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EUROPEAN UNION

Why does Denmark have four EU ‘opt-outs’ and what do they mean?

Denmark is to vote in a June 1st referendum that could bring to an end one of its four EU ‘opt-outs’ which keep it separate from the European Union on specified sovereign areas. But what are the four ‘opt-outs’ and why do they matter?

Prime Minister Mette Frederiksen sits in front of the Danish and EU flags.
Prime Minister Mette Frederiksen sits in front of the Danish and EU flags. The Nordic country is to vote on an EU opt-out on June 1st. Photo: Mads Claus Rasmussen/Ritzau Scanpix

Prime Minister Mette Frederiksen called on Sunday for citizens to vote to overturn Denmark’s opt-out from EU defence policy in a referendum to be held on June 1st, following Russia’s invasion of Ukraine.

Denmark’s opt-out – retsforbehold in Danish – is one of four EU special arrangements negotiated by the Scandinavian country, and has seen it abstain from participation in EU military operations and from providing support or supplies to EU-led defence efforts.

READ ALSO: Denmark to hold referendum on scrapping EU defence opt-out

After the Danish public voted to reject the Maastricht Treaty in June 1992, Copenhagen obtained opt-outs in four sovereign areas: the single currency, justice and police matters, and EU citizenship along with defence, the opt-out which will be the subject of the June referendum.

The opt-outs mean, broadly, that Denmark is not obliged to follow EU laws on these areas and is also not involved in forming the laws – its ministers and officials do not participate in EU ministerial meetings in these areas.

The upcoming referendum will be the ninth to be held in the Denmark since it voted in favour of EU (then European Community) membership in 1972.

In December 2015, the Danes voted no in a referendum on the police and justice opt-out which would have strengthened the country’s cooperation with the European Union on those matters. Concerns about losing their sovereignty over immigration were a key factor in the ‘no’ vote.

Single currency

The single currency opt-out means that Denmark is not obliged to join the euro. The country has kept the krone as its currency and is also allowed to practice independent fiscal policy under the terms of the opt-out.

Although Denmark has not introduced the euro, it does participate in some areas of the single currency. For example, an agreement between the Danish central bank, Nationalbanken and the European Central Bank (ECB) means that the exchange rate of the krone follows that of the euro. When the ECB increases or cuts interest rates, Nationalbanken will do the same.

The exchange rate between the krone and the euro is also maintained at a very constant rate, echoing the relation between the krone and the Deutschmark in pre-euro times.

Meanwhile, Denmark cannot be sanctioned by the EU if its budget gives too high a deficit, unlike eurozone countries.

Danes voted no to ending this opt-out and taking on the single currency in a close referendum in 2000, in which 53.2 percent voted to keep the krone and 46.8 percent voted in favour of introducing the euro. Turnout was 87.6 percent.

Defence

The opt-out that will be in question in June’s referendum, defence, means that Denmark does not generally participate in the EU’s foreign and security policies in relation to defence, and is not involved in voting for those policies but can be involved in more general discussions of EU defence policies.

This means Denmark neither finances nor participates in any military operations conducted by the EU, and would not provide troops or equipment to EU-led missions in conflict zones.

Denmark does, however, take part in civil operations, which up to now have formed the bulk of EU military activities. The EU does not have its own army but EU member states’ military forces can work together under EU auspices.

Justice and police

This opt-out, which Danes voted to retain in a 2015 referendum (see above), means that Denmark in principle is outside of the EU cooperation on laws relating to border control, asylum, civil law, criminal law and cross-border crime. There are two important exceptions: visa rules and the Schengen area, in which Denmark participates fully.

The result of the 2015 referendum meant that Denmark chose not to replace its current blanket opt-out of EU justice rules with a model which would have allowed it to choose whether or not to participate in some areas of EU policy on a case-by-case basis – in other words, an “opt-in” model.

The justice and police opt-out means that Denmark does not participate Europol, the EU’s international policing and data resource-sharing organisation. Denmark does have some level of cooperation with Europol however, agreed following negotiations subsequent to the referendum.

EU citizenship

The final Danish opt-out, which relates to EU citizenship, does not have any practical effect.

The opt-out was adopted by Denmark to guarantee that EU membership would not eventually take the form of a national citizenship or an equivalent of this. This guarantee is now written into the EU treaty so that it applies for all member countries: EU citizenship is a supplement to national citizenship and does not replace it.

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ENERGY

How European countries are spending billions on easing energy crisis

European governments are announcing emergency measures on a near-weekly basis to protect households and businesses from the energy crisis stemming from Russia's war in Ukraine.

How European countries are spending billions on easing energy crisis

Hundreds of billions of euros and counting have been shelled out since Russia invaded its pro-EU neighbour in late February.

Governments have gone all out: from capping gas and electricity prices to rescuing struggling energy companies and providing direct aid to households to fill up their cars.

The public spending has continued, even though European Union countries had accumulated mountains of new debt to save their economies during the Covid pandemic in 2020.

But some leaders have taken pride at their use of the public purse to battle this new crisis, which has sent inflation soaring, raised the cost of living and sparked fears of recession.

After announcing €14billion in new measures last week, Italian Prime Minister Mario Draghi boasted the latest spending put Italy, “among the countries that have spent the most in Europe”.

The Bruegel institute, a Brussels-based think tank that is tracking energy crisis spending by EU governments, ranks Italy as the second-biggest spender in Europe, after Germany.

READ ALSO How EU countries aim to cut energy bills and avoid blackouts this winter

Rome has allocated €59.2billion since September 2021 to shield households and businesses from the rising energy prices, accounting for 3.3 percent of its gross domestic product.

Germany tops the list with €100.2billion, or 2.8 percent of its GDP, as the country was hit hard by its reliance on Russian gas supplies, which have dwindled in suspected retaliation over Western sanctions against Moscow for the war.

On Wednesday, Germany announced the nationalisation of troubled gas giant Uniper.

France, which shielded consumers from gas and electricity price rises early, ranks third with €53.6billion euros allocated so far, representing 2.2 percent of its GDP.

Spending to continue rising
EU countries have now put up €314billion so far since September 2021, according to Bruegel.

“This number is set to increase as energy prices remain elevated,” Simone Tagliapietra, a senior fellow at Bruegel, told AFP.

The energy bills of a typical European family could reach €500 per month early next year, compared to €160 in 2021, according to US investment bank Goldman Sachs.

The measures to help consumers have ranged from a special tax on excess profits in Italy, to the energy price freeze in France, and subsidies public transport in Germany.

But the spending follows a pandemic response that increased public debt, which in the first quarter accounted for 189 percent of Greece’s GDP, 153 percent in Italy, 127 percent in Portugal, 118 percent in Spain and 114 percent in France.

“Initially designed as a temporary response to what was supposed to be a temporary problem, these measures have ballooned and become structural,” Tagliapietra said.

“This is clearly not sustainable from a public finance perspective. It is important that governments make an effort to focus this action on the most vulnerable households and businesses as much as possible.”

Budget reform
The higher spending comes as borrowing costs are rising. The European Central Bank hiked its rate for the first time in more than a decade in July to combat runaway inflation, which has been fuelled by soaring energy prices.

The yield on 10-year French sovereign bonds reached an eight-year high of 2.5 percent on Tuesday, while Germany now pays 1.8 percent interest after boasting a negative rate at the start of the year.

The rate charged to Italy has quadrupled from one percent earlier this year to four percent now, reviving the spectre of the debt crisis that threatened the eurozone a decade ago.

“It is critical to avoid debt crises that could have large destabilising effects and put the EU itself at risk,” the International Monetary Fund warned in a recent blog calling for reforms to budget rules.

The EU has suspended until 2023 rules that limit the public deficit of countries to three percent of GDP and debt to 60 percent.

The European Commission plans to present next month proposals to reform the 27-nation bloc’s budget rules, which have been shattered by the crises.

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