Recommendation for a COUNCIL RECOMMENDATION on Denmark’s 2012 national reform programme and delivering a Council opinion on Denmark’s convergence programme for 2012-2015
Date: 2012-05-30
Institutions: European Commission
Subjects: Denmark, banking system, budget deficit, budgetary equilibrium, dropout, free competition, labour market, property market, traineeship

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 304 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Denmark’s 2012 national reform programme  

and delivering a Council opinion on Denmark’s convergence programme for 2012-2015

{SWD(2012) 304 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Denmark’s 2012 national reform programme  

and delivering a Council opinion on Denmark’s convergence programme for 2012-2015 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 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 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  on  the  prevention  and  correction  of  macroeconomic  imbalances2, 
and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission3, 
Having regard to the resolutions of the European Parliament,4  

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 

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4 

OJ L 209, 02.08.1997, p. 1 
OJ L 306, 23.11.2011, p. 25 
COM(2012)304 final 
P7_TA(2012)0048 and P7_TA(2012)0047 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

Member States5, which together form the ‘integrated guidelines’. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

On  12  July  2011,  the  Council  adopted  a  recommendation  on  Denmark’s  national 
reform  programme  for  2011  and  delivered  its  opinion  on  Denmark’s  updated 
convergence programme for 2011-2014. 

On 23 November 2011, the Commission adopted the second Annual Growth Survey, 
marking  the  start  of  the  second  European  Semester  of  ex-ante  and  integrated  policy 
coordination,  which  is  anchored  in  the  Europe  2020  strategy.  On  14  February  2012, 
the  Commission,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  adopted  the  Alert 
Mechanism Report6, in which it identified Denmark as one of the Member States for 
which an in-depth review would be carried out. 

On 2 March 2012, the European Council endorsed the priorities for ensuring financial 
stability,  fiscal  consolidation  and  action  to  foster  growth.  It  underscored  the  need  to 
pursue  differentiated,  growth-friendly  fiscal  consolidation,  to  restore  normal  lending 
conditions  to  the  economy,  to  promote  growth  and  competitiveness,  to  tackle 
unemployment  and  the  social  consequences  of  the  crisis,  and  to  modernise  public 
administration. 

On 2 March 2012, the European Council also invited the Member States participating 
in  the  Euro  Plus  Pact  to  present  their  commitments  in  time  for  inclusion  in  their 
stability or convergence programmes and their national reform programmes. 

On  30  April  2012,  Denmark  submitted  its  convergence  programme  for  the  period 
2012-2015 and its 2012 national reform programme. In order to take account of their 
interlinkages,  the  two  programmes  have  been  assessed  at  the  same  time.  The 
Commission concluded in its in-depth review7, under Article 5 of Regulation (EU) No 
1176/2011, that Denmark is experiencing an internal and external imbalance, although 
not excessive. 

Based  on  the  assessment  of  the  2012  convergence  programme  pursuant  to  Council 
Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  the  macroeconomic 
scenario  underpinning  the  budgetary  projections  in  the  programme  is  plausible.  The 
scenario projecting GDP growth at 1.2 and 1.5% in 2012 and 2013 is broadly in line 
with  the  Commission's  2012  spring  forecast  of  1.1  and  1.4%.  Accordingly,  the 
government deficits are slightly smaller in the convergence programme (4.0 and 1.8% 
of  GDP  in  2012  and  2013  respectively,  compared  with  4.1  and  2.0%  of  GDP  in  the 
Commission's 2012 spring forecast). The objective of the budgetary strategy outlined 
in the programme is to correct the excessive deficit by 2013 and achieving the medium 
term  budgetary  objective  (MTO)  of  at  least  a  structurally  balanced  budget  in  2020. 
The  programme  thereby  confirms  the  previous  MTO,  which  adequately  reflects  the 
requirements of the Stability and Growth Pact. The planned headline deficit in 2013 is 
consistent with a timely correction of the excessive government deficit and, based on 

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Council Decision 2012/238/EU of 26 April 2012 
COM(2012) 68 final 
SWD(2012)153 final 

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the  (recalculated)  structural  budget  balance8,  the  planned  fiscal  effort  in  that  year 
complies  with  the  Council  recommendation  issued  under  the  Excessive  Deficit 
Procedure  in  July  2010.  The  consolidation  path  has  become  more  back-loaded  than 
previously  planned  and  a  sizeable  effort  is  needed  in  2013  to  ensure  the  required 
structural adjustment. Risks of falling short of the 3% of GDP reference value in 2013 
are  limited;  the  Commission's  2012  spring  forecast  sees  the  government  deficit  at 
2.0%  of  GDP.  Based  on  the  (recalculated)  structural  budget  balance,  from  2013 
onwards,  the  estimated  budgetary  improvement  in  the  structural  budget  balance  falls 
short  of  the  0.5%  of  GDP  required  by  the  Stability  and  Growth  Pact..  At  the  same 
time,  the  growth  rate  of  government  expenditure,  taking  into  account  discretionary 
revenue  measures,  is  expected  to  be  in  line  with  the  expenditure  benchmark  of  the 
Stability and Growth Pact. Part of the budget deficits will be financed by reducing the 
government's  account  with  Denmark's  Nationalbank.  Denmark's  gross  public  debt  is 
projected  to  fall  from  46.5%  of  GDP  in  2011  to  41.1%  in  2015,  well  below  60%  of 
GDP. 

(9) 

Increasing  labour  supply  is  a  key  priority  for  Denmark  in  order  to  ensure  future 
welfare and fiscal sustainability. In 2011, Denmark concluded an ambitious reform of 
the  voluntary  early  retirement  pension  scheme  and  brought  forward  the  previously 
planned  increase  in  the  statutory  retirement  age  and  its  link  to  life  expectancy.  The 
focus  now  needs  to  shift  to  reforming  the  disability  pension  and  subsidised 
employment (flex-job) schemes. The government has presented a proposal for reform 
in  this  area,  which  should  be  implemented  without  delay.  The  widening  gap  in 
employment outcomes between people with a migrant background and the rest of the 
working population also needs to be addressed.  

(10)  Labour productivity growth in Denmark has slowed down over the last decades, one of 
the  causes  being  a  relatively  weak  education  performance.  Despite  a  high  level  of 
spending on education, the quality of Danish school education — as measured by the 
OECD’s PISA survey — is only average. Furthermore, students generally finish their 
studies  at  a  later  age  than  in  other  Member  States  and  the  drop-out  rates  from 
vocational  education  institutions  are  relatively  high.  To  respond  to  the  challenges  in 
this  field,  the  government  has  announced  a  number  of  new  measures  for  both 
compulsory and secondary education. The 2012 budget also supports the introduction 
of  social  clauses  in  public  procurement  calls  and  measures  to  make  it  financially 
beneficial  for  private  companies  to  offer  apprenticeships,  in  order  to  increase  the 
number  of  available  places.  Increasing  the  provision  of  apprenticeships  will  also  be 
addressed in tripartite negotiations and in the work of an inter-ministerial Committee.  

(11)  Another potential reason for slow productivity growth is the relatively weak degree of 
competition  in  Denmark.  In  2011,  a  competition  package  was  adopted,  mainly 
targeting  the  construction  sector,  the  retail  sector,  and  health  and  public  sector 
services. Competition for taxis and transportation services as well as the liberalisation 
of pharmacies are under investigation, in view of possible new measures. The issue of 
increasing  public  procurement  in  municipalities  and  regions  is  currently  being 
negotiated  with  regional  and  local  governments.  In  this  context,  a  government 
committee  recently  concluded  that  the  Danish  competition  law  is  in  need  of 

8 

Cyclically  adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
services  on  the  basis  of  the  information  provided  in  the  programme,  using  the  commonly  agreed 
methodology. 

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reinforcement, and that sanctions for infringements are currently too low to serve as a 
deterrent. Given that only limited concrete initiatives have been taken in this area over 
the past year, further steps are needed to adequately address this challenge.  

(12)  As  confirmed  in  the  in-depth  review  under  Article  5  of  Regulation  (EU)  No 
1176/2011, while the high household gross debt to some extent is a structural feature 
of  the  Danish  economy,  with  household  assets  considerably  exceeding  liabilities, 
concerns regarding high household debt arise as developments in the housing market 
seem to have caused the debt to  move beyond levels  explained by structural  factors. 
Furthermore,  the  composition  of  mortgage  loans  has  changed  since  2003,  with 
instalment-free and variable-rate loans gaining in popularity over fixed-rate loans with 
instalment. For a given debt level, households are therefore more sensitive to interest 
rates hikes and fluctuations in property prices now than they were a decade ago. This 
poses  higher  potential  risks  in  terms  of  financial  and  economic  stability.  Relevant 
measures  have  been  taken  in  Denmark  to  address  vulnerabilities  in  the  mortgage 
system.  Moreover,  the  Ministry  of  Business  and  Growth  is  currently  analysing  the 
distribution of assets and liabilities across households and their potential vulnerability 
in  the  event  of  different  economic  shocks.  However,  measures  should  also  be 
considered to prevent pro-cyclical developments in the housing market in the medium 
term,  preferably  by  realigning  the  property  value  tax  with  actual  market  values. 
Removing the ceiling of the annual increase of the municipal land value tax could also 
prevent  future  pro-cyclical  effects.  Such  measures  should  be  introduced  gradually, 
taking into account the current need for stabilisation in the housing market.  

(13)  Denmark  has  made  a  number  of  commitments  under  the  Euro  Plus  Pact.  These 
commitments, and the implementation of the commitments presented in 2011, relate to 
fostering employment, improving competitiveness, enhancing sustainability of public 
finances  and  reinforcing  financial  stability.  The  Commission  has  assessed  the 
implementation  of  the  Euro  Plus  Pact  commitments.  The  results  of  this  assessment 
have been taken into account in the recommendations. 

(14) 

(15) 

(16) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Denmark’s  economic  policy.  It  has  assessed  the 
convergence  programme  and  national  reform  programme,  and  presented  an  in-depth 
review.  It  has  taken  into  account  not  only  their  relevance  for  sustainable  fiscal  and 
socio-economic  policy  in  Denmark  but  also  their  compliance  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.  Its 
recommendations under the European Semester are reflected in recommendations (1) 
to (5) below.  

In  the  light  of  this  assessment,  the  Council  has  examined  Denmark’s  convergence 
programme, and its opinion9 is reflected in particular in recommendation (1) below. 

In the light of the results of the Commission’s in-depth review and this assessment, the 
Council  has  examined  Denmark’s  2012  national  reform  programme  and  Denmark’s 
convergence programme. Its recommendations under Article 6 of Regulation (EU) No 
1176/2011 are reflected in particular in recommendations (3), (4) and (5) below, 

9 

Under Article 9 (2) of Council Regulation (EC) No 1466/97. 

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HEREBY RECOMMENDS that Denmark should take action within the period 2012-2013 to: 

1. 

2. 

3. 

4. 

5. 

Implement  the  budgetary  strategy  as  envisaged,  to  ensure  a  correction  of  the 
excessive deficit by 2013 and achieve the annual average structural adjustment effort 
specified  in  the  Council  recommendations  under  the  Excessive  Deficit  Procedure. 
Thereafter,  ensure  an  adequate  structural  adjustment  effort  to  make  sufficient 
progress  towards  the  medium-term  budgetary  objective  (MTO),  including  meeting 
the expenditure benchmark.  

Take  further  steps  to  enhance  long-term  labour  supply  by  reforming  the  disability 
pension,  better  targeting  subsidised  employment  schemes  (the  ‘flex-job’  system) 
towards  people  with  reduced  work  capacity,  and  improving  the  employability  of 
people with migrant background. 

Implement announced measures, without delay, to improve the cost-effectiveness of 
the  education  system,  reduce  drop-out  rates,  in  particular  within  vocational 
education, and increase the number of apprenticeships. 

Continue  efforts  to  remove  obstacles  to  competition,  in  particular  in  local  services, 
the  retail  and  construction  sector,  including  by  further  opening  the  municipal  and 
regional  procurement  of  services  to  competition  and  ensuring  that  competition  law 
sanctions are sufficiently deterrent. 

Consider  further  preventive  measures  to  strengthen  the  stability  of  the  housing 
market and financial system in the medium-term, including by taking account of the 
results  of  the  ongoing  study  by  the  Ministry  of  Business  and  Growth  on  the 
distribution of assets and liabilities across households and by reviewing the property 
value and municipal land value tax system. 

Done at Brussels, 

For the Council 
The President 

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