Proposal for a Council Decision on the existence of an excessive deficit in Denmark
Date: 2010-06-15
Institutions: European Commission
Subjects: Denmark, budget deficit, economic recession, public debt, public finance, stability pact

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EUROPEAN COMMISSION 

Brussels, 15.6.2010 
SEC(2010) 743 final 

Proposal for a 

COUNCIL DECISION 

on the existence of an excessive deficit in Denmark 

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EXPLANATORY MEMORANDUM 

1. 

THE APPLICATION OF THE STABILITY AND GROWTH PACT IN THE CURRENT CRISIS 
SITUATION 

Many  EU  countries  are  presently  facing  general  government  deficits  above  the  3%  of  GDP 
reference value set in the Treaty. The often strong 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  important  role  to  play  in  the 
current  extraordinary  economic  situation,  the  Commission  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,  several  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,  although  some  of  the  costs  of  the  government  support  could  be 
recouped in the future. 

The  Stability  and  Growth  Pact  requires  the  Commission  to  initiate  the  excessive  deficit 
procedure (EDP) whenever the deficit of a Member State exceeds the 3% of GDP reference 
value.  The  amendments  to  the  Stability  and  Growth  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  sound  budgetary  positions taking  account  of  the 
economic situation, and thereby ensuring long-term sustainability of public finances. 

2. 

PREVIOUS 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  implementation  of  the  excessive  deficit 
procedure”1, which is part of the Stability and Growth Pact. 

According to Article 126(2) of the Treaty, the 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  has  declined  substantially  and  continuously  and  reached  a  level 
that comes close to the reference value; or, alternatively, the excess over the reference value is 
only  exceptional  and  temporary  and  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 approaching the reference value at a satisfactory pace). 

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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 
the  ECOFIN  Council  of  10  November  2009,  available  at 
http://ec.europa.eu/economy_finance/sgp/legal_texts/index_en.htm. 

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Article 126(3) stipulates that, if a Member State does not fulfil the requirements under one or 
both of these criteria, the Commission has to  prepare a report. This report also has to “take 
into account whether the government deficit exceeds 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. 

THE EXISTENCE OF AN EXCESSIVE DEFICIT 

According  to  data  notified  by  the  Danish  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.  The  Commission  report  under  Article  126(3)  considered  that  the  planned 
deficit was not close to the 3% of GDP reference value, but that the planned excess over the 
reference  value  could  be  qualified  as  exceptional  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 Stability and Growth Pact. According to the Commission services’ 
2010 spring forecast, real GDP in Denmark is projected to recover at 1.6% in 2010 after the 
sharp contraction of 4.9% in 2009. The 2009 recession reflected the abrupt decline in private 
consumption, investment 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, 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  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 change4 basis. The deficit criterion in the Treaty is not 
fulfilled. 

According  to  data  notified  by  the  Danish  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  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, 

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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/portal/government_finance_statistics/excessive_deficit/edp_
notification_tables. 
All EDP-related documents for Denmark can be found at the following website: 
http://ec.europa.eu/economy_finance/sgp/deficit/countries/index_en.htm. 
The no-policy change forecast takes into account the (partial) withdrawal of measures of extraordinary 
nature linked to the crisis. 

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these can only be taken into account in the steps leading to the decision on the existence of an 
excessive deficit if the deficit satisfies the double 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 assessment 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  Article  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  accordingly,  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. 

RECOMMENDATIONS TO END THE EXCESSIVE DEFICIT SITUATION 

the  Council 
to  Article  3(4)  of  Council  Regulation  (EC)  No  1467/97, 
According 
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  “should  be  completed  in  the  year  following  its 
identification unless there are special 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 special 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 Stability and Growth Pact, are deemed to exist in 
the case of Denmark. In particular, the 2009 recession reflected the abrupt decline in private 
consumption, investment 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, 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 appropriate 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 measures 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 authorities to ensure an average 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 

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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 require regular and timely monitoring of the progress 
made in the implementation of the fiscal consolidation strategy to ensure the correction of the 
excessive deficit. In this context, a separate chapter 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 

Real GDP 
(% change) 
Output gap1 
(% of potential GDP) 

General government balance 
(% of GDP) 

Primary balance 
(% of GDP) 
Cyclically-adjusted balance1 
(% of GDP) 
Structural balance4 
(% of GDP) 

Government gross debt 
(% of GDP) 

Notes: 

COM spring 2010 
CP February 2010 
COM spring 2010 
CP February 20103 
COM spring 2010 
CP February 2010 
COM spring 2010 
CP February 2010 
COM spring 2010 
CP February 2010 
COM spring 2010 
CP February 2010 
COM spring 2010 
CP February 2010 

2007 
1,7 
n.a. 
2,6 
n.a. 
4,8 
n.a. 
6,3 
n.a. 
3,1 
n.a. 
3,1 
n.a. 
27,4 
n.a. 

2008 
-0,9 
-0,9 
0,2 
0.3 
3,4 
3,4 
4,8 
4,8 
3,3 
3.2 
3,3 
3.2 
34,2 
33,4 

2009 
-4,9 
-4,3 
-5,1 
-4.5 
-2,7 
-2,9 
-0,7 
-1,3 
0,6 
0.0 
0,6 
1.4 
41,6 
38,5 

2010 
1,6 
1,3 
-3,9 
-3.9 
-5,5 
-5,3 
-3,4 
-3,7 
-3,0 
-2.8 
-2,7 
-1.1 
46,0 
41,8 

2011 
1,8 
1,6 
-2,7 
-3.1 
-4,9 
-4,1 
-2,7 
-2,3 
-3,1 
-2.1 
-3,1 
-1.0 
49,5 
46,2 

2012 
n.a. 
2.0 
n.a. 
-2.0 
n.a. 
-3,1 
n.a. 
-1,2 
n.a. 
-1.7 
n.a. 
-0.8 
n.a. 
48,3 

2013 
n.a. 
2,3 
n.a. 
-0.9 
n.a. 
-1,8 
n.a. 
0,3 
n.a. 
-1.1 
n.a. 
-0.3 
n.a. 
48,1 

1 Output gaps and cyclically-adjusted balances 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 methodology, the one-offs reported in the programme do not qualify 
as one-offs according to the Commission services' definition. Using this definition, 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 2010 forecasts (COM); Commission services’ calculations. 

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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) 

(2) 

(3) 

(4) 

According  to  Article  126  of  the  Treaty  on  the  Functioning  of  the  European  Union 
Member States shall avoid excessive government deficits. 

The Stability and Growth Pact is based on the objective of sound government finances 
as a means of strengthening the conditions for price stability and for strong sustainable 
growth conducive to employment creation. 

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 procedure5 (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  procedure  annexed  to  the  Treaty  sets  out  further 
provisions  relating  to  the  implementation  of  the  EDP.  Council  Regulation  (EC)  No 
479/20096 lays down detailed rules and definitions for the application of the provision 
of the said Protocol.  

The  2005  reform  of  the  Stability  and  Growth  Pact  sought  to  strengthen  its 
effectiveness and economic underpinnings as well as to safeguard the 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  provides  the  framework  supporting  government 
policies  for  a  prompt  return  to  sound  budgetary  positions  taking  account  of  the 
economic situation. 

(5) 

Article  126(5)  of  the  Treaty  requires  the  Commission  to  address  an  opinion  to  the 
Council if the Commission considers that an excessive deficit in a Member State exists 
or may occur. Having taken into account its report in accordance with Article 126(3) 

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OJ L 209, 2.8.1997, p. 6.  
OJ L 145, 10.6.2009, p. 1. 

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(6) 

(7) 

(8) 

(9) 

and  having  regard  to  the  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  therefore  addressed  such  an  opinion  to  the 
Council in respect of Denmark on [15 June 2010]7. 

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. 

According  to  data  notified  by  the  Danish  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. The planned deficit is not close to the 3% 
of GDP  reference value, but that the planned  excess over the  reference value can be 
qualified as exceptional 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  Stability  and  Growth  Pact.  According  to  the  Commission  services’ 
2010  spring  forecast,  real  GDP  in  Denmark  contracted  by  4.9%  in  2009  and  is 
projected to recover at 1.6% in 2010. 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  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 change8 basis. The 
deficit criterion in the Treaty is not fulfilled. 

According  to  data  notified  by  the  Danish  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 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. 

According to Article 2(4) of Council Regulation (EC) No 1467/97, “relevant factors” 
can  only  be  taken  into  account  in  the  steps  leading  to  the  Council  decision  on  the 
existence  of  an  excessive  deficit  in  accordance  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 taken into account in the steps 
leading to this decision. 

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All EDP-related documents for Denmark can be found at the following website: 
http://ec.europa.eu/economy_finance/sgp/deficit/countries/index_en.htm. 
The no-policy change forecast takes into account the (partial) withdrawal of measures of extraordinary 
nature linked to the crisis. 

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HAS ADOPTED THIS DECISION: 

From an overall assessment it follows that an excessive deficit exists in Denmark. 

Article 1 

Article 2 

This decision is addressed to The Kingdom of Denmark. 

Done at Brussels, 15.6.2010 

For the Council 
The President 

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