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February 15th, 2012

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DenmarkÂ’s economy is out of balance and in need of fine-tuning to put it back in the black again, according to the European Commission. 

On Tuesday, the EU authority released its list of 12 countries, including Denmark, Sweden, Finland and the UK, where, according to the commissionÂ’s analysts, economic meltdown could ensue if reforms are not made and budgets are not balanced.

Greece, Ireland and Portugal were not on the list, as their economies are already in full-blown crisis. 

The European Commission pointed to DenmarkÂ’s depressed exports, artificially low property taxes and high private debt as the weakest links in its macro-economy.

The list will form the basis for so-called “preventative recommendations” that the European Commission will make to member countries as part of the ‘six pack’ agreement for economic governance, signed in December.

The economy minister, Margrethe Vestager (Radikale), conceded that Denmark had fallen behind in competitiveness and exports, and her party is one of the few that have long called for an end to the decade-old property tax freeze. But Vestager objected to the commission’s claim that Danes’ private debt was dangerously high, reports financial daily Børsen.

The commission’s calculation of Danes’ private debt was largely based on the difference between what homeowners owe on their mortgages and what their homes’ are currently worth. After the housing bubble burst in 2008, many owed – and still owe – more than their homes would fetch in today’s market.

“We’re doing everything we can do to fix what we must. We’re committed to the reform track, and it’s these reforms that will make Denmark’s economy fundamentally healthy,” Vestager told Børsen.

Another report just released by the investment banking firm RBC Capital Markets, rated the EU countries’ “macroeconomic imbalances” using the same criteria as the commission. RBC also pointed to Denmark’s reduced export market share, which dropped by 15.3 percent over the past five years, and private debt, which equalled 2.4 times GDP in 2010, as risk factors. However, according to RBC’s analysts, Denmark was among the least “imbalanced” countries in the EU, and less “imbalanced” in fact than Germany, France, the UK and 18 other EU countries.

Hans Jørgen Whitta-Jacobsen, the leading advisor to national economic council Det Økonomiske Råd, told Børsen he agreed with the European Commission that high private debt was a strong risk factor for Denmark, because it “makes us vulnerable to sudden interest rate hikes”. But he added that it was “compensated for by high personal savings”.

Earlier in the week Whitta-Jacobsen and other leading economists told Børsen that Denmark had avoided a renewed recession and would most likely continue on its slow and steady recovery from the last one.

He pointed to the two-year collective labour agreements signed last weekend, which furnished wage constraints for 600,000 Danish workers, as one positive reform that would boost competitiveness and exports.

Det Økonomiske Råd also recommended abolishing the property tax freeze – a move that politicians have repeatedly ducked to avoid angering voters.