European Commission: Denmark on track

Denmark will live up to its EU budgetary obligations reduce its deficit to less than the maximum allowed three percent of GDP in 2013

Denmark may be struggling to get its economy in gear, but at least the European Commission (EC) is pleased with Denmark’s economic policies, financial daily Børsen reports.

“I don’t see any problems with the budgetary adjustments that will take place next year,” an anonymous commission source told Børsen today.

The government is currently negotiating a 2013 budget it hopes will slash the 2012 deficit from 73.5 billion kroner, around four percent of GDP, to 36.5 billion, or 1.9 percent of GDP.

This would bring Denmark below then the maximum three percent deficit to GDP ratio that EU states are obliged to comply with in order to keep a lid on spiralling debt.

“We might see a smaller margin than the three percent, depending on the rate of growth,” the source said. “But we largely agree [with the deficit forecast].”

The EC’s recommendations for the Danish economy will be released in November. Last year’s recommendations praised the reform of the early retirement programme, efterløn, which encouraged Danes to buy themselves out of the job market up to five years before the pensionable age.

The massive payout, 22 billion kroner, was one of the reasons behind Denmark’s high budget deficit this year but it won’t be repeated because it was a one-off payment.

Denmark entered an “excessive budget procedure” in 2010 after reaching a deficit of 5.4 percent under the former centre-right (VK) government.

The procedure means that Denmark is forced to enact certain budgetary reforms in order to reduce the budget deficit to less than three percent of GDP by 2013, a target that Denmark now looks set to reach.

According to Lars Andersen, chairman of AE-Rådet, a left-leaning economic think tank, Denmark ended up in the procedure because of political, rather than economic, reasons.

“We think that Denmark should never have been in the procedure,” Andersen told Børsen. “It was more the result of the VK government wanting to dump unpopular decisions on the EU. But now it binds the government’s economic policy through to 2014.

The news from the EC adds further credibility to the government’s economic policies after ratings agencies in September said they approved of the direction the Danish economy was going.

“The Danish economy has many structural strengths,” Maria Malas-Mroueh, an analyst from the Fitch rating agency, told Politiken newspaper. “It is versatile, personal income is high and there are robust economic, political and social institutions. A long tradition of sensible economic policies is reflected in a relatively low level of structural unemployment and a stable currency.”

The developments come after the government revealed in May that the budget deficit would be 26 billion kroner less than the 100 billion kroner forecast for the year.

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