So the Danes have spoken. And not for the first time they have said a firm ‘Nej’ to matters European. Back in 1992 Denmark rejected ratification of the Maastricht treaty, a decision which was subsequently overturned.
Clearly there is a great deal of concern among the Danes over a single Europe currency, but the concern does not stop there. Commentators are saying the vote went far wider than economics and that the Danish government neglected to focus on the wider political issues.
This is the lesson the UK should learn, according to Ernst & Young’s international location expert Barry Bright. ‘This will have a big political impact,’ he says. ‘The Danish vote makes the UK realise that it’s a political decision.’ Bright felt that the politics have so far been avoided in the euro debate in the UK, concentrating on the economic issues instead. ‘The five economic test are too general, so its easy to say whether the economy is ready to join or not,’ claims Bright.
The main non-party lobbying groups were quick to offer their reaction to the vote. Nick Herbert, Chief executive of Business for Sterling, backers of the ‘no euro’ campaign, says: ‘If the euro can be rejected by a small country like Denmark, which has close economic ties with Euroland, then the euro lobby must realise it will be rejected by Britain.’
The issue here is that the Krone is pegged to the euro, but views differ on the impact of such a policy. Simon Buckby, campaign director of Britain in Europe, whose backers include KPMG and PricewaterhouseCoopers, says: ‘(This) result will not reduce the impact of the high pound that is damaging British jobs, exports, and inward investment.’ He also highlights Nissan’s threat to quit producing in Sunderland because of sterling’s instability outside the euro.
Mike Rake, senior partner of KPMG, sees the result was no surprise. He believes the vote would have little impact on any future UK decision, though acknowledged there was a need for a constructive debate in this country. ‘Many of our clients share the concern that the issues are not being debated.’ Rake feels the Danish decision should help air some important issues: ‘The public is entitled to information, though at the moment there is a hostile environment to euro matters.’
Roger Bootle of Capital Economics and economic adviser to Deloitte & Touche is more pessimistic about UK joining the euro in the wake of the Danish vote. ‘The chances weren’t great before and have now been put back by the vote,’ he says.
In particular, Bootle points out that when the referendum was called back in March, the pro-euro vote was ahead in the polls, a situation not reflected in the UK. He also feel the vote will have a significant impact on the shape of the EU in years to come. ‘If Denmark had said yes, plus the Swedes, then the UK would have been isolated. Now this looks unlikely, and will lead to a two part Europe; those in the euroland, and those outside.’
He also notes the business community was split down the middle, with both sides claiming a majority of support for the euro.
So the jury is out and will not be returning a verdict until sometime after the next general election. No matter how they look at it, the pro-euro campaign will not have been helped by the Danes. But what is clear is that business does not like the uncertainty. As Mike Rake says: ‘The lack of sensible debate is very sad, and one hopes this issue will be resolved soon.’
EURO: SHOULD WE BE IN OR OUT?
The arguments FOR the euro
– To improve living standards Britain needs to belong to a large market such as that in the US
– Eliminating trade barriers will not be enough, a single market needs a single currency, again as in the US
– Fluctuations in exchange rates will continue and may increase as capital mobility intensifies, crippling many exporting and import-competing companies
– The disadvantage of Britain’s separate currency has increased further now that the single currency has eliminated currency fluctuations within most of Europe
– Influence – joining the euro will increase Britain’s influence in Europe
(Source: ‘The case for the euro’, Britain in Europe)
The arguments AGAINST the euro
– Locked into the wrong interest rate, as determined by the ECB, losing control of Britain’s own interest rate
– Locked into higher taxes; EC policy is for tax harmonisation and European taxes are one sixth higher than in Britain
– Locked into more red tape, such as the trend towards greater labour market regulation
– Locked into political union; the single currency is the first step towards a single state
(Source: Business for Sterling)
Treasury’s five economic tests for joining the euro
– Economic convergence must be sustainable
– The must be flexibility to cope with change
– It must improve investment
– It should not harm the financial services industry
– It should be good for employment
FDs BACK EURO
In July, Accountancy Age’s Big Question revealed 51% of FDs said the UK should join the euro during the next parliament, a marked change from six months earlier, when only 35% backed the single currency.
A new head of solutions, Aidan Brennan, has been appointed at KPMG UK
The second largest improvement in ‘significant’ levels of financial distress since the EU Referendum was in professional services, found research from Begbies Traynor
Just one half of UK practices have implemented a pricing structure around auto enrolment implementation and advice - with many suffering increased costs
Deloitte's north-west Europe foray; BDO, Smith & Williamson investment paths; Shelley Stock Hutter; and Wilkins Kennedy discussed by editor Kevin Reed on our Friday Afternoon Live broadcast