Council Opinion of 5 March 2002 on the updated convergence programme of Denmark, 2001-2005
Date: 2002-03-05
Institutions: Council of the European Union
Subjects: Denmark, budget policy, economic convergence, economic policy, economic stabilisation, government programme

13.3.2002

EN

Official Journal of the European Communities

C 64/1

I

(Information)

COUNCIL

COUNCIL OPINION

of 5 March 2002

on the updated convergence programme of Denmark, 2001-2005

(2002/C 64/01)

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 5 March 2002 the Council examined Denmark’s updated
convergence programme, which covers the period 2001-2005.
scenario assumed in the updated
The macroeconomic
convergence programme projects
growth to
real GDP
increase from 1 % in 2001 to 1,5 % in 2002 and 2,5 % in
2003 and then level off to around 2 % in both 2004 and
2005. Inflation is expected to remain below 2 % and unem-
ployment to remain low. The Council notes that this economic
scenario seems plausible and is in line with the Commission’s
2001 autumn forecast.

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

Regarding public finances, the Council notes, that while the
outcome for the government surplus for 2001 was below
expectations, mainly due to shortfall in revenue linked to the
downturn in the stock market, a comfortable surplus was still
achieved. The Council welcomes
the
objective of keeping surpluses between 1,5 to 2,5 % of GDP
over
the programme period, during which the general
government debt is expected to be reduced to 35 % of GDP
by 2005. As a result, Denmark continues to fulfil, comfortably,
the requirement of the stability and growth pact of a budgetary
position of (cid:145)close to balance or in surplus(cid:146) over the entire

the maintenance of

period covered by the programme. Denmark is also expected
to be able to withstand a normal cyclical downturn without
breaching the 3 % of GDP deficit reference value.

is upheld. The

The budgetary consolidation strategy including a declining
primary expenditure to GDP ratio and tax burden over the
programme period outlined in the previous update of
the
programme
strategy has been further
strengthened by the government’s commitment to freeze all
taxes and excise duties in order to put a halt to the upward
drift in the tax burden. The Council welcomes this measure,
while noting that it should not prevent reductions of marginal
taxes on labour.

The Council notes that expenditure control has had a rather
mixed record in recent years as the target of restraining real
public consumption growth to 1 % has frequently been over-
stepped. The need for expenditure control, especially in local
government and countries is even more important now that
if high general
the decision to freeze taxes has been taken,
government
assured. The Council
levels of general government to make
therefore calls on all
increase in
efforts to control expenditure such that the real
public consumption fulfils the target of an average annual
growth of 1 %.
to
strengthen the
framework to avoid further
slippage in the future, as already recommended in the
Council Opinion last year (2).

It also invites the Danish Government
institutional

surpluses

to be

are

focus on longer

term sustainability issues

The
in the
programme is welcomed. The Council notes with satisfaction
that the objective to substantially lower the ratio of gross debt
to GDP enhances the sustainability of
the public finances,
thereby rendering the Danish economy in a good position to
handle the projected expenditure rises due to the ageing of the
population and still continue to be in compliance with the
stability and growth pact. It notes that these results are condi-
tional on the continued realisation of the high surpluses. The
projections also assume a continued high tax ratio to GDP
between 2005 and 2050. The Council notes that such a high
tax ratio to GDP may be difficult to achieve in a framework of
increased mobility of certain tax bases as a result of the global-
isation.

(1) OJ L 209, 2.8.1997.

(2) OJ C 77, 9.3.2001.

C 64/2

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Official Journal of the European Communities

13.3.2002

Increase in the labour force participation rates in Denmark is
an important assumption of the projections in the programme.
A large part of this increase is likely to come from reforms
already undertaken, where the full effect has not yet set in.
Further structural reforms are, however, needed on the func-

tioning of the labour market, including reductions in taxes on
labour which might help increase the labour supply. The
Council therefore encourages the authorities to proceed with
these measures, while of course maintaining adherence to the
stability and growth pact requirements.