Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Denmarkand delivering a Council opinionon the updated convergence programme of Denmark, 2011-2015
Date: 2011-06-07
Institutions: European Commission
Subjects: Denmark, EU programme, budget policy, economic growth, employment policy

EUROPEAN COMMISSION 

Brussels, 7.6.2011 
SEC(2011) 820 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Denmark 

and delivering a Council opinion 

on the updated convergence programme of Denmark, 2011-2015 

{SEC(2011) 713 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Denmark 

and delivering a Council opinion 

on the updated convergence programme of Denmark, 2011-2015 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 121(2) and 148(4) thereof, 

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 
policies1 , and in particular Article 9(3) thereof, 

Having regard to the recommendation of the European Commission2, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

On  26  March  2010,  the  European  Council  agreed  to  the  European  Commission's 
proposal  to  launch  a  new  strategy  for  jobs  and  growth,  Europe  2020,  based  on 
enhanced coordination of economic policies, which will focus on the key areas where 
action 
to  boost  Europe’s  potential  for  sustainable  growth  and 
competitiveness. 

is  needed 

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for 
the economic policies of the Member States and the Union (2010 to 2014) and on 21 
October  2010,  adopted  a  decision  on  Guidelines  for  the  employment  policies  of  the 
Member States3, which together form the “integrated guidelines”. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

1 
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3 

OJ L 209, 2.8.1997, p. 1. 
OJ C , , p. . 
Maintained for 2011 by Council Decision 2011/308/EU of 19 May 2011. 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

On  12  January  2011,  the  Commission  adopted  the  first  Annual  Growth  Survey, 
marking  the  start  of  a  new  cycle  of  economic  governance  in  the  EU  and  the  first 
European semester of ex-ante and integrated policy coordination, which is anchored in 
the Europe 2020 strategy.  

On  25  March  2011,  the  European  Council  endorsed  the  priorities  for  fiscal 
consolidation  and  structural  reform  (in  line  with  the  Council’s  conclusions  of  15 
February and 7 March 2011 and further to the Commission’s Annual Growth Survey). 
It  underscored  the  need  to  give  priority  to  restoring  sound  budgets  and  fiscal 
sustainability,  reducing  unemployment  through  labour  market  reforms  and  making 
new efforts to enhance growth. It requested Member States to translate these priorities 
into  concrete measures to be included  in their Stability or Convergence Programmes 
and National Reform Programmes. 

On 25 March 2011, the European Council also invited the Member States participating 
in the Euro Plus Pact to present their commitments on time for their inclusion in their 
Stability or Convergence Programmes and their National Reform Programmes.  

On  9  May  2011,  Denmark  submitted  its  updated  2011  Convergence  Programme 
covering the period 2011-2015 and its 2011 National Reform Programme. In order to 
take  account  of  their  interlinkages,  the  two  programmes  have  been  assessed  at  the 
same time.  

Based on the assessment of the updated Convergence Programme pursuant to Council 
Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  the  macroeconomic 
scenario underlying the Convergence Programme is plausible. While based on slightly 
more  favourable  growth  assumptions  for  2012  and  beyond,  it  is  broadly  in  line  with 
the spring 2011 Commission services' forecast. The budgetary strategy set out in the 
convergence programme aims at bringing the deficit below the 3% reference value by 
2013,  in  line  with  the  Council  recommendations,  reaching  the  revised  medium  term 
objective (MTO) of structural budget balance not below -0.5% of GDP by 2015 and 
achieving  budget  balance  by  2020.  The  adjustment  path  towards  this  objective  is 
appropriate. Measures included in the programme and adopted by Parliament in spring 
2010  are  considered  adequate  to  underpin  the  budgetary  targets  and  would  represent 
an annual fiscal effort of around 1% of GDP over the period 2011-2013. Denmark will 
reach its revised medium term objective within the programme horizon. Risks to the 
budgetary targets are broadly balanced. 

The  Danish  economy  started  slowing  down  in  2007  amidst  a  correction  in  the  real 
estate  market  contributing  to  domestic  banking  problems,  amplified  by  rising 
insolvencies  and  unemployment.  The  recession  was  severe,  output  contracted  by  8% 
between the autumn of 2007 and the spring of 2009, and the unemployment rate rose 
to 7.4% in 2010. The employment rate dropped from 79.8% in 2008 to 76.1% in 2010, 
affecting young people in particular. Output started recovering in 2009, and real GDP 
growth  reached  2.1%  in  2010.  The  recovery  has  been  driven  by  sustained  domestic 
demand  (also  on  account  of  fiscal  expansion),  a  strong  inventory  rebound  and  the 
robust recovery of Denmark's main trading partners. 

(9) 

Automatic  stabilisers  and  crisis-related  measures  caused  the  general  government 
balance to turn from a surplus of 3.2% of GDP in 2008 into a deficit of 2.7% of GDP 
in 2009. On the basis of Denmark's notification in Spring 2010 that the budget deficit 

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would widen beyond 5% of GDP in 2010, an excessive deficit procedure for Denmark 
was opened in July 2010. Although unexpected and temporary windfall gains linked to 
pension yield taxation led to a stabilisation of the budget deficit at 2.7% of GDP last 
year, the Commission services' spring 2011 forecast expects the deficit to widen again 
to  around  4%  of  GDP  in  2011,  emphasising  the  need  for  continuous  and  ambitious 
consolidation  efforts  in  2012.  This  implies  a  strict  implementation  of  the  measures 
adopted in the 2010 Consolidation Agreement and expenditure control as set out in the 
Convergence Programme to ensure the correction of the excessive deficit by 2013.  

(10)  A tight control to avoid recurrent spending overruns at local and regional government 
levels is important to achieve budgetary targets. For the past 20 years, public spending 
has  continuously  been  above  budgetary  targets.  The  government  has  already  taken 
some  measures  to  address  this  issue  and  is  planning  to  introduce  a  new  spending 
control  scheme,  controlled  by  the  Danish  Economic  Council,  as  described  in  the 
Convergence Programme. 

(11)  As  a  result  of  demographic  factors,  the  working-age  population  (15-64  years)  will 
shrink  by  around  1.5%  between  2010  and  2025  and  by  close  to  5%  by  2040.  In  the 
medium  term,  economic  recovery  could  lead  to  a  tightening  of  the  labour  market  as 
witnessed  during  the  boom  years.  Despite  an  already  high  labour  participation  rate, 
there is scope to further raise labour supply. Voluntary early retirement is widespread 
among  people  aged  60  to  64  resulting  in  an  employment  rate  for  60-64  year  olds  of 
only 40%. Moreover, 10 % of the working age population below 40 years of age are 
either on disability benefits or in a flex-job (subsidised employment).  

(12)  There  has  been  a  declining  trend  in  productivity  growth  since  1995,  one  of  the 
potential causes being weak education performance. Although Denmark continues to 
spend  generously  on  its  education  system,  educational  outcomes  are  only  average  in 
several key areas and Denmark has the fourth lowest youth education attainment level 
in  the  EU.  In  2009,  only  70.1 %  of  the  20-24  year  old  population  had  completed  at 
least  upper  secondary  education  (as  against  an  EU  average  of  78.6 %)  and  the  PISA 
results  are  average.  The  drop-out  rates  from  youth  and  vocational  institutions  are 
relatively  high,  with  almost  50 %  of  students  in  vocational  youth  education  leaving 
early.  In  addition,  10  years  after  leaving  primary  school  about  20  percent  of  young 
people have not completed their education above lower secondary level. Improving the 
quality of the education system would also help to prevent future skills imbalances in 
the  labour  market,  currently  pointing  to  a  possible  surplus  of  unskilled  workers 
alongside  a  shortage  of  skilled  workers.  Productivity  growth  has  been  particularly 
weak in the construction and services sectors. This is the case in particular within local 
services, the retail sector, wholesale trade, and personal services, where low degrees of 
competition in certain sectors, for example, high market entry barriers may lead to a 
sub-optimal  allocation  of  resources.  Zoning  laws  are  strict,  limiting  possibilities  for 
productivity enhancing economies of scale in the retail sector. In order to address the 
fact that open public procurement only covers around 25 % of public procurement, the 
government  has  launched  a  strategy  aimed  at  increasing  competition  within  public 
services by gradually increasing public procurement in municipalities and regions, and 
set a new target for municipalities whereby 31.5% of all procurement should be public 
by 2015. 

(13)  Household debt in terms of GDP is the highest in the EU. The build-up of debt levels, 
which has been fuelled by the housing boom between 2004 and 2007, creates potential 

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risks for the economy and financial stability. Although these risks are mitigated by the 
characteristics  of  Denmark's  sophisticated  mortgage-backed  bond  market  and  a 
globally  robust  financial  situation  of  the  majority  of  households  (with  assets  far  in 
excess  of  liabilities),  only  limited  measures  to  dampen  pro-cyclical  fluctuations  of 
house prices were introduced in the aftermath of the house price correction. 

(14)  Denmark has made a number of commitments under the Euro Plus Pact4. To improve 
fiscal sustainability, an agreement has been reached to strengthen sanction legislation 
with  regard  to  spending  control  at  the  local  level.  The  government  has  submitted  a 
proposal on a dowry scheme to facilitate private resolutions to handle distressed banks 
and  help  improve  financial  stability.  Employment  measures  focus  on  fostering 
employment  by  prolonging  working  life.  To  foster  competitiveness  a  Competition 
Package  with  concrete  initiatives  is  targeted  primarily  towards  the  construction  and 
service  sectors.  These  commitments  refer  to  the  four  areas  of  the  pact.  Overall,  the 
measures  coincide  with  those  taken  to  follow  up  on  the  Annual  Growth  Survey  and 
make  progress  towards  the  Europe  2020  targets,  most  notably  in  the  employment 
domain.  Although  a  number  of  the  announced  commitments  have  already  been 
introduced, important measures to improve budgetary discipline (at local level) and to 
foster  employment  should  be  implemented  in  the  near  future.  These  commitments 
have been assessed and taken into account in the recommendations. 

(15)  The  Commission  has  assessed  the  Convergence  Programme  and  National  Reform 
Programme, including the Euro Plus Pact commitments5. It has taken into account not 
only their relevance for sustainable fiscal and socio-economic policy in Denmark but 
also  their  conformity  with  EU  rules  and  guidance,  given  the  need  to  reinforce  the 
overall economic governance of the European Union by providing EU level input into 
future national decisions. In this light, the Commission considers that continuous and 
ambitious fiscal consolidation efforts should be pursued in 2011 and beyond. Further 
steps  should  also  be  taken  to  further  raise  labour  supply  through  reducing  early 
retirement  and  targeting  particular  groups,  improve  the  quality  of  education, 
strengthen competition in key sectors and further stabilise the real-estate market.  

(16) 

In  light  of  this  assessment,  also  taking  into  account  the  Council  Recommendation 
under Article 126(7) Treaty on the Functioning of the European Union of 2 June 2010, 
the  Council  has  examined  the  2011  update  of  the  Convergence  Programme  of 
Denmark and its opinion6 is reflected in particular in its recommendation under (1) set 
out below. Taking into account the European Council conclusions of 25 March 2011, 
the Council has examined the National Reform Programme of Denmark, 

HEREBY RECOMMENDS that Denmark should take action within the period 2011-2012 to: 

(1) 

Implement  fiscal  consolidation  measures  in  2011  and  2012  as  planned  and  correct 
the  excessive  deficit  by  2013.  Accelerate  the  reduction  of  the  general  government 
deficit  if  economic  conditions  turn  out  better  than  currently  expected.  Strengthen 
expenditure  control  by  adopting  binding  multiannual  spending  ceilings  for  local, 
regional and central government which are consistent with the overall medium-term 
general budget targets. 

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6 

More details on the commitments made under the Euro Plus Pact can be found in SEC(2011) 713. 
SEC(2011) 713. 
Foreseen in Article 9(3) of Council Regulation (EC) No 1466/97. 

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(2) 

(3) 

(4) 

(5) 

Phase out as planned the voluntary early retirement pension (VERP) scheme, reform 
the  disability  pension,  and  better  target  subsidised  employment  schemes  (the  "flex-
job" system) towards the most vulnerable groups. 

Speed  up  the  implementation  of  reforms  to  improve  the  quality  of  the  education 
system.  Reduce  drop-out  rates,  particularly  in  the  vocational  education  sector,  and 
increase the number of apprenticeship places available.  

Take steps to remove obstacles to competition, in particular in local services and the 
retail  sector,  by  reviewing  legislation  on  land  use  and  opening  up  procurement  in 
municipalities and regions. 

While  supporting  the  ongoing  stabilisation  of  the  real-estate  market  following  the 
recent  price  correction,  take  preventive  action  to  strengthen  the  medium-term 
stability  of  the  housing  market  and  the  financial  system  including  reforms  to  the 
mortgage and property tax systems.  

Done at Brussels, 

For the Council 
The President 

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