# EUR-Lex - 52011SC0820 - EN

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# 52011SC0820

**Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Denmarkand delivering a Council opinionon the updated convergence programme of Denmark, 2011-2015 /* SEC/2011/0820 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on the National Reform Programme 2011 of
Denmark
and delivering a Council opinion
on the updated convergence programme of Denmark, 2011-2015

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 121(2) and 148(4)
thereof,

Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1]
, and in particular Article 9(3) thereof,

Having regard to the recommendation of the
European Commission[2],

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

After consulting the Economic and Financial
Committee,

Whereas:

(1) 
On 26 March 2010, the European Council agreed to
the European Commission's proposal to launch a new strategy for jobs and
growth, Europe 2020, based on enhanced coordination of economic policies, which
will focus on the key areas where action is needed to boost Europe’s potential
for sustainable growth and competitiveness.

(2) 
On 13 July 2010, the Council adopted a
recommendation on the broad guidelines for the economic policies of the Member
States and the Union (2010 to 2014) and on 21 October 2010, adopted a decision
on Guidelines for the employment policies of the Member States[3],
which together form the “integrated guidelines”. Member States were invited to
take the integrated guidelines into account in their national economic and
employment policies.

(3) 
On 12 January 2011, the Commission adopted the
first Annual Growth Survey, marking the start of a new cycle of economic
governance in the EU and the first European semester of ex-ante and integrated
policy coordination, which is anchored in the Europe 2020 strategy.

(4) 
On 25 March 2011, the European Council endorsed
the priorities for fiscal consolidation and structural reform (in line with the
Council’s conclusions of 15 February and 7 March 2011 and further to the
Commission’s Annual Growth Survey). It underscored the need to give priority to
restoring sound budgets and fiscal sustainability, reducing unemployment
through labour market reforms and making new efforts to enhance growth. It
requested Member States to translate these priorities into concrete measures to
be included in their Stability or Convergence Programmes and National Reform
Programmes.

(5) 
On 25 March 2011, the European Council also
invited the Member States participating in the Euro Plus Pact to present their
commitments on time for their inclusion in their Stability or Convergence
Programmes and their National Reform Programmes.

(6) 
On 9 May 2011, Denmark submitted its updated
2011 Convergence Programme covering the period 2011-2015 and its 2011 National
Reform Programme. In order to take account of their
interlinkages, the two programmes have been assessed at the same time.

(7) 
Based on the assessment of the updated
Convergence Programme pursuant to Council Regulation (EC) No 1466/97, the
Council is of the opinion that the macroeconomic scenario underlying the
Convergence Programme is plausible. While based on slightly more favourable
growth assumptions for 2012 and beyond, it is broadly in line with the spring
2011 Commission services' forecast. The budgetary strategy set out in the
convergence programme aims at bringing the deficit below the 3% reference value
by 2013, in line with the Council recommendations, reaching the revised medium term
objective (MTO) of structural budget balance not below -0.5% of GDP by 2015 and
achieving budget balance by 2020. The adjustment path towards this objective is
appropriate. Measures included in the programme and adopted by Parliament in
spring 2010 are considered adequate to underpin the budgetary targets and would
represent an annual fiscal effort of around 1% of GDP over the period
2011-2013. Denmark will reach its revised medium term objective within the
programme horizon. Risks to the budgetary targets are broadly balanced.

(8) 
The Danish economy started slowing down in 2007
amidst a correction in the real estate market contributing to domestic banking
problems, amplified by rising insolvencies and unemployment. The recession was
severe, output contracted by 8% between the autumn of 2007 and the spring of
2009, and the unemployment rate rose to 7.4% in 2010. The employment rate
dropped from 79.8% in 2008 to 76.1% in 2010, affecting young people in
particular. Output started recovering in 2009, and real GDP growth reached 2.1%
in 2010. The recovery has been driven by sustained domestic demand (also on
account of fiscal expansion), a strong inventory rebound and the robust
recovery of Denmark's main trading partners.

(9) 
Automatic stabilisers and crisis-related
measures caused the general government balance to turn from a surplus of 3.2%
of GDP in 2008 into a deficit of 2.7% of GDP in 2009. On the basis of Denmark's
notification in Spring 2010 that the budget deficit would widen beyond 5% of
GDP in 2010, an excessive deficit procedure for Denmark was opened in July
2010. Although unexpected and temporary windfall gains linked to pension yield
taxation led to a stabilisation of the budget deficit at 2.7% of GDP last year,
the Commission services' spring 2011 forecast expects the deficit to widen
again to around 4% of GDP in 2011, emphasising the need for continuous and
ambitious consolidation efforts in 2012. This implies a strict implementation
of the measures adopted in the 2010 Consolidation Agreement and expenditure
control as set out in the Convergence Programme to ensure the correction of the
excessive deficit by 2013.

(10) 
A tight
control to avoid recurrent spending overruns at local and regional government
levels is important to achieve budgetary targets. For the past 20 years, public
spending has continuously been above budgetary targets. The government has
already taken some measures to address this issue and is planning to introduce
a new spending control scheme, controlled by the Danish Economic Council, as
described in the Convergence Programme.

(11) 
As a result of demographic factors, the
working-age population (15-64 years) will shrink by around 1.5% between 2010
and 2025 and by close to 5% by 2040. In the medium term, economic recovery
could lead to a tightening of the labour market as witnessed during the boom
years. Despite an already high labour participation rate, there is scope to
further raise labour supply. Voluntary early retirement is widespread among
people aged 60 to 64 resulting in an employment rate for 60-64 year olds of
only 40%. Moreover, 10 % of the working age population below 40 years of age
are either on disability benefits or in a flex-job (subsidised employment).

(12) 
There has been a declining trend in productivity
growth since 1995, one of the potential causes being weak education
performance. Although Denmark continues to spend
generously on its education system, educational outcomes are only average in
several key areas and Denmark has the fourth lowest youth education
attainment level in the EU. In 2009, only 70.1 %
of the 20-24 year old population had completed at least upper secondary
education (as against an EU average of 78.6 %) and the PISA results are
average. The drop-out rates from youth and vocational institutions are
relatively high, with almost 50 % of students in vocational youth
education leaving early. In addition, 10 years after leaving primary school
about 20 percent of young people have not completed their education above lower
secondary level. Improving the quality of the education system would
also help to prevent future skills imbalances in the labour market, currently
pointing to a possible surplus of unskilled workers alongside a shortage of
skilled workers. Productivity growth has been particularly weak in the
construction and services sectors. This is the case in particular within local
services, the retail sector, wholesale trade, and personal services, where low
degrees of competition in certain sectors, for example, high market entry
barriers may lead to a sub-optimal allocation of resources. Zoning laws are
strict, limiting possibilities for productivity enhancing economies of scale in
the retail sector. In order to address the fact that open
public procurement only covers around 25 % of public procurement, the government has launched a strategy aimed at increasing
competition within public services by gradually increasing public procurement
in municipalities and regions, and set a new target for municipalities whereby
31.5% of all procurement should be public by 2015.

(13) 
Household debt in terms of GDP is the highest in
the EU. The build-up of debt levels, which has been fuelled by the housing boom
between 2004 and 2007, creates potential risks for the economy and financial
stability. Although these risks are mitigated by the characteristics of
Denmark's sophisticated mortgage-backed bond market and a globally robust
financial situation of the majority of households (with assets far in excess of
liabilities), only limited measures to dampen pro-cyclical fluctuations of
house prices were introduced in the aftermath of the house price correction.

(14) 
Denmark has made a number of commitments under
the Euro Plus Pact[4]. To improve fiscal
sustainability, an agreement has been reached to
strengthen sanction legislation with regard to spending control at the local
level. The government has
submitted a proposal on a dowry scheme to facilitate private resolutions to
handle distressed banks and help improve financial stability. Employment measures focus on fostering employment by prolonging
working life. To foster competitiveness a Competition
Package with concrete initiatives is targeted primarily towards the
construction and service sectors. These commitments
refer to the four areas of the pact. Overall, the measures coincide with those
taken to follow up on the Annual Growth Survey and make progress towards the
Europe 2020 targets, most notably in the employment domain. Although a number
of the announced commitments have already been introduced, important measures
to improve budgetary discipline (at local level) and to foster employment
should be implemented in the near future. These commitments have been assessed
and taken into account in the recommendations.

(15) 
The Commission has assessed the Convergence
Programme and National Reform Programme, including the Euro Plus Pact
commitments[5]. It has taken into
account not only their relevance for sustainable fiscal and socio-economic
policy in Denmark but also their conformity with EU rules and guidance, given
the need to reinforce the overall economic governance of the European Union by
providing EU level input into future national decisions. In this light, the
Commission considers that continuous and ambitious fiscal consolidation efforts
should be pursued in 2011 and beyond. Further steps should also be taken to
further raise labour supply through reducing early retirement and targeting
particular groups, improve the quality of education, strengthen competition in
key sectors and further stabilise the real-estate market.

(16) 
In light of this assessment, also taking into
account the Council Recommendation under Article 126(7) Treaty on the
Functioning of the European Union of 2 June 2010, the Council has examined the
2011 update of the Convergence Programme of Denmark and its opinion[6]
is reflected in particular in its recommendation under (1) set out below. Taking
into account the European Council conclusions of 25 March 2011, the Council has
examined the National Reform Programme of Denmark,

HEREBY RECOMMENDS that Denmark
should take action within the period 2011-2012 to:

(1) 
Implement fiscal consolidation measures in 2011
and 2012 as planned and correct the excessive deficit by 2013. Accelerate the
reduction of the general government deficit if economic conditions turn out
better than currently expected. Strengthen expenditure control by adopting
binding multiannual spending ceilings for local, regional and central
government which are consistent with the overall medium-term general budget
targets.

(2) 
Phase out as planned the voluntary early
retirement pension (VERP) scheme, reform the disability pension, and better
target subsidised employment schemes (the "flex-job" system) towards
the most vulnerable groups.

(3) 
Speed up the implementation of reforms to
improve the quality of the education system. Reduce drop-out rates,
particularly in the vocational education sector, and increase the number of
apprenticeship places available.

(4) 
Take steps to remove obstacles to competition,
in particular in local services and the retail sector, by reviewing legislation
on land use and opening up procurement in municipalities and regions.

(5) 
While supporting the ongoing stabilisation of
the real-estate market following the recent price correction, take preventive action to strengthen the
medium-term stability of the housing market and the financial system including
reforms to the mortgage and property tax systems.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 2.8.1997, p. 1.

[2]               OJ C , , p. .

[3]               Maintained for 2011 by Council Decision 2011/308/EU
of 19 May 2011.

[4]               More details on the commitments made under the Euro
Plus Pact can be found in SEC(2011) 713.

[5]               SEC(2011) 713.

[6]               Foreseen in Article 9(3) of Council Regulation (EC)
No 1466/97.