Key Challenges

Social trust boosts
reform capacity
Being a small and open economy, Denmark has a long tradition of meeting the challenges posed by international integration and globalization, and has shown a capacity to enact needed reforms to reconcile an extensive welfare state with a well-functioning economy. Comparatively, Denmark is favorably positioned with regard to adaptability and the enactment of political reforms to address challenges, despite sometimes delaying and deferring such reforms. A tradition of open dialog, cooperation and broad-based reform goals contribute to the country’s adaptability. Trust between different actors and societal groups, often referred to as “social capital,” has also been an important factor. However, to remain among the leading industrialized nations, Denmark must continue to monitor its policies and institutions. Additional changes and reforms will be necessary.
The following briefly lists areas of crucial importance to Denmark and outlines where policy initiatives are needed:
Labor market must reflect changing needs
First, the government must address possible bottlenecks in the labor market, and address the challenges presented by technological change (e.g., automatization) and globalization. This has revitalized the debate on whether the education system is sufficiently equipped to supply the type and quality of education needed by the private sector. The labor market possibilities for low-skilled workers is a particular challenge.
Second, the economy’s growth potential is an issue. In addition, given the relative size of the public sector, improving government efficiency and productivity will be an important task.
Inequality, integration pose risks
Third, although comparatively inequality is low and social cohesion is high, Danish society is trending toward more disparity and inequality. A particular challenge involves the integration of immigrants and other marginalized groups into the labor market, which is often difficult due to insufficient job qualifications.
Welfare, health care creating fiscal challenges
Fourth, while the long-term financial viability of the welfare state, despite an aging population, has largely been ensured by a recent series of reforms, fiscal challenges remain due to increasing demands on welfare services in general and health care in particular. In the design of welfare policies, it is important to balance concerns for equality and social insurance with incentives for education and work. The hallmark of Danish society has been its ability to reconcile low inequality and an extensive public sector with a well-functioning economy supporting high-income levels. Reconciling these objectives remains an ongoing challenge.
EU policy remains fragmented
Fifth, Denmark, with its small yet open society, has a long tradition of being an active participant and partner in international political cooperation. At the same time, there is a strong desire within society to establish “arm’s length distance” over certain issues, both to underline Denmark’s independence and prevent the country’s marginalization in international forums. As a result, the Danish debate on the European Union has always been somewhat fragmented and not always comprehensible to foreign observers. A case in point are the four Danish opt-outs included in the Maastricht Treaty. European Monetary Union membership remains a very delicate subject since the referendum in 2000. Denmark is not a member, but pursues a tight, fixed exchange rate policy by pegging the Danish krone to the euro. This peg has been very credible, as reflected in a very small (and in some periods negative) interest rate spread. Denmark is, in this sense, a shadow member of the euro zone, although it is not directly represented in the supranational executive bodies. The recent referendum on justice and home affairs cooperation confirmed Denmark’s “sideline” participation in EU cooperation.
Ambitious targets are work in progress
Overall, both the previous and current governments have set ambitious strategic targets. Various policy plans signal a political awareness of the country’s structural problems. Dealing with these challenges is a work in progress.

Party Polarization

Party blocs are not monolithic
There is a degree of party polarization in Denmark, between the “blue” block led by the Liberal Party and the “red” block led by the Social Democrats. These blocs are not monolithic. Although the Danish Peoples’ Party gives parliamentary support to the current Liberal-led government, it also flirts with the Social Democrats with whom they have affinities on immigration and social policies. On the left side, it is currently unclear how much the Social Liberal Party and the Alternative party will support a future Social Democratic party. So the situation is somewhat fluid and could lead to difficult negotiations about forming a new government after the upcoming elections, which must take place before June 2019.
Coalitions necessitate cross-party agreement
Because of the relatively large number of parties represented in the parliament (currently nine plus representatives from the Faroe Islands and Greenland), even coalition governments are nearly always minority governments obliged to seek broader coalitions to pass particular pieces of legislation. Danish politicians have therefore developed negotiating skills and coalition-making capacities allowing for cross-party agreements on most policy reforms. (Score: 9)
Jørgen Grønnegård Christensen og Jørgen Elklit (red). Det demokratiske system. 4. udgave. Hans Reitzels Forlag, 2016.
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