Denmark

Politics:

• Analysis

  Denmark politics: Below the ice

  Greenland's elections: Below the ice

  How the island's politics could change the world economy

  SHE grew up in a remote fishing village. Her father fell through the ice and died when she was seven. She was supposed to marry a hunter, but refused. Now Aleqa Hammond, who is 47 years old, looks set to become Greenland's first female prime minister. At elections on March 12th her social democratic Siumut party won 42.8% of the vote, beating the prime minister, Kuupik Kleist, and his socialist Inuit Ataqatigiit party, which came in at 34%.

  Mr Kleist lost over the issue of mining. Greenland's mineral wealth--which includes rare earths, essential to making many electronic devices--is becoming accessible as the country's ice cap melts. But many Greenlanders fear the impact of a mining boom. Complicating things, rare earths are often intermingled with uranium; its extraction is banned in Denmark, which still has a say in many of the affairs of its former colony.

  Both Inuit Ataqatigiit and Siumut are broadly pro-mining, but in different ways. Mr Kleist's government passed a law that allows mining firms to hire cheap foreign workers, but he is hesitant about lifting the ban on uranium extraction. Ms Hammond has said she would try to do just that, but wants mining firms to pay royalties. In the end Mr Kleist was seen as too pro-investor. He also seemed out of touch with ordinary people, whereas Ms Hammond is charismatic.

  She will now have to cobble together a coalition: the vote left her two seats short of a majority in Greenland's 31-seat parliament. It will be hard for her to ignore Partii Inuit, a protest party, which scored 6.4%. Its leader, Nikku Olsen, campaigned on limiting the influence of foreigners--including Danes.

  Ms Hammond's decision could be felt around the world: depending on what happens in Greenland, China may no longer be able to dominate the market for rare earths. A lot rests on a country that is four times the size of France but has a population of only 57,000.

  March 16, 2013

• Background

  Denmark: Key figures

  Lars Lokke Rasmussen

  Mr Lokke Rasmussen, the previous prime minister, is the leader of the opposition party Liberals (Venstre), the biggest party in parliament. Although his party won a seat in the September 2011 elections, he had to resign in the face of falling support for its allies in the coalition government. He remains a strong figure in Danish politics and is expected to occupy a prominent role again in the future.

  Helle Thorning-Schmidt

  Leader of the Social Democrats since April 2005, she was appointed the first female prime minister after the September 2011 elections. Thanks to her efforts to develop ties with the Socialist People's Party, she was able to form a centre-left coalition government. However, opinion polls suggest that support for her coalition is weakening, which could result in an early election being called.

  Pia Kjaersgaard

  Leader of the populist Danish People's Party (DF). Ms Kjaersgaard's party campaigns on law and order issues, opposes EU membership and calls for strict refugee and immigration legislation and greater welfare benefits for the sick and the elderly. She has been successful in retaining the support of blue-collar workers who have traditionally backed the Social Democrats. Ms Kjaersgaard, as Denmark's longest-serving party leader, has given no indication of a wish to stand down and is unlikely to be challenged.

  August 20, 2012

• Structure

  Denmark: Political structure

  Official name

  Kingdom of Denmark

  Form of state

  Constitutional monarchy

  Legal system

  Based on the constitution of 1953

  National legislature

  Unicameral Folketing (parliament) of 179 members; the Folketing is elected for four years, but may be dissolved before the end of its term

  Electoral system

  Universal direct suffrage over the age of 18; under the Danish system of proportional representation (modified Saint-Laguë system), 135 seats are allocated on a constituency basis in the 17 multimember constituencies; the remaining seats are divided nationally and reallocated to constituencies based on a national share of the vote

  National elections

  September 15th 2011 (general), November 17th 2009 (local). Next general election to be held by 2015.

  Head of state

  Queen Margrethe II, who acceded to the throne in January 1972

  National government

  Cabinet headed by the prime minister, responsible to the Folketing; currently a three-party coalition composed of the Social Democrats, Socialist People's Party and the Social Liberal Party.

  Main political parties

  Liberal Party (V; 47 seats); Social Democrats (S; 44 seats); Danish People's Party (DF; 22 seats); Social Liberal Party (R; 17 seats); Socialist People's Party (SF; 16 seats); Unity List (EL; 12 seats); Liberal Alliance (9 seats); Conservative People's Party (KF; 8 seats).

  The government

  Prime minister: Helle Thorning-Schmidt (S)

  Deputy prime minister & minister for the economy & interior: Margrethe Vestager (R)

  Key ministers

  Business & growth: Ole Sohn (SF)

  Climate, energy & building: Martin Lidegaard (R)

  Defence: Nick Haekkerup (S)

  Development co-operation: Christian Friis Bach (R)

  Education: Christine Antorini (S)

  Employment: Mette Frederiksen (S)

  Environment: Ida Auken (SF)

  European affairs: Nicolai Wammen (S)

  Finance: Bjarne Corydon (S)

  Foreign affairs: Villy Sovndal (SF)

  Food, agriculture & fisheries: Mette Gjerskov (S)

  Health & prevention: Astrid Krag (SF)

  Justice: Morten Bodskov (S)

  Science, technology & innovation: Morten Ostergaard (R)

  Social affairs & integration: Karen Hækkerup (S)

  Taxation: Thor Moger Pedersen (SF)

  Trade & investment: Pia Olsen Dyhr (SF)

  Transport: Henrik Dam Kristensen (S)

  Central bank governor

  Nils Bernstein

  March 18, 2013

• Outlook

  Denmark: Key developments

  Outlook for 2013-17

  • The minority coalition of the Social Democrats, the Socialist People's Party (SF) and the Social Liberal Party has seen its poll ratings slump since taking power in October 2011.
  • The prime minister, Helle Thorning-Schmidt, must bridge diverging views on core issues within the coalition, and she needs the leftist Unity List, or one or more of the centre-right opposition parties, for a parliamentary majority.
  • The next general election is scheduled for 2015, but the cohesion of the coalition came under stress when the prime minister agreed on a tax package with the centre-right opposition.
  • The SF expressed strong disapproval of the package, and Unity List withdrew its support. It could fail to back the government in the future.
  • Referendums might be held during this parliamentary term on whether to scrap two of Denmark's EU opt-outs, but not on adopting the euro.
  • The Economist Intelligence Unit estimates that the budget deficit expanded to about 4% of GDP in 2012. Despite the government's long-term reform agenda, the budget is unlikely to return to surplus during the forecast period.
  • After reducing its interest rates in response to the decision by the European Central Bank (ECB) to lower its own rates, the Nationalbank (the central bank) is expected to remain active in protecting the krone's peg.
  • This was the case in January when it raised the rate on certificates of deposit to -0.1% (the current-account rate remained at zero). Such low rates are historically unusual, but the situation is still likely to persist this year.
  • The recovery from the recession of 2008-09 remains fragile. GDP is estimated to have contracted mildly in 2012, partly owing to a contraction in public consumption. GDP growth will rise only moderately thereafter.

  Review

  • The non-seasonally adjusted current-account surplus climbed to Dkr4.7bn (US$800m) in January 2013, helped by improvements on the income balance and on the merchandise trade balances.
  • The financial account, meanwhile, recorded a deficit of Dkr31.2bn, probably resulting from the easing of tension in euro zone financial markets.
  • Industrial production increased sharply by a seasonally adjusted 7.2% month on month in January, although base effects boosted this increase, so that output was 4.3% higher in January compared with a year earlier.
  • The unemployment rate (national measure) declined to a seasonally adjusted 6% of the workforce in January compared with 6.1% the previous month.

  March 18, 2013

Economy:

• Background

  Denmark: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	5.6	Population growth	0.6
  GDP (US$ bn; market exchange rate)	313.6	Real GDP growth	-0.9
  GDP (US$ bn; purchasing power parity)	232.3	Real domestic demand growth	-1.1
  GDP per head (US$; market exchange rate)	55,864	Inflation	2.4
  GDP per head (US$; purchasing power parity)	41,370	Current-account balance (% of GDP)	5.2
  Exchange rate (av) Dkr:US$	5.8	FDI inflows (% of GDP)	1.6
  a The Economist Intelligence Unit estimates.

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  Background: Denmark is a founder member of NATO. It joined the European Community (now the EU) in 1973. The electorate has traditionally been suspicious of deeper political integration with the EU. The government negotiated four opt-outs from the 1992 Treaty on European Union (Maastricht treaty). Opinion has since become more favourable towards EU membership, and referendums on whether to remove at least some of the opt-outs may be held in the coming years.

  Political structure: The Folketing (parliament) is elected under a system of proportional representation and serves for a maximum of four years. After a decade of centre-right rule, the election in 2011 resulted in the formation of a minority centre-left coalition of the Social Democrats, the left-wing Socialist People's Party (SF) and the centrist Social Liberal Party. The government needs the support of the far-left Unity List or opposition parties to achieve a parliamentary majority.

  Policy issues: The government plans a modest fiscal stimulus in 2012, but will seek to narrow the budget deficit thereafter. Higher public spending in priority areas over the medium term, notably healthcare, implies a need for cuts in other areas. "Green taxes" will increase. Other policy priorities include improving the quality and efficiency of public services, raising the labour supply to offset a projected decline in the population of working age, the promotion of "green" technologies, and ensuring that Denmark retains a competitive environment for research and development activity.

  Taxation: Denmark has one of the highest tax burdens in the world. A progressive reduction in personal income taxes under the previous, centre-right government (in 2001-11) was partly offset by higher environmental and energy taxes. Green taxes and "sin" taxes will rise further under the current, centre-left coalition. The headline rate of corporation tax is 25%. Value-added tax (VAT) is levied on almost all goods and services at 25%. Holding companies are exempt from capital gains tax, which is levied at 34%.

  Foreign trade: The economy is highly open, with exports and imports accounting for 54% and 48% of GDP, respectively, in 2011. The EU remains the most important trading zone, accounting for around two-thirds of exports and just under three-quarters of imports. Trade with other countries has increased in recent years, with China becoming a more important source of imports. The current-account surplus is estimated at around US$22bn in 2011 (equivalent to 6.6% of GDP).

  Major exports 2011	% of total	Major imports 2011	% of total
  Machinery & transport equipment	27.3	Machinery & transport equipment	29.1
  Food, drinks & tobacco	19.7	Food, drinks & tobacco	12.7
  Chemicals & related products, n.e.s.	17.4	Chemicals & related products, n.e.s.	11.4
  Mineral fuels, lubricants & related materials	11.0	Mineral fuels, lubricants & related materials	9.2
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	16.6	Germany	20.9
  Sweden	13.0	Sweden	13.7
  UK	9.7	Netherlands	7.2
  Norway	5.6	UK	6.4

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  March 18, 2013

• Structure

  Denmark: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 18, 2013

• Outlook

  Denmark: Country outlook

  Denmark: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The minority centre-left government--consisting of the Social Democrats, the Socialist People's Party (SF) and the centrist Social Liberal Party--took office in October 2011. Opinion polls suggest that important groups of swing voters have switched their allegiance to the centre-right opposition parties after the government abandoned several of its pre-election plans.

  ELECTION WATCH: Following the general election in September 2011, the government can serve a four-year term before the next election must be held. However, given that the government lacks an overall majority and faces a potentially shifting constellation of parliamentary partners, depending on the issue at hand, there is a moderate risk that an election will be held sooner. Denmark would thus probably see a change in majority.

  INTERNATIONAL RELATIONS: The change of government after ten years of centre-right rule has not heralded a radical shift from a long-standing strategy focusing on active membership of the EU, a close transatlantic relationship, and membership of NATO and the UN. European affairs will dominate foreign relations. Denmark signed up to the "fiscal compact" agreement committing to closer fiscal co-ordination and oversight, but remains sympathetic to British concerns that policies affecting all 27 members (notably regarding the single market) should not be preordained by a "core" group. The country might consider pressing ahead with plans to remove two of Denmark's three opt-outs from EU co-operation--in the fields of the common foreign and security policy, and on justice and home affairs--but this would require a referendum. The turmoil in financial markets will keep the question of Danish membership of the euro area off the political agenda for years to come.

  POLICY TRENDS: The focus of economic policy has shifted under the centre-left government, but broad cross-party consensus exists on the economic challenges facing Denmark in the years ahead. The coalition introduced an additional one-off, modest stimulus to the economy in 2012, and the 2013 budget strikes a balance between some social and green growth investments and fiscal consolidation. The current government retains the previous government's medium-term budget targets. It has also introduced ceilings on public spending at the national, regional and municipal levels. Welfare and labour market reforms designed to increase work incentives will be crucial to medium-term fiscal consolidation. The government will also raise the early retirement age gradually from 60 (starting in 2014) and accelerate a scheduled rise in the state pension age of 65, even though before the election the Social Democrats and SF opposed a cross-party political agreement to do so. The centre-left coalition also agreed on a tax reform and discussions with the social partners on labour market reforms to raise labour supply. Longer-term policy priorities will be to address waning competitiveness, demographic change and the pressures, generally, on public spending, as laid out in a joint long-term policy initiative.

  ECONOMIC GROWTH: The economy contracted by 0.6% in 2012 as a whole, mainly as a result of the external sector. Private consumption was relatively resilient, as a result of the one-off stimulus measures, but the decline in public consumption led to an only modest expansion of total domestic demand. Export growth was outpaced by import growth, which led to a negative impact of the external sector on total GDP. The Economist Intelligence Unit forecasts that growth will recover mildly in 2013, to 0.6%, and that it will average of 1.6% in 2014-17, although downside risks will remain.

  INFLATION: EU harmonised inflation averaged 2.4% in 2012, mainly because of high commodity prices in the first half of the year. Indirect taxes will continue to put upward pressure on inflation, but more moderate energy and food prices, combined with a persistent output gap and low demand will push the inflation rate to below 1.5% in 2013. Inflation will then remain close to target, and the expected weakening of the krone:US dollar exchange rate should prevent a sharp fall. Inflation is forecast to remain relatively stable during 2014-17, averaging about 2.1%.

  EXCHANGE RATES: The krone is pegged to the euro at a central rate of around Dkr7.46:EUR1, within a band of ±2.25%. Against the US dollar, the krone will move in tandem with the euro, which will remain volatile in response to the region's debt and banking crises. The euro was trading at about US$1.30:EUR1 in mid March 2013, but given persistent uncertainty over sovereign debt sustainability and banking solvency issues, we forecast that the euro will depreciate further in 2013. As a result, the krone will weaken from an average of Dkr5.79:US$1 in 2012 to Dkr5.61:US$1 in 2013 and about Dkr5.80:US$1 in 2013-17.

  EXTERNAL SECTOR: The trade surplus is expected to fall throughout 2013-17, on the assumption of a weak external environment and stable, albeit still high, oil prices (Denmark is a net exporter of petroleum), and a more durable revival of domestic demand later in the forecast period. The services surplus fell in 2012 (partly owing to lower shipping receipts), but is expected to rise thereafter. The current account will continue to receive additional support from a surplus on the income balance.

  March 08, 2013

• Forecast

  Denmark: Country forecast summary

  Country forecast overview: Highlights

  • A centre-left minority coalition took office in October 2011, ending a decade of centre-right rule. The prime minister, Helle Thorning-Schmidt, leads a diverse coalition, which forces her to find compromises on a number of issues. Alongside her Social Democrats, this includes the economically liberal Social Liberal Party and the left-wing Socialist People's Party (SF). The coalition lost the support of the far-left Unity List after agreements with the centre-right opposition, and might have to rely on one or more of the centre-right parties to achieve a parliamentary majority. The government is expected to try to avoid an early election at all costs.
  • The coalition should be able to find sufficient common ground with smaller opposition parties to make progress on the government's legislative programme during the parliamentary year. The next general election is scheduled for 2015. The cohesion of the coalition came under stress when the prime minister agreed a tax and labour market reform package with the centre-right opposition. The Social Liberal Party has seen its poll ratings slump since taking power in October 2011.
  • The government introduced a modest stimulus to the economy in 2012 by accelerating public investment, and allowed the reimbursement of contributions paid into the early retirement scheme, resulting in a one-off cost to the state of around 1% of GDP. The budget deficit therefore expanded to 4% of GDP in 2012, but is expected to narrow to 2.5% in 2013 and to just over 1% towards the end of the forecasting period. Given poor demographics, further action to raise the labour supply, or deeper spending cuts or additional tax increases, will be necessary to ensure fiscal sustainability over the medium term.
  • The fiscal stimulus provided some support to household spending and investment in 2012, but the negative impact of the external sector led to a 0.6% contraction in real GDP. We expect an only moderate recovery in 2013, by 0.6%. Net household savings are expected to remain high for some time yet, given high household debt and the enduring weakness of the housing market. Although growth is forecast to creep up thereafter, assuming that the global economy revives from 2013, unfavourable demographics will prevent it from exceeding 2%.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	-0.6	0.6	1.1	1.5	2.0	1.8
  Consumer price inflation (av; %)	2.4	1.2	2.3	2.2	2.1	2.1
  Consumer price inflation (av, %; EU harmonised measure)	2.4	1.2	2.2	2.1	2.0	2.0
  Budget balance (% of GDP)	-4.0	-2.5	-1.8	-1.5	-1.3	-1.1
  Current-account balance (% of GDP)	7.8	6.1	5.5	5.3	5.2	4.9
  Short-term interest rate (av; %)	0.6	0.4	0.7	1.2	1.9	1.9
  Exchange rate Dkr:US$ (av)	5.79	5.61	5.68	5.87	5.92	5.91
  Exchange rate Dkr:US$ (year-end)	5.66	5.65	5.72	5.94	5.92	5.92
  Exchange rate Dkr:€ (av)	7.46	7.46	7.46	7.46	7.46	7.46
  Exchange rate US$:€ (av)	1.29	1.33	1.31	1.27	1.26	1.26

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  March 18, 2013

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Country Briefing

Total area

43,075 sq km (excluding Greenland and the Faroe Islands), of which 66% is designated for agriculture, 11% forested

Population

5,534,738 (January 1st 2010, excluding Greenland and the Faroe Islands)

Main municipalities

Population in '000 (January 1st 2010):

 Copenhagen (Kommune—capital): 528

 Herning (Kommune): 306

 Aalborg (Kommune): 197

 Odense (Kommune): 189

 Esbjerg (Kommune): 115

 Vejle (Kommune): 106

Climate

Temperate

Weather in Copenhagen (altitude 9 metres)

Hottest month, July, 14-22°C (average daily minimum and maximum); coldest month, February, -3-2°C; driest month, March, 32 mm (average monthly rainfall); wettest month, July, 71 mm

Language

Danish

Weights and measures

Metric system

Currency

1 krone (Dkr, with plural kroner) = 100 ore

Fiscal year

January-December

Time

One hour ahead of GMT, with daylight saving time in the summer

Public holidays

January 1st; April 5th, 6th, 8th, 9th; May 4th, 17th, 27th, 28th; December 25th and 26th

January 16, 2013