DENMARK

Denmark’s democracy functions well and its government structure is credible and transparent. The general level of trust in government and public administration is high. Prior to the global financial crisis, Denmark was often mentioned in international debates as a model example of a well-functioning economy, with low unemployment and surpluses in both the public balance and the current account balance. At the same time the welfare state is extensive in both in terms of service provisions and the social safety net, thus the country’s tax burden is high. Moreover, inequality is low. Denmark has shown that it is possible to combine a extensive welfare state with a well-functioning economy.
Demark was severely affected by the global financial crisis, and although many of the country’s macroeconomic indicators are still favorable when compared with other EU countries, significant problems have surfaced. Unemployment numbers have increased and the public budget is in deficit. The financial crisis has brought underlying structural problems to the fore. Denmark’s competitive position has weakened over the years, as indicated by both rising wages and low productivity growth; the country in recent years has even experienced negative productivity growth. This raises the question whether Denmark has the ability to continue to be considered among countries with the highest per-capita income. Public finances are also in trouble. The global financial crisis compounded some previously unsolved problems, primarily the challenges of an aging population. Although substantial reforms have been agreed upon, such changes require a very long transition period and even so will not fully address the problem. Hence, systematic deficits are projected for several decades to come.
While inequality is low in Denmark, the crisis has tested the country’s social safety net. Despite the sharp fall in employment numbers, most people have not experienced a dramatic decrease in income, due to various forms of social transfers. However, while marginal groups had improved their labor market position in the years prior to the crisis, there is a risk that this situation will unravel in a weakened labor market. One method to achieving low unemployment despite the generous social safety net and high tax rates has been an active labor market policy, with a strong focus on job searches and active measures to keep the unemployed in contact with the labor market, as well as providing job seekers with training to improve job prospects. If the crisis is prolonged, it is an open question whether the support to and effectiveness of this policy framework can be maintained.
While few reforms were enacted at the start of 2000, there have been several reforms introduced in recent years. This includes, since 2007, structural reforms including public sector changes, transforming counties into regions with the management of health care as their main responsibility, and merging municipalities into fewer, larger units. Welfare reform was approved in 2006 with broad support in parliament, but such reforms will begin a transition phase starting in 2019 and completing in 2027; other reforms include increasing the legal early retirement and pension ages, and eventually linking them to longevity. Tax reform that would shift taxes from labor to the environment as well as broaden the tax base will take effect from 2010. However, planned labor market reforms have been postponed. All of the above-mentioned reforms were based on work in commission, indicating the importance of this instrument in the policy process, in a country with a strong consensus tradition and one that is mostly governed by minority governments.
Several issues are high on the political agenda. Education is a big issue, with teaching goals and methods being debated in the context that while Denmark belongs to the top OECD countries as concerns educational expenditures, it scores lower on various indicators for educational performance. The public sector (mainly municipalities) has expressed increasing frustration in relation to service provisions, where many find standards to lag behind what is expected on the one hand, and on the other tight finances make it difficult to expand provisions. The issue of immigration and integration of immigrants remains a controversial issue. Immigration policy has been tightened in recent years, and the implications are much debated. While immigrants from poorer countries have improved their labor market position in recent years, there are still problems. Finally, the Danish position in international politics is a controversial issue. This applies to foreign policy in general and military operations in Afghanistan and Iraq in particular. The country’s position vis-à-vis the European Union remains a contested issue, and for the time being it does not seem that there will be a move to change the four Danish opt-outs, including European Monetary Union membership.