If the campaign had just been about the euro, the 'Yes' camp might have swung it

Opponents of the euro did not bother waiting for the final result and by 10pm last night they had broken into a rowdy set of songs in the corridors of the Danish parliament. Early results from yesterday's referendum on euro membership showed the "no" camp clearly ahead, and Europe's sickly single currency heading for a new setback.

Opponents of the euro did not bother waiting for the final result and by 10pm last night they had broken into a rowdy set of songs in the corridors of the Danish parliament. Early results from yesterday's referendum on euro membership showed the "no" camp clearly ahead, and Europe's sickly single currency heading for a new setback.

Denmark has a population one-tenth the size of Britain or France, but its 5.2 million voters had delivered a dramatic statement on Europe's big project, the euro.

We have, of course, been here before. In 1992 the Danes rejected the Maastricht Treaty at the first time of asking, precipitating a political crisis in the EU. Until the decision was overturned, the following year, it threatened to destroy the entire treaty by removing the ratification which each member state must give.

This time the threat was more psychological than constitutional, but none the less real, coming at a crucial stage in the euro's battle with the markets, and having a direct impact on Sweden and Britain which have yet to commit themselves to a referendum on entry.

Yet this was a vote which should never have gone to the wire. When the Prime Minister, Poul Nyrup Rasmussen, called the referendum in March, the pro-euro side was steaming ahead in the polls, backed by business and unions and enjoying the support of all newspapers except two.

By one domestic yardstick very little was at stake. The krone is barely an independent currency, having been linked to the D-mark for many years in deference to Denmark's economic dependency on neighbouring Germany. Denmark's Foreign Minister, Niels Helveg Petersen, said: "Denmark has shadowed the D-mark and then the euro since 1982. It is a smaller step for us than for the UK."

On the other side of the equation there was little reason for the architects of the single currency to fear a Danish "no" vote. Denmark accounts for little more than 2 per cent of the eurozone's combined output, so what could its decision matter? But the relentless selling of the fledgling single currency on the foreign exchange markets changed all that and put little Denmark back on to Europe's centre stage.

There was growing concern when the euro sank below parity with the US dollar. When the currency slumped below 90 US cents earlier this year, alarm bells rang in the chancelleries of Europe.

At the Frankfurt headquarters of the European Central Bank, discreet concern gave way to open anxiety. Interest rates were raised, only to be followed by further falls in the currency's value.

Suddenly the Danish vote came to be seen as anotherimportant milestone in thefortunes of the euro, a judgement on the popular will behind the project and of northern economies to join it. At the same time the loss of confidence on the markets which has so battered the currency, put Denmark's pro-euro campaigners on to the defensive. It has not been easy to sell membership of a euro so clearly in retreat.

With the Danish poll date looming, the European Central Bank, in concert with its US and Japanese counterparts, moved last Friday, taking the markets unawares with a massive intervention. Since then the currency has held steady, as the foreign exchange dealers nervously eye developments in Copenhagen.

The stakes are high. A "no" vote saps confidence, further undermining the efforts of central bankers around the world to prop up a currency that has shed 28 per cent of its value. When the markets open this morning all eyes will be on the reaction of the traders and of the central banks.

Chris Huhne, a Liberal Democrat member of the European Parliament's economic and monetary affairs committee said: "In the case of a 'no', people in the markets would conclude that Sweden and the UK would be less likely to join, and the strong countries want to stay out, while it is the Greeks and the central Europeans who want to come in."

The irony is that, had the Danish referendum campaign been principally about the euro, it would have almost certainly produced a resounding "yes".

Even in Copenhagen's hippie commune, Christiania - where residents are opposed to cars, taxes and all forms of authority particularly the European Union - some admitted they were prepared to back the euro. Kemona Lund, owner of a candle shop, voted "yes" for sound business reasons. "The rate of the krone is tied to the euro anyway, so we may just as well be full members," she said.

But the debate has not just been about the euro. Instead it has bounced back and forward across an array of subjects as the politicians clashed over Europe's sanctions against Austria, the fate of the Danish pension system and even a possible EU threat to the Danish monarchy.

Campaigning veered from the sublime to the ridiculous. Up to 10 per cent of the wellinformed population watched a two-and-a-half-hour televised debate between 11 politicians. Danish MPs joke that the late-night drinker in Copenhagen knows more about Europe than the average British MP.

Meanwhile, outside the Danish parliament, a well-known Christian and campaigner against pornography has pitched a tent next to the full size crucifix and issued dire warnings that supporters of the euro are aiding the anti-Christ.

Svend Auken, Denmark's Environment Minister argued: "If this were only about the common currency we would have a clear vote 'yes', but people are fearful of where this step will lead to."

The "no" side has mined a rich seam of doubt among Danes as they pondered the implications of giving up the krone and worried about losing their national identity.

Pro-euro campaigners also admit that their case was hampered by what Mr Auken describes as "a gulf, an abyss between official Europe and its rhetoric and what many people believe is being done". But the closeness of the outcome has hinged on Denmark's own national neuroses. According to Hans Mouritzen, senior research fellow at the Danish Institute of Foreign Affairs, Denmark suffers both from an superiority complex, believing its way of life - from its generous welfare state to its internationally-known beers - to be the best in the world, and from feelings of inferiority as a small and powerless nation. "If you think you are the best in the world but that you are weak, the logical conclusion is to keep a certain distance," Dr Mouritzen argues.

Once again, one of Europe's biggest ambitions have found themselves at the mercy of its fourth smallest state.