EU defends euro as the Danes vote 'no'

COPENHAGEN - European leaders leaped to defend the euro yesterday after Denmark said "no" to joining the battered single currency in a historic referendum.

A preliminary final result gave a resounding 53.1 per cent to the anti-euro vote against 46.9 per cent for those who wanted Denmark to be the 13th member of the euro zone.

The result will further dent confidence in the euro, which has slumped by almost a third since its launch last year, and could reshape Europe's political landscape.

Denmark's rejection of Europe's currency is likely to trouble European Union finance ministers, who meet today in Brussels for monthly talks.

Experts said the Danish result was a blow to EU morale and would make it even more difficult for the other two euro "outs," Britain and Sweden, to hold the referendums they have promised before signing up to monetary union.

Jubilant anti-euro campaigners celebrated a famous win, claiming victory for the people over a distant political elite, while sombre Government ministers warned the result could split Europe.

Political analysts said the euro zone core would now press ahead with closer political and economic integration, risking deeper divisions within the 15-nation EU.

"One can only fear that this 'no' to joining the euro will spark a European Union at different speeds," said Danish Finance Minister Mogens Lykketoft.

A bitterly disappointed Prime Minister Poul Nyrup Rasmussen dismissed any thoughts of resigning and vowed to fight on.

He warned that Denmark now risked being sidelined within Europe, left behind in the slow lane while others pressed ahead.

Rasmussen's campaign had urged Danes to sign up to the euro to ensure their voice was heard where decisions were being taken, but "no" campaigners feared a further erosion in sovereignty as more power seemed to be centralised in Brussels.

A senior EU official said Denmark's relegation to the European slow lane would be dramatised in 2002, when it is next due to hold the EU's rotating presidency for six months.

Danish ministers would not be able to chair, or even take part in, two of the core bodies at the heart of EU policy - the Euro-12 and a new grouping of foreign and defence ministers to run the common security and defence policy.

While EU leaders insisted the door was still open to Denmark to join the euro at some stage, Lykketoft said it was unlikely another referendum would be held for at least five years.

The euro held steady at over US88.10c late yesterday and economists said the currency's downside was limited by the threat of central bank intervention.

EU leaders and monetary chiefs were quick to dismiss the impact of the Danish referendum on the currency.

European Central Bank President Wim Duisenberg acknowledged the result but said it would not alter cooperation between the ECB and the Danish Central bank.

French Prime Minister Lionel Jospin said Denmark was a small nation and a result posed "no problem" for the euro.

European Commission President Romano Prodi said the commission regretted the decision and he "firmly believed that a positive vote would have been in our common interest" but he denied the result would lead to a two-speed Europe.

He talked instead in terms of "reinforced cooperation" - a mechanism allowing countries to forge ahead in certain policy areas the commission wanted incorporated in a new EU treaty this year.

"The door is open [to Denmark to join later] and must always be so as in similar types of reinforced cooperation, but not a two-tier Europe."

- REUTERS