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Plea From Danish Business Leaders: Don’t Take Away Our Peg to the Euro

As Denmark tries to silence speculation it may follow Switzerland and abandon its euro peg, the nation’s business leaders are adding their voice to the debate.

The Confederation of Danish Industry, which represents about 10,000 companies, says the long-term cost of discarding the euro peg far outweighs any potential short-term benefit.

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“It takes a long time to build up a credible fixed exchange-rate policy,” Klaus Rasmussen, the group’s chief economist, said by phone. “We shouldn’t throw that away and then have to start all over again just because of a potential short-term issue.”

Danish policy makers, economists and now its business leaders have spent the past week voicing their disbelief over talk their currency peg might be at risk. Economy Minister Morten Oestergaard urged speculators to keep in mind that Denmark’s peg is more than three decades old and backed by the European Central Bank. According to the ECB’s agreement with Denmark, efforts to support the peg should “in principle be automatic and unlimited.”

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Abandoning Denmark’s currency peg would deprive the country’s businesses of the stable environment on which they’re accustomed to basing their strategies and forecasts, said Peder Holk Nielsen, chief executive officer of Novozymes A/S (NZYMB), the world’s biggest industrial enzyme producer.

ECB QE

“For our company, the main thing is that the krone is stable versus the euro,” he said in an interview at his office outside Copenhagen.

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The central bank fought back speculation it might run out of ammunition to defend its peg by delivering a surprise rate cut on Monday, lowering its benchmark deposit rate to minus 0.2 percent. Danske Bank A/S, the country’s biggest lender, says the rate may be cut again tomorrow, to minus 0.3 percent as the ECB prepares to unveil the details of its bond-purchase program.

Danske and Nordea Bank AB, Scandinavia’s biggest bank, both say it’s pointless to speculate against Denmark’s currency peg. It’s a message they say they’ve passed on to hedge funds calling in the hope of profiting from currency market turmoil. Even international banks, including Goldman Sachs Group Inc. and Citigroup Inc., argue the current Danish currency regime is unlikely to fall.

The central bank says it will do whatever it takes to defend the peg, which can include non-standard measures.

Denmark relies on trade with the European Union for about 70 percent of its total exports, meaning the country’s de facto euro membership saves its companies billions in exchange-rate hedges.

Cost Base

“Like many big companies in Denmark, we have a relatively large cost base and relatively small income in Danish kroner,” Holk Nielsen said. “If there were a decision to abandon the current peg, it probably wouldn’t be replaced by a new one.”

If businesses were forced to exist under a floating currency regime, that would create “instability and unpredictability” making it “more difficult to run operations,” he said.

The Danish central bank targets a krone rate of 7.46038 against the euro, inside a 2.25 percent band. In practice it only allows swings of no more than 1 percent around the tolerance band.

Business Minister Henrik Sass Larsen said yesterday the government has full faith in the central bank’s ability to do what’s needed to defend the peg.

“It’s difficult to find someone in Denmark who’s against the fixed-currency policy,” Rasmussen said.

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwien[email protected]

To contact the editors responsible for this story: Tasneem Hanfi Brogger at [email protected] Jonas Bergman

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