On the morning after Denmark's decision not to join the euro, the diplomats and officials who make up the European Union's policy-making elite were putting a brave face on defeat.

"It is not a great disappointment for us. It does not change anything," said Pedro Solbes, the commissioner for economic and monetary affairs. Referring to the single currency, he added: "The project goes on in good conditions."

Wim Duisenberg, president of the European Central Bank, was also trying to sound upbeat. "I share the regret at the outcome of the referendum. But from now on it is business as usual," he declared after a meeting with the finance ministers of the "eurogroup" countries belonging to the single currency zone.

But away from the cameras and the microphones, few doubt that the Danes had significantly changed the debate about Europe's future for the second time in a decade.

True, the referendum outcome was different from that of the 1992 poll over ratification of the Maastricht Treaty and the EU's single currency. Then, the Danish "No" came as a complete surprise and briefly threatened to stop the entire process of economic and monetary union in its tracks. The fact, if not the scale, of rejection was widely expected. The euro has been in existence for 21 months without Denmark's participation, and is not threatened by its continued absence.

Even so, there was no disguising the feeling in Brussels that a turning point has been reached. Pressure for a "two-speed Europe" is now certain to increase; the balance of power between economically liberal countries and European social democracy may have shifted.

Before the vote, the Danes were the only obvious losers after what one Brussels observer called their "voluntary relegation" in the EU league table. The "No" vote prompted a half percentage point increase in interest rates, as the Danish central bank underlined its determination to keep the krone tied to the euro exchange rate. By contrast, the euro itself appeared to shrug of f the referendum result. "The euro is doing well and will continue to do so," said Laurent Fabius, the French finance minister and current chairman of the eurogroup.

So long as Denmark maintains its membership of the EU's exchange rate mechanism, allowing the krone to fluctuate by no more than plus or minus 2.25 per cent against the euro, Copenhagen will have scant freedom to make economic policy independently of the euro-zone. As Mr Duisenberg pointedly put it: "They have their cake but they can't eat it at the same time."

On the political front, the consequences could be more far-reaching, however, not just for the Danes but also for other EU member states and the countries in southern and eastern Europe wanting to join the union. For such a small country, Denmark has wielded disproportionate influence in EU affairs. This is partly because of the quality of its foreign service, and partly because other member states have been anxious to accommodate Danish concerns in the hope that the country might join the EU mainstream.

Despite much talk of respect for the Danish voters' decision and eurogroup ministers' statement that the "No" vote "does not close the door" to eventual membership of the euro, Copenhagen's diplomats fear that those countries wanting to accelerate integration may now press ahead. The "No" vote inevitably leaves Denmark in a more isolated position: there is no chance in the foreseeable future that a Danish prime minister will risk a new referendum on the euro or end two other Danish opt-outs in the areas of defence and asylum policy.

Other countries could find themselves with Denmark in an EU outer group. Britain and Sweden, both non-euro countries with strongly eurosceptic electorates, are obvious candidates. This is notwithstanding London's insistence that the Danish decision "does not change the British government's position" on the euro and that in principle Britain remains in favour of joining after the five economic tests set by the UK Treasury have been met. < /P>

Policy consequences could follow. Traditionally, Britain, the Netherlands and Scandinavian member states are keener on open markets and less regulation than are influential member states such as France, Germany and Belgium. But if the pro-market countries are split between those belonging to the euro-zone and those outside it, their influence in Brussels will be weakened. Such a development would come at a crucial time: the EU has set itself a deadline of 2005 for the creation of a single market in financial services, one of Britain's policy priorities.

The loss of Danish influence within the EU will be keenly felt by the applicant countries for which Denmark has been a strong champion. Earlier this month, Mr Solbes made clear that in view of the Commission and the eurogroup none of the applicants would be able to join the euro at the same time as joining the EU.

The Danish "No" can be expected to inject new vigour into negotiations among member states on how to develop "enhanced co-operat ion" - the idea promoted by Joschka Fischer, the German foreign minister, and Jacques Chirac, the French president, that groups of member states should be allowed to choose faster integration in areas of common agreement. The issue is one of the main points facing the Intergovernmental Conference (IGC) on reforming the EU's institutions in readiness for enlargement that is due to be completed by the December summit in Nice.

It is already clear that the eurogroup of countries intend to step up co-operation and policy co-ordination, irrespective of the treaty changes eventually agreed in Nice.

Romano Prodi, the president of the European Commission, said he expected the 12 finance ministers (representing the 11 euro area countries plus Greece which joins on January 1, 2001) would "contribute to the deepening of the economic and monetary union".

The single currency itself will continue to exert pressure for greater integration at the level of businesses and financial markets inside the eurogr oup. Slowly but surely, its members are strengthening co-ordination of fiscal and budgetary policies. From January, for the first time, the eurogroup will be chaired by a finance minister for 12 rather than just six months, when Didier Reynders, the Belgian finance minister, takes over the reins from Mr Fabius.

Finally, but perhaps most significant of all, the Danish "No" votes has taught Brussels policy-makers some harsh truths about the level of popular support for the European project and its institutions. The margin of 53 per cent "No" votes to 47 per cent "Yes" was wider than anticipated and came in the face of concerted support for the Yes campaign by Denmark's main political parties, its business leaders and trade unions.

In their comments immediately after the result and following the eurogroup meeting, both Mr Prodi and Mr Fabius side-stepped the issue of whether the Danish vote is indicative of a broader gulf in aspirations between Europe's elite and its citizens.

But as one EU official acknowledges: "There is a danger of these big historical changes going ahead without popular support. Public opinion is increasingly fractious."

After a month in which governments throughout Europe were caught unprepared by popular protests over rising fuel prices, the troubling implication of the Danish referendum is that Europe's elites may be more out of touch than ever with their citizens.