen and the opposition, local media report that the prime minister offered a series of guarantees in order to win majority support for the pact.

The prime minister must depend on opposition acquiescence in order to balance stiff resistance from his coalition allies in the Liberal Alliance and the hard-right Danish People's Party.

Included among the guarantees is an assurance that the euro-pact will have no impact on the country's opt-out from the single currency.

Despite Rasmussen's guarantees, the pact requires that states keep wages tied to productivity; reduce public services; limit government borrowing; and move away from labour-based taxation towards consumption-based taxation.

However, the pact, somewhat softened since it was first proposed, leaves the precise policy mix up to governments themselves, which may have given Rasmussen the wiggle room he needed to win over the centre-left.

"It is written into an agreement with the government, that the pact does not alter the Danish euro opt-out, or Denmark's right to negotiate salaries and ability to set our own fiscal policy," said Morten Bodskov from the opposition Social Democrats party, according to Danish newspaper Politiken.

Danes rejected adopting the euro in a referendum held in 2000.

But by joining the euro-pact, Copenhagen will gain access to euro-zone-only summits where much of the future of a more deeply integrated eurozone will be decided. Some analysts fear that those on the outside are in effect consigning themselves to the slow lane in a twin-track European Union.

Already in February, the prime minister signalled his desire to hold a 'big bang' referendum on all three of the country's European opt-outs (on the euro, participation in defence policy and justice and home affairs).

The prime minister is also eager to be seen as a model European pupil ahead of Denmark's tenure as the EU's six-month rotating presidency in the first half of 2012.

Swedish Prime Minister Fredrik Reinfeldt has not been able to win the necessary support from other factions in the parliament to make a similar move, Politiken also reports.

"My assessment is that we are not going to get backing in parliament for us to join the euro pact at next week's summit," he said last week.

EU lending power boosted

Separately on Monday, EU finance ministers backed details of a permanent bail-out fund for the eurozone, putting the size of the European Stability Mechanism, to be in place from 2013, at €700 billion.

The sum gives it an effective lending capacity of €500 billion.

To achieve this level of lending, ministers backed a delivery of €80 billion in cash from eurozone states, whose particular contributions will be decided on the basis of a pre-existing formula.

The rest of the sum will be delivered via loan guarantees. National parliaments must also endorse the plan.

No agreement was reached however on boosting the effective lending capacity of the eurozone's existing €440 billion bail-out fund, the European Financial Stability Fund.

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