Denmark says No to the euro: Vote puts new pressure on ailing currency and strengthens opponents

The repercussions of the vote in a country of just over five million people will be felt far further afield and will be examined by EU finance Ministers in Brussels today when they will also consider plans to try to ease the tensions on the euro by using their oil reserves to bring down the price of fuel in Europe.

The No vote will be seized upon by opponents of the euro in both Britain and Sweden - the only other two countries outside the system - strengthening their claim that there is successful economic and political life outside the euro zone.

While some observers predicted last night that rejection of the euro would only have a limited impact on the external value of the currency, since this had already been factored in by the financial markets, others insisted that the psychological impact could not be ruled out.

The tense referendum debate in Denmark has also been closely followed by countries in central and eastern Europe. They fear that the rejection could influence parallel negotiations on reform of the EU and delay negotiations on their applications for membership.

The ability of the euro's supporters to claw back into the contest after their opponents had established a commanding lead just a week ago was partly due to their policy of hammering home the economic and employment costs of a No vote.

Prime Minister Poul Nyrup Rasmussen campaigned tirelessly for the single currency in the final days, but the absence of a clear strategy and greater co-ordination in the Yes camp appears to have left him too much ground to make up.

The pro-euro camp, which had been led by all the country's major political parties and the business, trade union and media establishments, had argued that a No vote would drastically reduce Danish influence in all areas of EU activity.

The euro, they added, would provide protection for small currencies from the buffeting of international financial markets.

In an attempt to maximise the Yes vote and impress on the electorate that it would not have an early opportunity to reverse its decision, Mr Rasmussen warned that it would be some time before a second referendum would be held.

But the euro's opponents struck a chord with the public by warning that single currency membership would threaten Denmark's generous pensions and welfare system as the government came under pressure to reduce taxes. They also won support with their argument that there was no reason to decide on the euro now, instead of in a few years' time.

All too aware of the Mastricht experience in 1992 when early exit surveys gave the No side an 8% lead as polls closed, only to see the controversial treaty finally rejected by a wafer-thin 1% majority, both camps were initially cautious about claiming victory last night.

While Denmark's thumbs-down to a treaty which paved the way for economic and monetary union eight years ago took EU governments and the European Commission completely by surprise and sent major shock waves through the continent's capitals, this time round supporters of the euro had been bracing themselves for an embarrassing setback.

European leaders last night sought to minimise any potential damage to the currency, which has declined more than 25% in value against the dollar since it was introduced by most EU members in January, 1999.

French Prime Minister Lionel Jospin said a rejection would not pressure the euro because Denmark's economy makes up only a small part of the EU's economy.

''I have a lot of respect for this country but its size for the European economy is not major.'' that a No vote would lessen Danish influence in the Union.

''I will shoulder my full responsibility. Let there be no doubt about that,'' he said, calling for a fundamental debate in the country about its future relationship with the EU.

However, the four million voters' decision to keep the krone and the status quo is unlikely to have any immediate impact inside Denmark. With almost all the political, business and trade union establishment campaigning unsuccessfully for a Yes vote, there is no pressure for a general election.

While the Danish currency may come under pressure, this is likely to be only shortlived and the government has made clear it will continue the policy it has pursued for the past 18 years of closely shadowing the German mark and now the euro.

As a member of the exchange rate mechanism, which the UK left in ignominy eight years ago, Denmark can also count on the support of the European Central Bank if its currency comes under attack.

Paradoxically, the repercussions of the Danish result are more likely to be felt outside the country than inside. It again underlines the yawning gap between EU decision makers and the public.

EU finance Ministers will have their first opportunity to take stock in Brussels today when they will also consider plans to try to ease the tensions on the euro by using their oil reserves to bring down the price of fuel in Europe.

While some observers predicted last night that rejection of the euro would only have a limited impact on the external value of the currency, since this had already been factored in by the financial markets, others insisted that the psychological impact could not be ruled out.

Politically, Denmark's decision may well make those EU governments which have signed up to the eurozone more determined to make a success of the project and consider even closer co-ordination of their economic policies.

But rejection of the euro in its first real test of public opinion may now be used as a vehicle to convey the degree of popular unease, not just in Britain and Sweden, but also in countries such as Germany at the imminent disappearance of their national currencies and the arrival of euro notes and coins in just 15 months' time.

Denmark's tense referendum debate has also been closely followed by countries in central and eastern Europe. They fear that a rejection of the single currency could influence parallel talks on reform of the European Union and delay negotiations on their applications for EU membership.