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Hurray for the Danes!

To: Poul Nyrup Rasmussen, Prime Minister, Denmark

From: Jude Wanniski

Re: Voting down the Euro

Yes, you did everything you could to persuade your citizens to vote
“Yes” on the referendum last week to join the others in the European
Union in a common currency, the euro. The fact that they instead voted
down the idea, by 53 percent to 47 percent, of course, disheartened you,
but I think you should be proud of your people for resisting all the
pleas made to them. The post mortems indicate they voted “No” by that
narrow margin because they somehow see the euro as a threat to their
social programs or a diminution of Danish culture with the passing of an
independent currency, your krona. Instead, they wisely understand,
perhaps not individually, but in the aggregate, that the design of the
euro is flawed and must be fixed before the experiment can develop

In 1992, when the people of Denmark voted down the Maastricht Treaty,
which encompassed the design of the common currency, they shocked the
eurocrats who took popular support for granted. The eurocrats could not
imagine the Treaty was rejected because the design of the monetary
system was flawed, since they had designed it and assumed it was as
good as it gets
. You yourself, Mr. Prime Minister, must acknowledge
that something in the euro must be flawed when it is born at a healthy
rate of $1.17 in equivalent U.S. dollars and has now shriveled to $.87,
having gone as low as $.83 recently. Why should the people of Denmark
use as their national money a floating euro managed by the same flawed
eurocrats who designed it? They might as well stick with their own
independent central bank, giving up the clear efficiency
advantages of a common currency rather than also having to give up
the power to defend itself against the potential errors of the

This is not a new idea for me, Mr. Prime Minister. As one of the
original supply-side political economists in the world and a
follower of the Canadian Robert Mundell who last year was given the
Nobel Prize in economics for having originally conceived of the
euro in the early 1960s, I have been arguing for 20 years that it is
hopeless to imagine you could think of stitching together 11 different
floating pieces of paper into one, and have it work much better than the
11 floating independently. Prof. Mundell has argued consistently that
such a “system” is a “non-system,” unless there is some mechanism by
which the eurocrats of the European Central Bank can decide day by day
if too many or too few euros are in the system. His answer has always
been to bring gold — the most monetary of all commodities — into the
mechanism as a way of making the euro stable over a long stretch of

Here is how I put it to my Wall Street clients on September 21, 1992,
under the headline “Three Cheers for JBIII,” referring to James Baker
III, who took a step toward gold when he was Treasury Secretary in 1987:

Mundell foresaw the birth pains the euro would encounter because
it was not being brought into the world with a gold link. He was a bit
careless, though, in assuming the ECB would know how to make
adjustments. Last Monday, The Wall Street Journal’s lead editorial
quoted from Mundell’s comments at a September 22 IMF panel in Prague in
which he put forward a proposal for stabilizing the euro:

In other words, Mr. Prime Minister, the people of Denmark will
continue to resist the euro at every opportunity, until the euro is
defined in terms of gold. That will take the power to manipulate its
value out of the hands of the eurocrats and keep it in the hands of the
people in the marketplace. Three cheers for the people of Denmark!