By John Acher
COPENHAGEN, March 22 (Reuters) - Adopting the euro would have a permanent beneficial effect on Danish economic growth, the head of Denmark's central bank said on Monday.
Danes rejected the euro in a referendum in 2000, though Denmark's crown currency is pegged to the euro within a narrow fluctuation band and the Danish central bank's monetary policy task is to keep the crown steady inside the band.
"The Nationalbank's rough estimate is that, in the long term, euro area membership would permanently boost GDP by between 0.5 and 1 percent," central bank Governor Nils Bernstein told a financial conference in the Danish capital.
Bernstein said that joining the euro could be expected to lead to slightly lower interest rates, a small increase in foreign trade and lower transaction costs, which in combination would boost GDP.
"We know from other countries that after joining there has been an increase in trade," Bernstein told Reuters on the sidelines of the conference attended also by the heads of the central banks of France and Germany. ID:nLDE62L1GV] [ID:nLDE62L0MJ]
Denmark's centre-right government favours the euro but has said it will not call another referendum until holding such a vote has the backing of a clear majority in parliament -- political support that is lacking now.
Bernstein told the conference that while the benefits of the euro in normal times were clear, the advantages in periods of financial turmoil would be even greater.
"The lessons from the financial crisis have more than confirmed this," he said.
Bernstein noted that the Danish crown came under pressure in late 2008 with the onset of the financial crisis, and Denmark was forced to raise interest rates while rates in other countries were being cut.
He said there was "anecdotal evidence" that some foreign investors speculated against the crown.
"Generally speaking, international speculators had a certain interest in testing the strength of the support for the fixed-exchange-rate policy," Bernstein said. "This caused further uncertainty about the crown."
Pressure on the crown prompted Denmark's Nationalbank to intervene heavily in the foreign-exchange market in late September and the first weeks of October, Bernstein said.
Intervention sales of foreign exchange to support the crown reached a monthly all-time high of 64 billion Danish crowns ($11.62 billion) in October, and on some days intervention approached 15 billion crowns, he said.
"We could literally see our reserves pouring out of our coffers," Bernstein said. "It felt like driving a car without brakes." (Reporting by John Acher; Editing by Ron Askew)