All eyes last week were on the Danish referendum on the euro. Danish Prime Minister Poul Nyrup Rasmussen's eyes, in particular, seemed distinctly red-rimmed and occasionally teary as he took note of his people's rejection of the European Union's struggling currency. Newspapers have since filled endless columns on the meaning of the Little Denmarkers' victory and its boost for the fortunes of the Little Englanders' campaign to keep Britain similarly isolated on the fringes of the EU. Politically, they have a point. The ramifications for both Britain's and Sweden's future euro entry are immense. But economically, Denmark is already much closer to the eurozone than it is to Britain. Denmark has deliberately shadowed the euro since its introduction in January last year. Already, the country is a member of the European exchange rate mechanism, which forces it to adjust its interest rates to keep its currency, the krone, within a narrow band of plus or minus 2.25 per cent against the euro. It is thus operating a kind of currency board system similar to Hong Kong's mechanism for maintaining the US dollar peg. The krone is, in that sense, already a eurozone currency (second class) and has largely given up its much vaunted sovereignty in monetary policy. Britain went that route briefly, and with disastrous consequences, in the early 1990s. It tried to shadow the German mark - only to find the pound was ejected from what was then the European monetary system in the most ignominious manner in 1992. That experience, more than any other, marked the British Conservative Party and turned it firmly against monetary union. Denmark, in thrall to the mighty German mark even then, found rather less difficulty than Britain, Sweden or Italy in fending off the speculators. It stayed in the system. Its economy was, and remains, much closer to those of its euroland neighbours. Nationalist politics alone have kept it outside. Yet Denmark's uncomfortable position, half in and half out of euroland, does at least give it the 'freedom' to set its own interest rates separately from those dictated for the eurozone by the European Central Bank. The 5.6 per cent rate set by the Danish Central Bank on Friday to protect the krone's position in the ERM proved that. Countries inside the zone have even less power to adjust their own economies independently of the ECB's dictates. Compare and contrast Denmark's experience with that of Ireland, for instance. Ireland is one of the founder euro-members, yet arguably has greater economic reason than Denmark to remain outside the zone. It might perhaps have considered a peg to a basket of currencies reflecting its foreign trade. These would include the euro, but also a much greater weighting of sterling and US dollar. A report issued by the Central Bank of Ireland last Thursday, somewhat overshadowed by the Danish referendum, seemed to suggest the Irish economy was on the verge of overheating. And the fault was at least partly the euro's. The Irish economy has grown at an average rate in real terms of 8 per cent a year for the last 6 years and will grow this year by a further 8.5 per cent, according to the bank's estimates. That has not been all bad for Ireland. 'There have been substantial increases in employment, a significant reduction in the unemployment rate, increases in living standards and an improvement in the public finances,' enthuses the bank in its autumn quarterly bulletin. 'Overall, the economic benefits have well exceeded the most optimistic expectations.' Unfortunately, however, wages are now rising by an average of 7.5 per cent and will rise by 7.75 per cent next year. Inflation, at 6 per cent, is 3.5 percentage points above the average for the euro area. It is, says the bank 'well in excess of what is usually deemed to be price stability'. Tellingly, the bank continues: 'Monetary policy measures can no longer be invoked as a means of moderating demand because such measures can only relate to the euro area as a whole.' Shades of Hong Kong circa 1995. Negative real interest rates at a time of high inflation and no way to adjust them. Just as Hong Kong's ability to control inflation was hampered by interest levels designed for the low-inflation US economy, so Ireland's has been undermined by interest rates meant to promote growth in Germany, Italy and France. The result: labour shortages, production bottlenecks, house price inflation and demand growing at a rate of about 13 per cent a year for the past three years. That last statistic, of course, demonstrates how easy it is to lay far too much of the blame at the door of euroland monetary policy. It is certainly true that the ECB's one-size-fits-all interest rate model has exacerbated Ireland's problems in the past 21 months. Ireland's trade patterns also mean the economy is more exposed than the rest of the eurozone to the weakness of the euro against sterling and the dollar. (By the same token, the sagging euro has also been a particular boon to Ireland's exports - adding to the pressures of demand). But the truth is that Ireland's boom predates the introduction of the euro by several years. As the bank puts it, the divergence in inflation with the rest of the euro area 'primarily reflects cyclical developments within the domestic economy', and may be seen as 'transitional or catch-up' as Ireland attains the employment rate and broad living standards of other advance economies. But unless Ireland plans to follow Hong Kong's example and price itself out of all its main markets, it ought to be looking for alternative economic levers to replace interest rates. Fiscal and wage restraint must be the focus of any effective policy, according to the bank, which is hardly likely to be popular. Ironically, though, Ireland remains one of the most enthusiastically pro-Europe and pro-euro of all the 15 member states, while Denmark, with little to lose by jumping in with both feet, remains one of the most eurosceptical. There is, as Mr Rasmussen has discovered to his cost, no logic to political emotion.