Copenhagen Stock Exchange: Euro Referendum And Different Scenarios

In the September issue of Focus, Senior Vice President Keld Holm, BG Bank, describes three possible reactions to a “no” vote, three scenarios, which he calls the good, the bad and the ugly. The reactions to a “yes” vote are only mentioned briefly as the opinion polls increasingly indicate that the outcome of the Danish referendum on EMU participation will be a “no” vote.

The author is of the opinion that the market has so far offered a fairly balanced and well-considered reaction to the shift in opinion polls over the summer. Even after a “no” vote on 28 September, the nature of the market reaction is expected to be subdued compared to events in the early 1990s, when the ERM mechanism broke down.

This is due in particular to the weak euro and Denmark’s relatively good economic fundamentals. A very strong “no” vote may, however, result in a krone crisis.

In the event of a “yes” vote, Danish bonds will trade in EMU at a spread to German bonds marginally wider than to French and Dutch papers, but significantly narrower than the Spanish bond yield spreads.