November 1st, 2019

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Whilst British PM Boris Johnson recently illegally suspended Parliament, and US President Donald Trump faces an impeachment inquiry, new Danish PM Mette Frederiksen has faced far less turbulent times, particularly as a ferocious Venstre power struggle has taken up all the domestic focus in recent months.

Tiny bit of envy perhaps
Denmark is in a fairly enviable position. Growth since the financial crisis has been steady, if unspectacular; unemployment is moderate; there is a whopping current account deficit; and Denmark enjoys one of the lowest levels of public debt in the developed world.

Nobody should be lulled into a false sense of security though. Although public debt is low, private debt in Denmark is high by international standards.

Combined with concerns that property prices in Copenhagen may again be unnaturally high, this could be problematic.

And as a small, relatively open economy, Denmark will inevitably be buffeted by wider concerns. After Ireland and the Netherlands, Denmark is one of the closest EU economies to the UK. Brexit, particularly a disorderly one, is therefore a clear risk for importers, as is Trump’s threats to put tariffs on certain EU goods.

First job is the hardest
Meanwhile, many of the structural issues facing the Danish economy remain.
For example, Denmark’s high de facto minimum wage, although providing decent wages for those in work, results in employers taking on fewer staff at entry level positions. This is a big reason why unemployment in immigrant communities, although coming down, remains astronomically high.

To compound the matter, potential solutions like differentiated wage rates, or government support for certain long-term employees, are objected to by trade unions.

Bring back rationing?
The biggest issue remains the demographic challenges facing a country that famously has a generous welfare system. Nevertheless, while the natural birth rate is stagnating, there are a number of solutions.

One is immigration, but that is hugely controversial. Another is an increase in taxation, but there is general agreement that one of the world’s highest tax takes is close to its natural limit. And a final option is to ration services, but that is hugely controversial in a country where meaningful government support where required is seen as part of the culture.

Presently, there is no agreement about where to introduce these measures. Frederiksen has made a solid start – partly aided by the focus on the more gripping events elsewhere. Before long, though, focus will turn, and there is work to be done to ensure Denmark’s currently benign economic climate continues.