EN    EN EN 
 
EN    EN  EUROPEAN COMMISSION 
Brussels, 15.6.2010 
SEC(2010) 744 final 
  
Recommendation for a 
COUNCIL RECOMMENDATION  
with a view to bringing an end to the situ ation of an excessive government deficit in 
Denmark 
 
EN 2   EN Recommendation for a 
COUNCIL RECOMMENDATION  
with a view to bringing an end to the situ ation of an excessive government 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(7) thereof; 
Having regard to the recommendati on from the European Commission; 
Whereas: (1) According to Article 126 of the Treat y Member States shall avoid excessive 
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 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 taki ng account of the 
economic situation. 
(4) The Council has decided on [13 July 2010], in accordance with Article 126(6) of the 
Treaty, that an excessive deficit exists in Denmark. 
(5) In accordance with Article 126(7) of the Treaty and Article 3 of Council Regulation 
(EC) No 1467/97 on speeding up and clarifying  the implementation of the excessive 
deficit procedure
1 (which is part of the Stability a nd Growth Pact), the Council is also 
required to make recommendations to the Member State concerned with a view to 
bringing the situation of excessive defic it to an end within a given period. The 
recommendation has to establish a deadline of  six months at the most for effective 
action to be taken by the Member State conc erned to correct the excessive deficit as 
well as a deadline for the correction of the excessive deficit, which should be 
completed in the year following its identification unless there are special circumstances. In deciding whether special ci rcumstances exist, “relevant factors” as 
clarified in Article 2(3) of  Regulation (EC) No 1467/97 s hould be taken into account. 
                                                
 
1 OJ L 209, 2.8.1997, p. 6.  
 
EN 3   EN Furthermore, in a recommendation to corr ect an excessive deficit the Council should 
request the achievement of a minimum annual improvement in the structural balance, 
i.e. the cyclically-adjusted balance excludi ng one-off and other temporary measures, of 
0.5% of GDP as a benchmark. 
(6) Special circumstances, which are relevant for the greater fl exibility in the application 
of the EDP introduced with the 2005 reform of the Stability and Growth Pact, are 
deemed to exist in the case of Denmark. In  particular, the 2009 r ecession reflected the 
abrupt decline in private consumption, inve stment, and exports as a consequence of 
the financial crisis and the global recession,  in particular the slump in demand from 
the main trading partners (Germany, Un ited Kingdom, Sweden and Norway). The 
deficit in 2010 is a consequence of bot h the economic downturn and the stimulus 
measures taken in line with the EERP by the Danish authorities.  The existence of 
special circumstances authoris es the Council to allow the correction of the excessive 
deficit in a medium-term framework. 
(7) According to the April 2010 EDP notification, the general government deficit in 
Denmark is planned to reach 5.4% of GDP in 2010 taking into account the economic 
downturn and the fiscal impact of the economic recovery plan fleshed out in the 
February 2010 update of the Convergen ce Programme. The Commission services' 
spring 2010 forecast projects the government deficit to widen from  2.7% of GDP in 
2009 to 5.5% of GDP in 2010, declining to  4.9% of GDP in 2011 on a no-policy 
change basis. This assumption does not take  into account consolidation measures for 
2011 which were announced by the government on 25 May 2010 or measures which have not yet been sufficiently specified. Benefiting from budget surpluses prior to 
2009, Denmark adopted fiscal stimulus meas ures in line with the EERP reaching 2.2% 
of GDP in 2009 and 1.3% in 2010. The r ecovery measures are split between 
permanent tax cuts and temporary public investment measures. 
(8) Considering the special circumstances and the EERP framework, an average annual 
fiscal effort is recommended. The fiscal e ffort should take into account all factors 
relevant for achieving the fiscal policy objectives, starting with the level of the general government deficit and gross debt as well as other indicators, such as th e current 
account position, the level of contingent liabi lities of the financial sector, interest 
payments, risk premia and the expected change in age-related expenditure in the medium term. In calculating th e average annual fiscal effo rt, the 2011 deficit in the 
Commission services' spring 2010 forecast is taken as the starting point. The total 
fiscal effort needed to reach the nominal de ficit target of 3% by the deadline is then 
calculated by assuming a gradual closure of the output gap by 2015. 
(9) Against this background, it is appropriate to consider the correc tion of the excessive 
deficit in a medium-term framework with  a deadline for the correction of 2013. In 
particular, in view of th e absence of major economic imbalances, a credible and 
sustainable adjustment path would require the Danish authorities to implement the 
fiscal measures in 2010 as envisaged a nd ensure an average annual structural 
adjustment of ½% of GDP over the period 2011-2013;  to specify the measures that are 
necessary to achieve the correction of the excessive deficit by 2013, cyclical 
conditions permitting, and accelerate the redu ction of the deficit if economic or 
budgetary conditions turn out bett er than currently expected. 
 
EN 4   EN (10) As reflected by its budget ary track record, Denmark has benefited from a relatively 
strong fiscal framework, notable for its wi de coverage and th e transparency and 
visibility of its fiscal rules. Genera l government consumption expenditure has, 
however, been prone to exceeding targets.  Recent initiatives involving economic 
sanctions could enhance incentiv es for municipalities to adhere to agreed targets. 
Since 2002 the Danish tax policy has been  centred on the tax-freeze, whereby no 
indirect or direct taxes can  be raised. The tax-freeze has not stood in the way of a 
major tax reform in 2009, but strict observa nce of the tax-freeze may render further 
adjustments difficult.   
(11) According to data notified by the Danish authorities in April 2010, general 
government gross debt was 41.6% of GDP in  2009 and set to increase to 45.1% of 
GDP in 2010. According to the Commission services' 2010 spring forecast on a no-policy-change assumption, the debt level is expected to increase to 46% of GDP in 
2010 and further to 49.5% of GDP in 2011, wh ich is still below the 60% reference 
value.   
(12) Enhanced surveillance under the EDP will require regular and timely monitoring of 
the progress made in the implementation of the fiscal consolidation strategy. In this 
context, a separate chapter in the fort hcoming updates of the Danish convergence 
programme could usefully be  devoted to this issue. 
(13) In general, in the view  of the Council, budgetary conso lidation measures should secure 
a lasting improvement in the general governme nt balance, while be ing geared towards 
enhancing the quality of the public finances and reinforcing the growth potential of the 
economy. 
HAS ADOPTED THIS RECOMMENDATION: (1) Recognising that Denmark's budgetary pos ition in 2010 resulted from measures 
amounting to 2.2% of GDP in 2009 and 1.3% in 2010, which is an adequate response 
to the downturn and were in line with the European Economic Recovery Plan 
principles, as well as from the free play of automatic stabilisers, the Danish authorities should put an end to the present excessive defi cit situation as rapidly as possible and at 
the latest by 2013.  
(2) The Danish authorities should bring the ge neral government defic it below 3% of GDP 
in a credible and sustainable manner by taking action in a medium-term framework. 
Specifically, to this end, the Danish authorities should:  
(a) implement the fiscal measures in 2010 as  envisaged in the la test update of the 
convergence programme and start consolid ation in 2011 in order to bring the 
deficit below the reference value by 2013; 
(b) ensure an average annual fiscal effort  of at least ½% of GDP over the period 
2011-2013; 
(c) specify and rigorously implement the meas ures that are necessary to achieve 
the correction of the excessive deficit by 2013, cyclical conditions permitting, and accelerate the reduction of the defi cit if economic or budgetary conditions 
turn out better than currently expected.  
 
EN 5   EN (3) The Council establishes the deadline of [13 January 2011] for the Danish government 
to take effective action to and to specify  the measures that will be necessary to 
progress towards the correction of the excessi ve deficit. The assessment of effective 
action will take into account  economic developments compared with the economic 
outlook in the Commission serv ices' spring 2010 forecast.  
The Danish authorities should report on prog ress made in the implementation of these 
recommendations in a separate chapter in  the forthcoming updates of the convergence 
programmes until the abrogation of the excessive deficit procedure.  
In addition, the Council highlights the impor tance of achieving the medium-term objective 
(MTO) for appropriate b udgetary management of economic dow nturns. It therefore invites the 
Danish authorities to ensure that budgetary consolidation towards the medium-term objective 
for the budgetary position – structural balanced budget by 2015 – is sustained after the 
excessive deficit will have been corrected.  
This recommendation is addresse d to The Kingdom of Denmark 
Done at Brussels, 15.6.2010 
 For the Council 
 The President