Commission Opinion 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) 742 final 

COMMISSION OPINION 

on the existence of an excessive deficit in Denmark 

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COMMISSION OPINION 

on the existence of an excessive deficit in Denmark 

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

1. 

2. 

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. 

LEGAL BACKGROUND 

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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 

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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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). 

Article  126(3)  of  the  Treaty  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) of the Treaty, the Economic and 
Financial  Committee  formulated  an  opinion  on  the  Commission  report  on  [27  May 
2010]. 

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. In order to reach a conclusion on whether an excessive deficit 
exists or may occur, the Commission considers that account should be taken of: (i) 
the  conclusions  of  its  report  under  Article  126(3)  and  (ii)  the  opinion  of  the 
Economic  and  Financial  Committee  on  this  report.  On  the  basis  of  these  elements, 
the Commission has established a number of considerations for Denmark. 

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CONSIDERATIONS CONCERNING DENMARK 

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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  deficit  in  2010  is  a  consequence  of  both  the 

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. 

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10. 

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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 stands at 45.1% of GDP in 2010. The Commission services’ 
spring  2010  forecast  projects  the  debt  ratio  to  increase  over  the  2010-2011  period 
from 46% to 49.5% of GDP, remaining 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,  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. 

12. 

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). 

CONCLUSION 

The monitoring of the budgetary situation in Denmark and, in particular, the examination of 
the  compliance  with  the  criteria  laid  down  in  Article  126(2)  has  led  the  Commission  to 
prepare  a  report  in  accordance  with  Article  126(3)  of  the  Treaty.  The  Commission,  having 
taken into account its report and the opinion of the Economic and Financial Committee, is of 
the opinion that an excessive deficit exists in Denmark.  

4 

The no-policy change forecast takes into account the (partial) withdrawal of measures of extraordinary 
nature linked to the crisis. 

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