EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 15.6.2010 
SEC(2010) 743 final 
  
Proposal for a 
COUNCIL DECISION 
on the existence of an excessive deficit in Denmark 
EN 2   EN EXPLANATORY MEMORANDUM  
1. T HE APPLICATION OF THE STABILITY AND GROWTH PACT IN THE CURRENT CRISIS 
SITUATION  
Many EU countries are presently facing genera l government deficits above the 3% of GDP 
reference value set in the Treaty. The often stro ng deterioration in the deficit as well as the 
debt positions must be seen in the context of the unprecedented global financial crisis and 
economic downturn in 2008/09. Several factors are at play. First, the economic downturn 
brings about declining tax revenue and rising social benefit expenditure (e.g. unemployment 
benefits). Second, recognising that  budgetary policies have an impor tant role to play in the 
current extraordinary economic situation, the Co mmission called for a fiscal stimulus in its 
November 2008 European Economic Recovery Plan (EERP), endorsed by the European 
Council in December. The Plan explicated that  the stimulus should be timely, targeted and 
temporary and differentiated across Member States to reflect their different positions in terms 
of public finance sustainability and competitiveness and should be reversed when economic conditions improve. Finally, severa l countries have taken measures  to stabilise the financial 
sector, some of which have impacted on the debt  position or constitute a risk of higher deficits 
and debt in the future, alt hough some of the costs of th e government support could be 
recouped in the future. 
The Stability and Growth Pact  requires the Commission to in itiate the excessive deficit 
procedure (EDP) whenever the deficit of a Me mber State exceeds the 3% of GDP reference 
value. The amendments to the Stability and Gr owth Pact in 2005 aimed at ensuring that in 
particular the economic and budgetary background was taken into account fully in all steps in 
the EDP. In this way, the Stability and Growth Pact provides the framework supporting 
government policies for a prompt return to so und budgetary positions taking account of the 
economic situation, and thereby ensuring long -term sustainability of public finances. 
2. P
REVIOUS STEPS IN THE EXCESSIVE DEFICIT PROCEDURE  
Article 126 of the Treaty on the Functioning of the European Union lays down an excessive 
deficit procedure (EDP). This procedure is further specified in Council Regulation (EC) No 
1467/97 “on speeding up and clarifying the im plementation of the excessive deficit 
procedure”1, which is part of the Stability and Growth Pact. 
According to Article 126(2) of the Treaty, th e Commission has to monitor compliance with 
budgetary discipline on the basis of two criteria,  namely: (a) whether the ratio of the planned 
or actual government deficit to gross domestic  product (GDP) exceeds the reference value of 
3% (unless either the ratio ha s declined substantially and co ntinuously and reached a level 
that comes close to the reference value; or, a lternatively, the excess over the reference value is 
only exceptional and temporary an d the ratio remains close to the reference value); and (b) 
whether the ratio of government debt to GDP exceeds the reference value of 60% (unless the 
ratio is sufficiently diminishing and approachin g the reference value at a satisfactory pace). 
                                                 
1 OJ L 209, 2.8.1997, p. 6. The report also takes into account the “Specifications on the implementation 
of the Stability and Growth Pact and guidelines on the format and content of stability and convergence 
programmes”, endorsed by th e ECOFIN Council of 10 November 2009, available at 
http://ec.europa.eu/economy_finance/sgp/legal_texts/index_en.htm. 
EN 3   EN Article 126(3) stipulates that, if a Member St ate does not fulfil the requirements under one or 
both of these criteria, the Commi ssion has to prepare a report. Th is report also has to “take 
into account whether the government deficit ex ceeds government investment expenditure and 
take into account all other relevant factors, including the medium-term economic and 
budgetary position of the Member State”. 
On the basis of the data notified by the Danish authorities in April 20102 and taking into 
account the Commission services’ spring 2010 forecast, the Commission adopted a report 
under Article 126(3) for Denmark on 12 May 20103. 
Subsequently, and in accordance with Article 126(4), the Economic and Financial Committee 
formulated an opinion on the Commission report on 27 May 2010. 
3. T HE EXISTENCE OF AN EXCESSIVE DEFICIT  
According to data notified by the Danish au thorities in April 2010, the general government 
deficit in Denmark is planned to reach 5.4% of GDP in 2010, t hus exceeding the 3% of GDP 
reference value. The Commission report under Ar ticle 126(3) considered that the planned 
deficit was not close to the 3% of GDP refere nce value, but that the planned excess over the 
reference value could be qualified as exception al within the meaning of the Treaty and the 
Stability and Growth Pact. In particular, it resulted from a severe economic downturn in the 
sense of the Treaty and the Stab ility and Growth Pact. Accordi ng to the Commission services’ 
2010 spring forecast, real GDP in Denmark is pr ojected to recover at 1.6% in 2010 after the 
sharp contraction of 4.9% in 2009. The 2009 recessi on reflected the abrupt decline in private 
consumption, investment and expo rts as a consequence of the fi nancial crisis and the global 
recession, in particular the slump in demand from  the main trading partners (Germany, United 
Kingdom, Sweden and Norway). The deficit in  2010 is a consequence of both the economic 
downturn and the stimulus measures taken in line with the EERP by the Danish authorities. However, the planned excess over the refere nce value cannot be considered temporary. 
According to the Commission services’ spring  2010 forecast, the deficit would decline to 
4.9% of GDP in 2011 on a no-policy change
4 basis. The deficit criterion in the Treaty is not 
fulfilled. 
According to data notified by the Danish au thorities in April 2010, the general government 
gross debt remains below the 60% of GDP re ference value, at 45.1% of GDP in 2010. The 
Commission services’ spring 2010 forecast projects the debt ratio to be at 46% of GDP in 
2010 and to increase to 49.5% of GDP in 2011, still to remain below the 60% of GDP 
reference value. The debt criterion in the Treaty is fulfilled. 
In line with the provisions in the Treaty and the Stability and Growth Pact, the Commission 
also analysed in its report “relevant factors” . According to the Stability and Growth Pact, 
                                                 
2 According to Council Regulation (EC) No 479/2009, Member States have to report to the Commission, 
twice a year, their planned and actual government deficit and debt levels. The most recent notification 
of Denmark can be found at: 
 http://epp.eurostat.ec.europa.eu/portal/page/porta l/government_finance_statistics/excessive_deficit/edp_
notification_tables. 
3 All EDP-related documents for Denmark can be found at the following website: 
 http://ec.europa.eu/ec onomy_finance/sgp/defic it/countries/index_en.htm. 
4 The no-policy change forecast takes into account the (partial) withdraw al of measures of extraordinary 
nature linked to the crisis. 
EN 4   EN these can only be taken into acc ount in the steps leadi ng to the decision on the existence of an 
excessive deficit if the deficit satisfies the doubl e condition of closeness and temporariness. In 
the case of Denmark, the double condition is not met. Considered on their own merit, the 
relevant factors in the current case seem to be relatively favourable.  
The opinion of the Economic and Financial Committee in accordance with Article 126(4) of 
the Treaty is consistent with the assessmen t in the Commission report under Article 126(3).  
The Commission, having taken into account its report under Article 126(3)  and the opinion of 
the Economic and Financial Committee under Arti cle 126(4), is of the opinion that an 
excessive deficit exists in Denmark. This opinion, adopted by the Commission on [15 June 
2010], is herewith addressed to the Council according to Article 126(5). The Commission 
proposes that the Council shall decide accordi ngly, in conformity with Article 126(6). In 
addition, the Commission is submitting to the Council a recommendation for a Council 
Recommendation to be addressed to Denmark with  a view to bringing the situation of an 
excessive deficit to an end according to Article 126(7). 
4. R ECOMMENDATIONS TO END THE EXCESSIVE DEFICIT SITUATION  
According to Article 3(4) of Counc il Regulation (EC) No 1467/97, the Council 
recommendation under Article 126(7 ) has to establish a deadline of six months at most for 
effective action to be taken by the Member State concerned as well as a deadline for the correction of the excessive deficit, which “sho uld be completed in the year following its 
identification unless there are sp ecial circumstances”. Article 2(6) of the Regulation implies 
that the “relevant factors” considered in the Commission report under Article 126(3) of the 
Treaty have to be taken into account in deciding whether specia l circumstances exist. Article 
3(4) of the Regulation specifies  that the Council has to recommend that the Member State 
achieves a “minimum annual improvement of at  least 0.5% of GDP as a benchmark, in its 
cyclically adjusted balance net of one-off and temporary measures, in order to ensure the 
correction of the excessive deficit within the deadline set in the recommendation”. 
Special circumstances, which are relevant for the greater flexibility in the application of the 
EDP introduced with the 2005 reform of the Stabili ty and Growth Pact, ar e deemed to exist in 
the case of Denmark. In particular, the 2009 rece ssion reflected the abrupt decline in private 
consumption, investment and expo rts as a consequence of the fi nancial crisis and the global 
recession, in particular the slump in demand from  the main trading partners (Germany, United 
Kingdom, Sweden and Norway). The deficit in  2010 is a consequence of both the economic 
downturn and the stimulus measures taken in line with the EERP by the Danish authorities. 
Against this background, it is appr opriate to consider the correction of the excessive deficit in 
a medium-term framework with a deadline for the correction of 2013. Recognising that the 
Danish budgetary position in 2010 resulted from m easures taken in response to the crisis and 
amounting to 2.2% of GDP in 2009 and 1.3% in 2010, which was an appropriate response in 
line with the European Economic Recovery Plan, and the free play  of automatic stabilisers, 
the Danish authorities should implement the fiscal measures in 2010 as envisaged. In 
particular, in view of the absence of major economic imbalances, a credible and sustainable 
adjustment path would require the Danish author ities to ensure an av erage annual structural 
adjustment of ½% of GDP over the period 2011-2013 and specify the measures that are 
necessary to achieve the correction of the excessive deficit by 2013, cyclical conditions 
EN 5   EN permitting, and accelerate the reduction of the deficit if economic or budgetary conditions 
turn out better than currently expected. 
Enhanced surveillance under the EDP, which seems necessary in view of the deadline for the 
correction of the excessive deficit, will requir e regular and timely monitoring of the progress 
made in the implementation of the fiscal consol idation strategy to ensure  the correction of the 
excessive deficit. In this cont ext, a separate chapte r in the updates of Denmark's convergence 
programme which will be prepared between 2010 and 2013 could usefully be devoted to this 
issue. 
Comparison of key macroeconomic and budgetary projections 
    2007 2008 2009 2010 2011 2012 2013 
COM spring 2010 1,7 -0,9 -4,9 1,6 1,8 n.a. n.a. Real GDP 
(% change) CP February 2010 n.a. -0,9 -4,3 1,3 1,6 2.0 2,3 
COM spring 2010 2,6 0,2 -5,1 -3,9 -2,7 n.a. n.a. Output gap1 
(% of potential GDP) CP February 20103 n.a. 0.3 -4.5 -3.9 -3.1 -2.0 -0.9 
COM spring 2010 4,8 3,4 -2,7 -5,5 -4,9 n.a. n.a. General government balance 
(% of GDP) CP February 2010 n.a. 3,4 -2,9 -5,3 -4,1 -3,1 -1,8 
COM spring 2010 6,3 4,8 -0,7 -3,4 -2,7 n.a. n.a. Primary balance 
(% of GDP) CP February 2010 n.a. 4,8 -1,3 -3,7 -2,3 -1,2 0,3 
COM spring 2010 3,1 3,3 0,6 -3,0 -3,1 n.a. n.a. Cyclically-adjusted balance1 
(% of GDP) CP February 2010 n.a. 3.2 0.0 -2.8 -2.1 -1.7 -1.1 
COM spring 2010 3,1 3,3 0,6 -2,7 -3,1 n.a. n.a. Structural balance4 
(% of GDP) CP February 2010 n.a. 3.2 1.4 -1.1 -1.0 -0.8 -0.3 
COM spring 2010 27,4 34,2 41,6 46,0 49,5 n.a. n.a. Government gross debt 
(% of GDP) CP February 2010 n.a. 33,4 38,5 41,8 46,2 48,3 48,1 
Notes : 
1 Output gaps and cyclically-adjusted ba lances from the programmes as recalculated by Commission services on the basis 
of the information in the programmes. 
2 Based on estimated potential growth  of 1.4%, 0.6%, 0.5% and 0.9% respectively in the period 2008-2011. 
3 Based on estimated potential growth  of 1.4%, 0.6%, 0.5% and 0.9% respectively in the period 2008-2011. 
4 Cyclically-adjusted balance excluding one- off and other temporary measures. One- off and other temporary measures are 
1.4% of GDP in 2009, 1.7% in 2010, 1.1% in 2011, 0.9% in 2012, 0.8% in 2013 and 0.0% in 2015; all deficit-reducing 
according to the most recent programme and 0.2% of GDP in 2010 deficit-reducing according to the Commission 
services' spring 2010 forecast. Due to differences in methodol ogy, the one-offs reported in the programme do not qualify 
as one-offs according to the Commission se rvices' definition. Using this definiti on, the one-offs would be 0.2%-of-GDP 
deficit reducing in 2010 and zero in the remaining years. 
 
Source : 
Convergence programme (CP); Commission services’ spring 20 10 forecasts (COM); Commissi on services’ calculations. 
 
EN 6   EN Proposal for a 
COUNCIL DECISION 
on the existence of an excessive deficit in Denmark 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty on the Functioning of the European Union, and in particular 
Article 126(6) thereof, 
Having regard to the proposal from the European Commission, 
Having regard to the observations made by Denmark, Whereas: (1) According to Article 126 of the Treaty on the Functioning of the European Union 
Member States shall avoid ex cessive government deficits. 
(2) The Stability and Growth Pact is base d on the objective of sound government finances 
as a means of strengthening the conditions fo r price stability and for strong sustainable 
growth conducive to employment creation. 
(3) The excessive deficit procedure (EDP) under Article 126 of the Treaty, as clarified by 
Council Regulation (EC) No 1467/97 on  speeding up and clarifying the 
implementation of the excessive deficit procedure
5 (which is part of the Stability and 
Growth Pact), provides for a decision on the existence of an excessive deficit. The Protocol on the excessive deficit procedur e annexed to the Treaty sets out further 
provisions relating to the implementation of the EDP. Council Regulation (EC) No 
479/2009
6 lays down detailed rules and definition s for the application of the provision 
of the said Protocol.  
(4) The 2005 reform of the Stability and Growth Pact sought to strengthen its 
effectiveness and economic underpinnings as we ll as to safeguard th e sustainability of 
the public finances in the long run. It aimed at ensuring that in particular the economic 
and budgetary background was taken into account fully in all steps in the EDP. In this 
way, the Stability and Growth Pact pr ovides the framework supporting government 
policies for a prompt return to sound budge tary positions taking account of the 
economic situation. 
(5) Article 126(5) of the Treaty requires th e Commission to address an opinion to the 
Council if the Commission considers that an ex cessive deficit in a Member State exists 
or may occur. Having taken into account it s report in accordance with Article 126(3) 
                                                 
5 OJ L 209, 2.8.1997, p. 6.  
6 OJ L 145, 10.6.2009, p. 1. 
EN 7   EN and having regard to th e opinion of the Economic and Financial Committee in 
accordance with Article 126(4), the Commission  concluded that an excessive deficit 
exists in Denmark. The Commission theref ore addressed such an opinion to the 
Council in respect of Denmark on [15 June 2010]7. 
(6) Article 126(6) of the Treaty states that the Council should consider any observations 
which the Member State concerned may wish to make before deciding, after an overall 
assessment, whether an excessive deficit exists. In the case of Denmark, this overall assessment leads to the following conclusions. 
(7) According to data notified by the Dani sh authorities in April 2010, the general 
government deficit in Denmark is planned to reach 5.4% of GDP in 2010, thus exceeding the 3% of GDP reference value. Th e planned deficit is not close to the 3% 
of GDP reference value, but that the pla nned excess over the refe rence value can be 
qualified as exceptional within the meaning of  the Treaty and the Stability and Growth 
Pact. In particular, it resulted from a se vere economic downturn in the sense of the 
Treaty and the Stability and Growth Pact . According to the Commission services’ 
2010 spring forecast, real GDP in Denm ark contracted by 4.9% in 2009 and is 
projected to recover at 1.6% in 2010. The de ficit in 2010 is a consequence of both the 
economic downturn and the stimulus measur es taken in line with the EERP by the 
Danish authorities. However, the planned excess over the reference value cannot be considered temporary. According to the Commission services’ spring 2010 forecast, the deficit would decline to 4.9% of GDP in 2011 on a no-policy change
8 basis. The 
deficit criterion in the Treaty is not fulfilled.  
(8) According to data notified by the Dani sh authorities in April 2010, the general 
government gross debt remains below the 60%  of GDP reference value, at 45.1% of 
GDP in 2010. The Commission services’ spring 2010 forecast projects the debt ratio to 
be at 46% of GDP in 2010 and to increas e to 49.5% of GDP in 2011, still to remain 
below the 60% of GDP reference value. The debt criterion in the Treaty is fulfilled.  
(9) According to Article 2(4)  of Council Regulation (EC) No 1467/97, “relevant factors” 
can only be taken into account in the st eps leading to the Council decision on the 
existence of an excessive deficit in acco rdance with Article 126(6) if the double 
condition - that the deficit remains close to the reference value and that its excess over 
the reference value is temporary - is fully  met. In the case of Denmark, this double 
condition is not met. Therefore,  relevant factors are not take n into account in the steps 
leading to this decision. 
                                                 
7 All EDP-related documents for Denmark can be found at the following website: 
 http://ec.europa.eu/ec onomy_finance/sgp/defic it/countries/index_en.htm. 
8 The no-policy change forecast takes into account the (partial) withdraw al of measures of extraordinary 
nature linked to the crisis. 
EN 8   EN HAS ADOPTED THIS DECISION: 
Article 1 
From an overall assessment it follows that  an excessive deficit exists in Denmark. 
Article 2 
This decision is addressed to The Kingdom of Denmark. 
Done at Brussels, 15.6.2010 
 For the Council 
 The President