Decisive Danes

Bang & Olufsen seems the perfect example of a company that needs the euro. The Danish maker of hi-fi, video and telephone gear exported 75% of its $442 million in sales last year, mostly to Europe. But when the company organized a meeting last week on the forthcoming referendum on Danish entry into the common European currency, flying in trade union leaders and a television personality to talk up the yes campaign, only 12 of the company's 2,700 employees turned up. "There's a lot of negative sentiment out there," says company spokesman Dan Prangsgaard. "Danish voters ... vote with their hearts instead of their heads."

Perhaps, but the surprising strength of the no campaign — just three weeks before the Sept. 28 referendum — is worrying the government of Prime Minister Poul Nyrup Rasmussen and other supporters of euro membership. A Gallup poll released last week predicted 43% of voters would say no, while 42% were in favor of joining the euro. Two days later, the positions reversed. The Gallup organization found the two sides so near statistically that the outcome of the vote was too close to call. With about 15% to 20% of voters undecided, both sides are stepping up their campaigns.

Support for the euro was not helped by a tumble in the currency's value against the U.S. dollar to 86 — , an all-time low and a 27% decline since the euro's adoption by 11 of the European Union's 15 member states on Jan. 1, 1999. The outcome of the Danish vote is being watched closely in Sweden and Britain, which also stayed out of the euro in the first round. In London, the campaign against the currency looked up last week when two pressure groups joined forces to launch a $2.9 million ad campaign. A recent poll showed that 69% of British voters oppose joining, and the government has not figured out how to support the currency without handing its opponents a political weapon.

Denmark's campaign in support of the euro argues that joining the common currency makes good economic sense for several reasons: it increases price transparency, cuts transaction costs and eliminates a risk premium that borrowers must pay when they take loans in Danish krone. The no campaigners argue that the country's economy has been doing just fine without the currency, thank you, and that Denmark will come under pressure to dismantle its generous welfare state if it joins.

Most of the Danish Establishment supports the euro, but despite the vast financial resources and prominent voices devoted to the yes campaign, ordinary Danes remain skeptical. "People should understand that this has nothing to do with Brussels or the state of the economy, but with a confidence gap between Danish politicians and Danish voters," says Toger Seidenfaden, editor-in-chief of the daily Politiken. "The people are extremely suspicious of politicians."

Perhaps for this reason, the government has begun to play down the economic arguments, and has counterattacked recently on the political implications of the vote. "We think there is a strong risk with a no vote that the Danish voice will not be heard as clearly in Europe," says Finance Minister Mogens Lykketoft. "Denmark would be marginalized in Europe, with a kind of status between full membership [in the E.U.] and Norwegian non-membership." Lykketoft insisted that if the euro is adopted, "Denmark will not accept any kind of E.U. influence on the level of our taxes, or the shape of our old-age pension. We won't accept that."

Despite these assurances, the opposition stresses the threat of Brussels intervening to harmonize Denmark's social welfare system with those of countries like Ireland that have less generous benefits. "If this is going to work, you're going to build up a political superstructure, and that will lead to a kind of federalism," says Holger K. Nielsen, head of the Socialist People's Party. "You've got to decide whether you want that federalism in Europe, and I think that's a bad idea."

Mogens Storgaard Jakobsen, a research executive at the Gallup organization, noted that the opposition's constant worrying about the welfare state has split Danish men and women on the euro. Fewer than 35% of women support joining the currency, while more than 50% of men do. According to Jakobsen, voter attitudes are similar to those of 1992, when Danes voted by a margin of only 25,000 against accepting the Maastricht Treaty on European Union.

A year later, the Danes accepted it, but only after agreeing to four opt-outs on such items as the common currency, European citizenship and a common European defense.

Another perceived weakness for the yes campaign has been the fact that for 18 years the Danish krone has been fixed against the German mark (and now the euro), a link that has kept the economy humming steadily. The no campaign argues that current measures are sufficient. After all, economic growth is estimated at 2.3% this year, with an unemployment rate of 5.6%, well below the European average. But a sudden spike in short-term interest rates in late August, when the strength of the no vote became clear, has shown that the economy is vulnerable. "The reaction of the financial markets is a foretaste of what may lie in store if the referendum on Sept. 28 results in a no," warns an economic commentary by Den Danske Bank. "It can definitely not be ruled out that pressure on the krone could force the National Bank to raise lending rates."

For most businesses, the argument in favor is clear cut. Half of the country's $52 billion annual foreign trade takes place with Euroland, and that will rise to two-thirds if Britain and Sweden also join. Alf Duch-Pedersen, ceo of food ingredient giant Danisco, says that a no vote would make Danish companies rethink their investment strategies, since they are counting on being part of the euro zone. He reckons a no vote will also hurt companies' stock market valuations. "Will an investor sitting in New York be willing to take the risk of a Danish stock, or will they go to Euroland?" he asks.

The referendum has produced some strange bedfellows, with far-left parties sharing the negative view with right-wing extremists. "It's a question of whether social policy should be decided in Brussels, Strasbourg or Frankfurt, or ... in the Danish Parliament," said Peter Skaarup, deputy leader of the far-right Danish People's Party. "Both we and the Socialist People's Party think we have to fight in the Danish Parliament about these things." When the E.U. acted earlier this year to isolate Austria over the inclusion of right-winger Jorg Haider in the government, anti-euro feelings shot up in Denmark — not because voters support Haider, but because they were alarmed by 15 European nations ganging up on a small state.

The government makes clear that regardless of the referendum's outcome it will maintain the fixed links with the mark and the euro. Peter Staarup, chairman of Den Danske Bank, notes that as long as the economy keeps performing well, there should be no economic downsides the government can't handle. But if the economy sours, speculators could bring the Danish krone under attack. It's at that vulnerable moment, say those in favor of the euro, that joining Europe's common currency will seem like an idea whose time has come. The problem for the government: persuading voters that if they decide the matter now, they can avoid that gloomy day.