Council Opinion

of 18 February 2003

on the updated convergence programme of Denmark, 2002 to 2010

(2003/C 51/02)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 18 February 2003 the Council examined Denmark's updated convergence programme, which covers the period 2002 to 2010. The programme is rich in information especially with regard to the amount of data provided for the analysis of medium- and long-term challenges of the Danish public finances and complies with the code of conduct. The economic policies as reflected in the planned measures in the convergence programme update comply with the 2002 Broad Economic Policy Guidelines.

The economy has largely developed as foreseen in the 2001 update. The slowdown of economic growth in 2001 was estimated to result in GDP growth at 1,1 %. The latest figure is 1,4 %. For 2002 a small increase in GDP growth to 1,5 % is expected which is in line with what was foreseen in the previous update. In 2003 and 2004 GDP growth is estimated at 1,8 % and 2,1 % driven solely by domestic demand. The Council notes that the macroeconomic projection seems plausible and it is in line with the Commission's Autumn forecast.

The Council notes with satisfaction that Denmark has continued to fulfil the convergence criteria on inflation, long-term interest rate, the exchange rate and public finances.

The public finance strategy presented is largely unchanged from previous years and continues to have a strong focus on ensuring sustainable public finances in the medium- and long-term. The foundation for the strategy continues to be both the maintenance of general government surpluses in the order of 1,5 to 2,5 % of GDP on average towards 2010 and the tax freeze, which is also intended to help ensure expenditure control. In order to obtain the budgetary targets stipulated in the medium term projection it is acknowledged by the Danish government in the programme that further labour market reforms are needed. The Council welcomes that the tax freeze has so far been implemented for all levels of government, a development which is in line with the Broad Economic Policy Guidelines.

The Council notes with satisfaction that public finances in Denmark continue to remain healthy. The outcome for 2001 was better than expected. For 2002 to 2004 the update forecasts budget surpluses of 1,6, 1,9 and 2,4 % of GDP, which is broadly in line with the Commission's estimates. For the rest of the period (2005 to 2010) the programme projects surpluses around 2 % of GDP. The debt is expected to decrease from 44 % of GDP in 2002 to 26 % of GDP in 2010.

The Council notes that also in underlying terms public finances should remain sound over the projection period with surpluses of around 2 % of GDP. Denmark will therefore continue to comply fully with the requirements of the Stability and Growth Pact.

The achievement of the medium term public finance targets hinges to a large extent on the realisation of some ambitious labour market goals which include increasing the labour force participation rates from their already high level. The Council notes that the programme acknowledges that to obtain these goals further labour market reforms are required. Compared to the previous update a quantification has been made of the consequences in the event that the reforms are not implemented. The Council welcomes this innovation and notes that a short-fall due to non-realisation of the labour market goals may have important implications for reaching the projected developments of public finances. Furthermore, if the current downturn in the labour market is prolonged it may also pose a risk to the projected surpluses. The Council therefore encourages the Danish authorities to proceed with these reforms with determination.

The Council considers that on the basis of current policies, public finances appear to be on a sustainable footing to meet the budgetary costs of ageing populations, benefiting from the running of budget surpluses, and a projected accumulation of large net assets in both pension funds and government.

The Council notes the intention of the Danish authorities to reduce the tax ratio by 2010, and considers that this can be achieved while at the same time ensuring the sustainability of public finances. However, the tax ratio in Denmark will remain high compared to other industrialised countries, and consideration could be given to further reductions, in a framework of sound public finances.

(1) OJ L 209, 2.8.1997.