COMMISSION STAFF WORKING DOCUMENT Assessment of the 2013 national reform programme and convergence programme for DENMARK Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Denmark's National Reform Programme and for a Council Opinion on Denmark’s convergence programme for 2012-2016
Date: 2013-05-29
Institutions: European Commission
Subjects: Denmark, banking system, budgetary equilibrium, competitiveness, economic growth, economic recession, educational reform, job creation, labour market

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
SWD(2013) 354 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2013 national reform programme and convergence programme for 
DENMARK  

Accompanying the document 

Recommendation for a COUNCIL RECOMMENDATION 

on Denmark's National Reform Programme and for a Council Opinion on Denmark’s 
convergence programme for 2012-2016  

{COM(2013) 354 final} 

EN 

   EN 

 
 
 
 
  
 
CONTENTS 

Executive summary .................................................................................................................... 3 

1. 

2. 

2.1. 

2.2. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

4. 

5. 

Introduction .................................................................................................................. 4 

Economic developments and challenges...................................................................... 6 

Recent economic developments and outlook............................................................... 6 

Challenges .................................................................................................................... 7 

Assessment of policy agenda ....................................................................................... 9 

Fiscal policy and taxation............................................................................................. 9 

Financial sector .......................................................................................................... 13 

Labour market, education and social policies ............................................................ 14 

Structural measures promoting growth and competitiveness..................................... 20 

Modernisation of public administration ..................................................................... 23 

Overview table ........................................................................................................... 25 

Annex ......................................................................................................................... 29 

2 

 
 
 
 
1. 

EXECUTIVE SUMMARY 

Economic Outlook 

After  the  downturn  in  2012,  when  GDP  growth  fell  by  0.5%,  the  Commission  expects 
Denmark's GDP to grow by 0.7% in 2013 and 1.7% in 2014, buoyed by policy measures 
stimulating domestic demand, as well as a modest rise in net exports. Against the background 
of subdued economic growth, unemployment is expected to stay high by Danish standards, at 
7.7% in 2013 and 7.6% in 2014. Inflation is expected to ease from 2.4% in 2012 to 1.1% in 
2013, rising slightly to 1.6% in 2014, due to weak underlying price pressures and excise tax 
cuts. However, the slowdown of external demand is expected to drag down the GDP growth, 
despite the improvement in Denmark's cost-competitiveness over the last couple of years. 

Denmark's public finances are expected to improve compared to 2012, with the budget 
deficit  shrinking  from  4%  in  2012  to  1.7%  of  GDP  in  2013,  thereby  meeting  the 
excessive  deficit  procedure  recommendation  by  the  2013  deadline.  The  Commission 
estimates that the deficit will rise to 2.7% of GDP in 2014 (not taking into account the one-off 
pension  measures,  which  were  not  known  at  the  time  of  the  forecast).  Denmark's  medium 
term objective (MTO) is a structural deficit of 0.5% of GDP. According to the Commission's 
Spring  Forecast,  Denmark  already  fulfils  its  MTO.  Moreover,  Danish  authorities  aim  for  a 
balanced budget in structural terms by 2020. Public debt is projected to remain at a relatively 
low level of around 45% of GDP, rising slightly to 46.4% in 2014, though still significantly 
below the EU's 60% threshold.  

Key Issues 

The  economic  crisis  hit  Denmark  relatively  hard  and  resulted  in  a  significant  drop  in 
employment, though the authorities have managed to cope with the downturn relatively 
well.  However,  in  April  2013  the  Commission  concluded  that  Denmark  was  experiencing 
macroeconomic imbalances, which deserve closer monitoring and effective policy action.  

Denmark is making progress in implementing the 2012 CSRs and has an active reform 
agenda,  though  most  of  the  reforms  will  have  an  impact  only  in  the  medium  to  long 
term.  A  comprehensive  reform  of  the  early  retirement  pension  schemes  has  been 
implemented. Reforms of the disability pension and the subsidised employment schemes have 
been  adopted.  Steps  have  been  taken  to  reform  the  public  school,  vocational  training  and 
student allowance systems and the government intends to increase competition in a number of 
services sectors, though only partial progress has been made. Over the short to medium term, 
Denmark does not seem to face particular challenges with its public finances, though it should 
continue to lower the deficit sustainably below 3% of GDP. 

To  stimulate  economic  growth  and  secure  adequate  financing  for  ambitious  welfare 
policies,  Denmark  needs  to  get  back  on  track  by  boosting  productivity  growth  and 
competitiveness. The stability of the financial system, in particular the housing market, also 
remains  an  issue  of  concern,  while  Denmark  also  needs  to  enhance  its  long-term  labour 
supply and the cost effectiveness of the education system. 

•  Competitiveness:  Denmark  has  lost  significant  export  market  shares  over  the  last 
decade,  and  prices  are  about  14%  higher  for  services  and  5%  higher  for  goods 
compared to an average of seven similar EU countries.  This is  partly because  of the 
low level of competition in some sectors (for example, the barriers to entry for certain 

3 

 
 
 
professions in the retail sector). The authorities have set up a commission to work on 
boosting competitiveness and productivity. 

•  Labour  market:  The  key  jobs  challenge  continues  to  be  how  to  increase  long-term 
labour supply, particularly in the light of an ageing population. This problem could be 
eased by reintegrating people, such as those with migrant backgrounds, into the labour 
market, as the employment rate for non-EU nationals (54.5 % in 2012) is considerably 
lower than the overall employment rate (75.4%) and is also below the EU average. 

•  Education:  Despite  Denmark's  high  proportion  of  expenditure  on  education,  cost-
effectiveness is weak, there is a lack of apprenticeship places and drop-out rates from 
high  school  and  vocational  education  are  high  (9.1%  overall  in  2012).  Ambitious 
solutions are needed as these measures are vital to improve low productivity growth, 
increase labour supply and ensure that the future skills demands are met.  

•  Financial  sector:  High  private-sector  debt,  particularly  household  debt  –  which 
increased by 52% between 2001 and 2009 – remains a risk to financial and economic 
stability, and has knock-on effects for domestic demand. Measures to address the risks 
in  the  banking  and  housing  sectors  have  been  appropriate,  but  limited.  All  these 
measures  go  in  the  right  direction,  but  close  monitoring  will  be  required  in  order  to 
make sure they have the desired impact. 

1. 

INTRODUCTION 

In  May  2012,  the  Commission  proposed  a  set  of  country-specific  recommendations  (CSRs) 
for  economic  and  structural  reform  policies  for  Denmark.  On  the  basis  of  these 
recommendations,  the  Council  of  the  European  Union  adopted  five  CSRs  in  the  form  of  a 
Council  Recommendation  in  July  2012.  These  CSRs  concerned  public  finances,  taxation, 
long-term labour supply and the labour market, the cost-effectiveness of the education system 
and  the  stability  of  the  housing  market  and  financial  system.  This  staff  working  document 
(SWD) assesses the state of implementation of these recommendations in Denmark. 

The  SWD  assesses  policy  measures  in  light  of  the  findings  of  the  Commission’s  Annual 
Growth Survey 2013 (AGS)1 and the second annual Alert Mechanism Report (AMR),2 which 
were  published  in  November  2012.  The  AGS  sets  out  the  Commission’s  proposals  for 
building a common understanding of the priorities for action at national and EU level in 2013. 
It identifies five priorities to guide Member States to renewed growth: pursuing differentiated, 
growth-friendly  fiscal  consolidation;  restoring  normal  lending  to  the  economy;  promoting 
growth and competitiveness for today and tomorrow; tackling unemployment and the social 
consequences  of  the  crisis;  and  modernising  public  administration.  The  AMR  serves  as  an 
initial  screening  device  to  determine  whether  macroeconomic  imbalances  exist  or  risk 
emerging in Member States. The AMR found positive signs that macroeconomic imbalances 
in Europe are being corrected. To ensure that a complete and durable rebalancing is achieved, 

1 COM(2012) 750 final 
2 COM(2012) 751 final 

4 

 
 
 
 
                                                 
Denmark  and  thirteen  other  Member  States  were  selected  for  a  review  of  progress  in 
addressing these imbalances.3 

Against  the  background  of  the  2012  Council  Recommendation,  the  AGS  and  the  AMR, 
Denmark presented updates of its national reform programme (NRP) and of its convergence 
programme  on  30  April  2013.  These  policy  plans  provide  detailed  information  on  progress 
made  since  July  2012  and  address  most  of  the  challenges  identified  in  last  year’s  Staff 
Working  Document.  Broad  coherence  between  the  two  programmes  has  been  ensured.  The 
national reform programme confirms Denmark’s commitment to address shortcomings in the 
areas  of  competition,  the  labour  market,  the  education  system  and  the  financial  sector.  The 
convergence  programme  demonstrates  Denmark’s  commitment 
the 
recommendations of the Excessive Deficit Procedure, improve the budgetary position towards 
the medium-term objective and ensure the long-term sustainability of public finances in line 
with the Stability and Growth Pact. 

to  comply  with 

Regarding  the  stakeholder  participation,  the  national  reform  programme  went  through  a 
consultation process involving regional and local authorities as well as interest organisations, 
including organisations that work on social issues. A consultation was organised through the 
Contact  Committee  for  the  Europe  2020  Strategy,  involving  the  above-mentioned  bodies.  It 
channelled  the  discussion  of  the  NRP  between  national  and  regional  authorities  as  well  as 
interest organisations. The NRP was sent to the Committee for consultation in mid-March and 
its comments were taken into account when preparing the programme. 

Overall assessment 

The analysis in this SWD leads to the conclusion that Denmark has made some progress on 
measures taken to address the CSRs contained in the Council Recommendation. The policy 
plans  submitted  by  Denmark  are  relevant,  specific  and  credible  but  an  effective 
implementation of the measures needs to be monitored. 

The  overall  goal  of  the  active  economic  reform  agenda  is  to  put  the  Danish  economy  on  a 
sustainable path, in line with the government’s 2012 national reform programme and revised 
national 2020 plan, in particular to ensure the preservation of the Danish welfare system. Over 
the short to medium term, with the new economic reforms, Denmark does not seem to face 
particular sustainability challenges. A comprehensive reform of the early retirement pension 
schemes  has  been  implemented.  Reforms  of  the  disability  pension  and  the  subsidised 
employment schemes have been adopted. Steps have been taken to reform the public school 
system,  the  vocational  training  system  and  the  student  allowance  system.  However,  only 
partial  progress  has  been  made  in  implementing  the  2012  recommendation  on  education 
policy  and  competition  in  the  services  sector,  as  government  proposals  have  not  yet  been 
adopted or fully implemented in these areas. Limited progress has been made concerning the 
recommendation  on  the  stability  of  the  housing  market  and  measures  fostering  prudent 
lending and promoting mortgage amortisation. 

The  challenges  identified  in  July  2012  and  reflected  in  the  AGS  remain  valid.  In  the  short 
term,  the  main  challenge  is  to  spur  economic  recovery  by  boosting  productivity  and 
competitiveness,  better  utilising  the  labour  force  potential  and  strengthening  the  stability  of 

3  13  in-depth  reviews  were  published  on  10  April  2013.  While  selected  for  an  in-depth  review  in  the  AMR, 
Cyprus  was  ultimately  not  reviewed  under  the  Macroeconomic  Imbalance  Procedure  in  view  of  the 
advanced preparations for a financial assistance programme. 

5 

 
 
 
                                                 
the  financial  system.  Improving  the  quality  and  efficiency  of  education  would  help  buttress 
innovation and human capital, improving the medium- and long-term growth prospects. 

2. 

ECONOMIC DEVELOPMENTS AND CHALLENGES 

1.1. 

Recent economic developments and outlook 

Recent economic developments 

The  economic  crisis  hit  Denmark  relatively  hard  and  resulted  in  a  significant  drop  in 
employment. However, Denmark has managed to cope with the crisis rather well, and in spite 
of  increasing  unemployment  and  deteriorating  social  conditions  automatic  stabilisers  and 
government  measures  have  played  their  part  without  jeopardising  public  finances  and  debt 
levels. Interventions in the financial sector have been relatively successful so far in terms of 
securing financial and fiscal stability. 

The  Danish  economy  had  already  started  to  slow  down  before  the  onset  of  the  global 
economic  and  financial  crisis,  amidst  a  correction  in  the  real  estate  market.  In  2012, 
these developments were compounded by the general weakening of the the global economy 
and  the  on-going  sovereign  debt  crisis  in  the  euro  area.  This  had  a  negative  impact  on  net 
exports  and  domestic  demand  and  was  further  aggravated  by  continued  deleveraging  of 
households and firms, depressed consumer and business confidence and falling employment. 
At the same time, the ’flight to security’ that happened in response to the sovereign debt crisis 
has  led  to  strong  demand  by  international  investors  for  highly-rated  mortgage  bonds  and 
government securities from Denmark. This resulted in very low interest rates, which currently 
underpin a still fragile housing market. 

The crisis has taken its toll on the labour market. Employment fell both in 2011 and 2012 
with  the  unemployment  rate  reaching  almost  8  %,  which  is  high  by  Danish  historical 
standards. While still performing well in a European comparison, the indicators tracking the 
risk  of  poverty  and  social  inclusion  in  Denmark  have  increased,  especially  for  people  in 
disadvantaged groups, such as those with a migrant background. 

Economic outlook 

The economy is expected to gain traction in 2013 after the downturn in 2012. According 
to  the  2013  Commission  Spring  Forecast,  the  economy  is  expected  to  return  to  growth  in 
2013,  with  real  GDP  expected  to  rise  by  0.7  %  on  the  back  of  policy  measures  boosting 
domestic  demand.  Private  consumption  is  projected  to  grow  moderately  supported  by  low 
interest rates and rising wages. Furthermore, the ’investment window’ tax breaks, which will 
continue until the end of this year, are projected to temporarily boost investment. However, 
the  slowdown  of  external  demand  is  expected  to  drag  down  GDP  growth  despite  the 
improvement  in  Denmark’s  cost-competitiveness  over  the  last  couple  of  years.  Consumer 
price  inflation  is  expected  to  ease  further  in  2013  to  1.4  %  due  to  weak  underlying  price 
pressures and excise tax cuts. Real GDP is  set to  rise  further in 2014 to  around  1.7 % with 
positive net export growth expected to add to a modest rise in domestic demand. Employment 
has surprised on the positive side in 2012, but the drop in economic activity by the end of the 
year is expected to have negative effects on employment in the first half of 2013. However, 
the  gradual  pick-up  in  economic  growth  in  the  course  of  this  year  is  expected  to  ensure  a 
gradual turnaround in the labour market in the second half of 2013. 

6 

 
 
 
The economic scenario underlying the national reform programme and the convergence 
programme  seems  realistic.  It  projects  real  GDP  to  grow  by  0.7  %  in  2013  and  1.6  %  in 
2014, which is broadly in line with the Commission’s 2013 Spring Forecast. 

is 

improving  growth,  employment  and 
The  Danish  government 
competitiveness  via  structural  reforms  and  a  modernisation  of  the  public  sector.  By 
improving the conditions for private companies and labour market and education reforms, the 
government  aims  to  boost  annual  potential  GDP  gowth  by  a  third  of  a  percentage  point  on 
average from 2014 to 2020.  

focused  on 

Private  employment  may  increase  by  150,000  persons  by  2020,  according  to  Danish 
authorities' estimates. This, however, includes 80 000 persons from the expected economic 
recovery,  while  already  implemented  reforms  and  demographic  factors  are  expected  to 
increase private employment by 37 000 persons. Future reforms and the effects of the 2012 
reforms  of  taxes,  disability  pensions  and  flex-jobs  are  estimated  to  increase  employment  by 
33 000 persons. 

1.2. 

Challenges 

Denmark faces significant challenges to boost its competitiveness and productivity and 
growth,  increase  competition,  enhance  its  long-term  labour  supply  and  the  cost 
effectiveness of the education system. The stability of the financial system, in particular 
the housing market, also remains an issue of concern. These issues were already identified 
in  the  2012  SWD.  In  July  2012,  relevant  policy  responses  were  noted  and  integrated  in  the 
CSRs of the Council Recommendation issued for Denmark. In line with the ,AGS, the AMR, 
and the 2013 in-depth review (see Box 1), the policy challenges for Denmark identified in the 
2012  Commission  SWD  remain  essentially  unchanged,  despite  progress  with  the  reform 
agenda and its implementation. 

To  stimulate  economic  growth  and  secure  adequate  financing  for  ambitious  welfare 
policies, Denmark needs to boost productivity growth and competitiveness. Denmark has 
lost significant export market shares over the last decade. These losses seem to be linked to 
the  deterioration  of  Denmark’s  cost  competitiveness,  reflecting  relatively  high  wage  growth 
and low  productivity  growth  compared with its trading partners. Continued losses of  export 
market share despite the recent improvements in cost competitiveness suggest that non-cost-
related  factors  may  also  play  a  role.  One  of  these  factors  is  arguably  the  geographical 
destination of Danish exports, which do not seem to sufficiently target high-growth emerging 
markets.  

An  important  cause  of  slow  productivity  growth  appears  to  be  the  low  level  of 
competition in some sectors, in particular services. Despite the steps already taken in the 
services  sector  to  improve  the  regulatory  framework  (e.g.  abolishing  the  rules  on  shop 
opening hours), there are still significant barriers to entry, especially in the retail services and 
in the construction sector.  

The  key  labour  market  challenge  continues  to  be  the  increase  in  the  long-term  labour 
supply,  in  particular  in  the  light  of  demographic  ageing.  At  the  same  time,  there  is  an 
increasing  amount  of  people  finding  themselves  at  the  margins  of  the  labour  force,  such  as 
those with a migrant background, the long-term unemployed and people with reduced work 
capacity.  This  is  an  additional  labour  market  challenge,  putting  to  the  test  the  ability  of  the 
Danish flexicurity model to assist these groups’ reintegration in the labour market. 

7 

 
 
 
The education system continues to face challenges in improving cost-efficiency. Despite 
Denmark’s high proportion of expenditure on education in GDP, cost-effectiveness is weak, 
the  upper  secondary  completion  rates  are  low  and  drop-out  rates  are  high  (especially  in  the 
youth vocational education system). The challenges faced by the youth vocational educational 
programmes are linked to their quality and a lack of apprenticeships. Moreover, the transition 
periods  between  different  levels  of  education  and  from  the  education  system  to  the  labour 
market are among the longest in the EU. It is vital to overcome the education challenges in 
order  to  improve  the  low  productivity  growth,  increase  labour  supply  and  ensure  that  the 
future skill demands are met. 

Financial stability remains as an issue of concern as housing market developments and 
high private sector debt continue to affect the economy’s macroeconomic performance. 
Excessive swings in house prices and high debt had contributed to wide fluctuations in private 
consumption,  whilst  high  private-sector  debt,  in  particular  of  households,  remains  a  risk  to 
financial and economic stability. Recent research into the distribution of assets and liabilities 
across  households  shows  that  a  high  proportion  of  overall  household  debt  is  held  by  high-
income  households,  which  are  better  equipped  to  service  their  debt  if  interest  rates  rise. 
Nevertheless, if a number of risks, such as rising interest rates, a further fall in house prices 
and continued low growth and rising unemployment, materialise simultaneously,  this  would 
pose  a  significant  challenge  for  the  Danish  mortgage  system.  Regarding  the  property  tax 
system,  although  cadastral  values  continue  to  be  updated  every  two  years  to  reflect  market 
values, the value for the purpose of taxing property has been frozen in  nominal  terms since 
2002, which is presumed to have contributed to the housing bubble. 

Box 1. — Summary of the 2013 in-depth review (IDR) under the Macroeconomic 
Imbalance Procedure (MIP) 

In the 2012 AMR the Commission recommended to take a closer look at imbalances in Denmark that 
had been identified in May 2012. To this end, the second 2013 In-Depth Review (IDR) took a broad 
view  of  the  Danish  economy,  in  line  with  the  scope  of  the  surveillance  under  the  Macroeconomic 
Imbalance Procedure, to examine the persistence of macroeconomic imbalances and the remedies. The 
IDR concluded that Denmark was experiencing macroeconomic imbalances that warranted monitoring 
and  policy  action.  Particular  attention  should  be  given  to  the  continuing  adjustment  in  the  housing 
market,  the  high  level  of  indebtedness  of  households  and  in  the  private  sector  and  to  the  drivers  of 
external competitiveness. 

The main findings from this analysis are as follows: 

•  The  continued  losses  in  export  market  shares  in  goods  seem  to  be  linked  to  a  deterioration  of 
Denmark’s  cost  competitiveness  over  the  last  decade,  due  to  relatively  high  wage  growth  and 
weak  productivity  growth  compared  with  its  trading  partners.  Furthermore,  nominal  effective 
exchange  rate  movements  have  undermined  Denmark’s  competitiveness.  Recently,  wage  and 
terms-of-trade developments have improved its cost competitiveness, but low productivity growth 
remains a cause for concern. 

•  Regarding non-cost-related factors, the geographical composition of Danish exports, which do not 
seem  to  be  sufficiently  represented  in  high-growth  emerging  markets,  may  also  have  a  negative 
impact  on  its  market  share.  However,  a  relatively  favourable  product  composition  of  Danish 
exports  has  partly  compensated  for  adverse  impact  of  the  geographical  destination  of  exports. 

8 

 
 
 
 
 
Regarding  cost-related  factors,  trends  appear  to  have  shifted  in  more  recent  years.  Unit  labour 
costs have fallen, partly reflecting slower wage growth, but also a cyclical catch-up in productivity 
growth.  In  the  coming  years,  wages  in  Denmark  are  expected  to  rise  more  slowly  than  in 
competitor countries, which will boost its cost-competitiveness. 

•  High household debt is an imbalance that poses increased economic risks, in particular given the 
potential effects on the financial sector and on private consumption, although the analysis in the 
IDR  notes  certain  improvements.  Recent  research  into  Danish  household  debt  indicates  that  the 
risks to financial stability from household indebtedness are relatively contained. Nevertheless, if 
multiple  risk  factors  were  to  arise  simultaneously,  such  as  rising  interest  rates,  a  further  fall  in 
house prices  and continued low growth and rising unemployment (unlikely though as that is), it 
would be a major test for Denmark’s mortgage system. 

A  wide  range  of  policy  responses  could  be  considered  to  tackle  the  above  challenges.  As  regards 
external competitiveness, wage developments should track productivity trends. Productivity could be 
boosted by removing obstacles to competition and by removing barriers for firms’ use of knowledge. 
Non-price  competitiveness  would  improve  if  exports  showed  more  geographical  flexibility  and  the 
adaptability to adjust to changes in global demand. 

With regard to the high level of household debt, measures could be considered to improve the stability 
of the housing market and the financial system in the medium term. Recent and planned initiatives aim 
to improve the robustness of the mortgage credit system, limit policy incentives to take up debt and 
reduce the risk of an unsustainable build-up of household debt. 

3. 

ASSESSMENT OF POLICY AGENDA 

1.3. 

Fiscal policy and taxation 

Budgetary developments and debt dynamics 

According to the medium-term budgetary strategy of the 2013 Convergence programme 
the fiscal deficit will fall below the 3% of GDP reference value by the 2013 deadline set 
by the Council with a structural improvement of 1½ % of GDP between 2010 and 2013. 
Furthermore,  the  programme  aims  to  reach  a  medium  term  objective  (MTO)  of  at  least  a 
balanced budget in structural terms in 2020. The MTO remains unchanged compared to last 
year’s programme, and reflects the objectives of the Stability and Growth Pact. For the years 
2013 to 2020, the structural deficit fulfils the minimum requirement in the Fiscal Compact of 
a deficit not exceeding 0.5 % of GDP. 

The general government deficit reached 4.0% of GDP in 2012, which is very close to the 
deficit  forecast  of  4.1%  in  last  year’s  programme.  The  deficit  in  2012  reflects  an 
extraordinary  increase  in  public  expenditure  by  2%  of  GDP  in  2012  due  to  the  one-off 
repayment of the Voluntary Early Retirement Pension (VERP) contributions and the planned 
frontloading of public investments. 

The convergence programme’s’ projection of a budget deficit of 1.6% of GDP in 2013 is 
in line with the Commission’s Spring Forecast of 1.7%. The improvement of the headline 

9 

 
 
 
 
 
balance  compared  to  2012  is  to  a  large  degree  driven  by  one-off  measures.  In  2012,  the 
repayment of the VERP contributions reduced the budget deficit by approximately 1¾ % of 
GDP.  In  2013,  the  possibility  of  moving  forward  taxation  of  existing  capital  pensions  at 
favourable conditions is expected to improve the budget deficit by close to 1 % of GDP. 

The convergence programme projects the headline budget balance to deteriorate to -1.7 
% of GDP in 2014 and to -2.8 % of GDP in 2015, before improving to -2.0% of GDP in 
2016. The small change in the headline deficit from 2013 to 2014 reflects broadly unchanged 
interest  expenditures  and  the  slight  deterioration  in  the  primary  balance  is  due  to  the 
government  consolidation  efforts  being  more  than  offset  by  lower  revenues  from  one-off 
items. In the Commission’s Spring Forecast, the fiscal balance is expected to be at -2.7 % in 
2014. The divergence with the authorities' forecast is mainly due to an extension of the one-
off capital pensions measure into 2014, which was not known by the time of the finalisation 
of the Commission's forecast. 

According to the convergence programme, public expenditure and revenue are forecast 
to fall by 0.8 and 0.9% of GDP, respectively, in 2014. On the expenditure side, the fall can 
be mainly attributed to a lower share of public consumption on the back of the Growth Plan 
and  a  lower  share  of  income  transfers.  On  the  revenue  side,  the  fall  comes  from  lower 
revenues  from  direct  and  indirect  taxes,  including  from  pension  yield  taxes.  From  2014  to 
2016,  expenditure  and  revenue  are  expected  to  decrease  by  1.9  and  2.2%  of  GDP, 
respectively. The main causes of the expected decrease in the share of public revenues up to 
2016 are the phasing-out of the capital pension taxation measure in 2014 while the decrease in 
the expenditure share is forecast to result from the dampening effect of the ‘Growth Plan’ (see 
Box 4) on public consumption. 

According  to  the  convergence  programme,  Denmark  aims  to  fulfil  the  EDP 
recommendation  by  the  2013  deadline  set  by  the  Council.  The  main  fiscal  consolidation 
measures  are  specified  in  the  2009  Spring  Package  2.0,  the  2010  Consolidation  Agreement 
and  the  fiscal  bill  for  2012  (see  Box  2).  The  Commission’s  Spring  Forecast  projects  the 
headline budget balance to fall to -1.7% of GDP in 2013. Hence, the risks for breaching the 
3% reference value appear to be very limited. The bottom-up approach, as calculated by the 
national authorities, shows an annual improvement of the structural balance of 0.8 percentage 
points in 2011, 0.3 percentage points in 2012 and 0.6 percentage points in 2013.4 While the 
discretionary  measures  described  in  the  convergence  programme  appear  plausible  to  secure 
the  required  cumulative  structural  budget  improvement  of  1.5%  of  GDP  between  2011  and 
2013, the targeted improvement of the structural budget balance of 0.6 percentage points of 
GDP in 2013 is ambitious and requires considerable efforts. 

The  convergence  programme  foresees  a  deterioration  of  the  structural  balance 
(recalculated with the commonly agreed methodology) from 0.3 % of GDP in 2013 to -
0.6 % of GDP in 2016. Taking into account the ¼ percentage point margin when evaluating 
the  (recalculated)  structural  balance,  Denmark  is  projected  to  respect  its  MTO  of  -½  %  of 
GDP  in  the  years  from  2014  to  2016.  The  structural  balance  as  calculated  by  the  national 
authorities is projected to be between 0 and -½ % of GDP in the period 2013-2016. According 
to the information provided in the Programme, the growth rate of government expenditure, net 
of discretionary revenue measures, from 2014 to 2016 will not exceed the reference medium-

4 This result contrasts to the cyclically adjusted balance net of one-off and temporary measures, as recalculated by the Commission services 
on  the  basis  of  the  information  provided  in  the  programme,  using  the  commonly  agreed  methodology.  According  to  this 
calculation the structral balance improves from -0.1% of GDP in 2010 to 0.3% of GDP in 2013. However, this method does not 
filter out very volatile revenue items – such as the revenues from North Sea oil extraction and the pension yield tax – which plays 
an important role when assessing the Danish public finances. 

10 

 
 
 
                                                 
term  rate  of  potential  GDP  growth  (1.12%).  The  expenditure  projections  confirm  an 
appropriate  adjustment  to  the  MTO.  The  Commission’s  Spring  Forecast  expects  the  growth 
rate  of  public  expenditure  to  exceed  somewhat  the  lower  reference  rate  in  2014,  but  this 
deviation is not deemed to be significant. 

Denmark  has  reduced  its  gross  public  debt  from  46.4  %  of  GDP  in  2011  to  45.7  %  in 
2012,  despite  running  a  4%  of  GDP  fiscal  deficit.  The  convergence  programme  plans  a 
further reduction of the debt ratio by 2014, a stabilisation in 2015-17 and a further decrease to 
around 40% of GDP by 2020. Medium-term debt projections (Graph below Table V in annex) 
also  confirm  that  full  implementation  of  the  programme  would  lead  to  lower  debt  in  2020. 
The debt ratio is thus expected to stay well below the 60 % reference value in the Stability 
and Growth Pact and the debt reduction benchmark is therefore not applicable. 

Box 2. Main fiscal consolidation measures 

  Denmark's fiscal consolidation effort is based on the financing elements of the 2009 
Spring Package 2.0, the 2010 Consolidation Agreement and the fiscal bill for 2012. 
According  to  the  convergence  programme,  the  effect  from  these  initiatives, 
measured  by  the  direct  revenue  effect,  amounts  to  2.2  %  of  GDP  over  the  period 
2011-201313. A number of other factors influence the structural balance negatively, 
for example a structural fall in revenues from North Sea oil extraction. Net of these 
effects,  the  public  finances  are  projected  to  improve  by  1.7  %  of  GDP  when 
measured  by  the  bottom-up  methodology  and  by  1.5  %  by  the  top-down 
methodology as calculated by the national authorities. 

  Revenue 

Expenditure 

2011 

•  Financing  elements  Spring  Package 

•  Lower  growth  in  public  consumption 

2.0 (0.1 % of GDP) 

(-0.7 % of GDP) 

•  Financing  elements  Consolidation 

Agreement (0.3 % of GDP) 

•  Public investment (0.1 % of GDP) 
•  Social transfers (-0.1 % of GDP) 

2012 

•  Financing  elements  Consolidation 

•  Lower  growth  in  public  consumption 

Agreement (0.1 % of GDP) 

(-0.1 % of GDP) 

•  Financing  elements  Fiscal  Bill  2012 

(0.2 % of GDP) 

•  Public investment (0.1 % of GDP) 
•  Social transfers (-0.2 % of GDP) 

2013 

•  Financing  elements  Spring  Package 

•  Lower  growth  in  public  consumption 

2.0 (0.2 % of GDP) 

(-0.1 % of GDP) 

•  Financing  elements  Consolidation 

Agreement (0.1 % of GDP) 

•  Public investment (-0.2 % of GDP) 
•  Social transfers (0.1 % of GDP) 

•  Financing  elements  Fiscal  Bill  2012 

(0.1 % of GDP) 

  Note: The budgetary impact in the table is the impact reported in the programme, i.e. by the national 
authorities.  A  positive  sign  implies  that  revenue  /  expenditure  increases  as  a  consequence  of  this 
measure. The degree of detail reflects the information made available in the convergence programme 
and, where available, of a multiannual budget.  

• 

11 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Box 3. Excessive deficit procedure for Denmark 

On  13  July  2010,  the  Council  decided  that  an  excessive  deficit  existed  in  Denmark  and 
adopted  the  most  recent  Council  Recommendation  under  Art.  126(7)  TFEU.  The  Council 
recommended  that  the  Danish  authorities  should  put  an  end  to  the  present  excessive  deficit 
situation by 2013. 

Specifically, in order to bring the general government deficit below 3% of GDP in a credible 
and sustainable manner, the Danish authorities were recommended to (a) implement the fiscal 
measures in 2010 as envisaged; (b) ensure an average annual structural adjustment of ½% of 
GDP  over  the  period  2011-2013;  (c)  specify  the  measures  that  are  necessary  to  achieve  the 
correction of the excessive deficit by 2013, cyclical conditions permitting, and to accelerate 
the  reduction  of  the  deficit  if  economic  or  budgetary  conditions  turned  out  better  than 
expected at the time the EDP recommendations were issued. 

An  overview  of  the  current  state  of  excessive  deficit  procedures  is  available  on: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/index_en.htm  (please 
refer to country sections at the bottom of the page). 

Long-term sustainability 

Denmark does not appear to face short-term, medium-term or long-term sustainability 
challenges.  Government  debt  (45.7   %  of  GDP  in  2012  and  expected  to  rise  to  46.4   %  in 
2014) is below the 60  % of GDP Treaty threshold, which gives the country some fiscal space 
over the medium term. Fiscal sustainability risks would be further mitigated if the structural 
primary balance returned to the higher values observed in the past., such as the average for the 
period 1998-2012. 

Taking  more  measures  to  contain  age-related  expenditure  growth  would  contribute  to 
the long-term sustainability of public finances. In particular, expenditure on long-term care 
could become a fiscal challenge. Indeed, at 4.5 % of GDP in 2010 Denmark had the highest 
current expenditure on long-term care as percentage of GDP in the EU. On the other hand, the 
reforms  of  the  Voluntary  Early  Retirement  Pension  scheme  and  the  linkage  of  the  statutory 
retirement age to life expectancy will improve the sustainability of public finances in the long 
term.  

Fiscal framework 

Denmark  is  applying  a  medium-term  budgetary  framework  (MTBF)  to  all  levels  of 
government.  In  multi-annual  plans  it  sets  annual  growth  targets  for  public  consumption 
expenditure volumes at central, regional and local level. The basic rule of budgetary policy is 
to achieve a structural general government balance or surplus in the medium to longer term. 
The MTBF is not based on constitutional or legal acts; it is a political commitment to achieve 
fiscal  sustainability  over  the  longer  term.  Nevertheless,  the  multi-annual  plans  have 
parliamentary support and serve as an anchor for fiscal policy planning in the annual budget 
process.  Regional  authorities  (accounting  for  20%  of  total  public  expenditure)  and  local 
authorities (accounting for 50% of total expenditure) play an important role in administering 

12 

 
 
 
 
 
public  expenditure.  The  Ministry  of  Finance  and  the  Ministry  of  Economic  Affairs  and  the 
Interior function as monitoring and enforcing bodies. 

Despite  the  positive  track  record  of  its  fiscal  framework,  Denmark  has  a  history  of 
substantial  expenditure  overruns,  in  particular  at  regional  and  local  levels.  Hence,  the 
2010 Fiscal Consolidation Agreement and the annual fiscal bills since 2011 contain penalties 
and tighter budgetary control in order to tighten expenditure control in the municipalities and 
regions.  These  mechanisms  have  proved  effective.  The  penalties  are  now  laid  down  in  an 
ambitious budget law adopted by the parliament in June 2012. Under the new budget law, the 
parliament will set expenditure ceilings at central, regional and municipal level for four years 
starting from 2014. 

The  new  spending  regime  heralds  a  significant  shift  towards  a  better  controlled 
expenditure policy.  Particularly, planned spending is now based on a scenario that takes into 
account only the effects of measures for which there is a majority in parliament. In previous 
medium-term  plans,  it  was  usually  assumed  that  planned  spending  initiatives  could  be 
financed in the future through unspecified measures, which often proved difficult to find. 

Tax system 

Denmark  still  has  the  highest  tax-to-GDP  ratio  in  the  EU,  despite  recent  reductions.5 
Standard tax performance indicators suggest that the tax system is well designed with rather 
broad tax bases and low tax compliance costs. The implicit tax rate on labour is close to the 
EU  average,  but  the  marginal  tax  rate  is  relatively  high  for  high-income  earners.6  The  tax 
burden  on  corporate  income  is  at  the  EU  average  but  revenue  from  indirect  taxes  is 
significantly above average. Danish consumption taxes account for the highest share of GDP 
in  the  EU.  The  proportion  of  recurrent  property  taxes  —  considered  to  be  one  of  the  least 
distortive types of tax — remains above the EU average. 

The  2009  and  2012  tax  reforms  lowered  the  tax  burden  on  labour  and  reduced  the 
progressivity of personal income tax in order to boost employment and growth. The 2009 
tax  reform,  which  being  implemented  between  2010  and  2019,  aims  at  reducing  the  high 
marginal  tax  rates  on  personal  income  while  at  the  same  time  reducing  mortgage  interest 
deductibility  and  increasing  energy,  transport  and  environmental  taxes  and  excise  duties  on 
health-related  products  such  as  dietary  fats,  confectionery,  soft  and  alcoholic  beverages  and 
tobacco. The 2012 tax reform, which will be implemented between 2013 and 2023, aims at 
gradually  raising  the  threshold  for  the  top  income  tax  rate  and  increasing  the  employment 
allowance. It will be financed in part through the indexation of some excise duties but mainly 
through cuts in public expenditure. The direction taken with these tax reforms was somewhat 
reversed in the 2013 budget, with the abolition of excise duties on fat introduced by the 2009 
tax reform and the reversal of the extension of excise duties on confectionery being financed 
through  higher  personal  income  taxes.  In  addition  to  the  above-mentioned  measures,  the 
’Growth  Plan’  on  which  the  government  reached  an  agreement  with  the  opposition  in  end-
April 2013, aims to reduce costs for businesses through targeted tax cuts and increased public 
investment. 

5 Although the tax-to-GDP ratio dropped by over three percentage points from 2005 to 47.7 % in 2011, Denmark shows the highest ratio in 
the EU. One reason why the tax-to-GDP burden appears to be higher than for other countries, is that Denmark has both a tradition 
of using gross recording and of taxing transfer incomes such as pensions. 

6 Labour is taxed through relatively high taxes on personal income, with limited use of social contributions. 

13 

 
 
 
 
                                                 
Box 4. ’Growth Plan’ assessment 

The  agreements  on  the  ’Growth  Plan’  is  a  set  of  measures  designed  to  improve  productivity  and 
competitiveness  and  to  generate  private  sector  employment.  This  is  to  be  achieved  through  a 
combination  of  tax  cuts  (across  the  board,  but  also  sector-specific),  initiatives  to  improve  financing 
conditions among companies and increased public investment. The initiatives in the plan amounts to 
an accumulated DKK 75 billion [€ 10.1 billion] over the period 2014 to 2020 (close to ½ % of GDP), 
leading to a projected increase in private employment of 17,000 persons in structural terms by 2020. 

According  to  the  government,  the  ’Growth  Plan’  is  fiscally  neutral.  It  is  financed  by  lower  public 
consumption growth in 2014 to 2017 and a regulation of public wages, generating annual savings of 
around  DKK  5.8  billion  [€  0.8  billion]  by  2020.  In  addition,  municipal  service  expenditure  will  be 
frozen  from  2013  to  2014  (creating  a  permanent  saving  of  DKK  2  billion  [€  0.3  billion]).  Dynamic 
effects are expected to generate revenues of DKK 1.3 billion [€ 0.2 billion] in 2020. 

The  gradual reduction  of the  corporate  tax  rate  from  25   %  to  22   %  is  the  largest  revenue  reducing 
item in this plan. Another main item is the abolition of the energy-saving tax and the lowering of other 
energy  taxes,  with  a  view  to  striking  a  better  balance  between  environmental  considerations  and 
competitiveness  of  businesses.  The  third  main  item  will  be  the  increase  in  public  investment.  The 
public spending cuts will weigh on economic activity but overall the reform programme is expected to 
create a positive net effect in the end. While the final impact of the 'Growth Plan' is subject to great 
uncertainty, it sets good framework conditions that have the potential to boost growth in the coming 
years. 

Regarding the tax system for housing, cadastral values continue to be updated every two 
years  to  reflect  market  values,  but  the  property  value  tax  has  been  frozen  in  nominal 
terms since 2002. This has reduced the effective property value tax and will gradually erode 
revenue,  if  not  changed.  Although  the  property  tax  freeze  has  arguably  contributed  to  the 
housing  bubble  between  2003  and  2007,  the  government  does  not  intend  to  review  the 
property  value  tax  system  in  the  near  term.  Given  the  high  overall  tax  burden,  it  could  be 
considered to make the most of the least distortive and most growth-friendly revenue sources, 
such as recurrent property taxes, to ease the direct tax pressure on capital and labour, at least 
in  the  medium  term,  while  taking  into  account  the  current  need  to  stabilise  the  housing 
market. In addition, there may be the potential to make overall vehicle taxation more efficient 
while maintaining revenue and the current system’s contribution to reducing CO2 emissions 
and other transport-related externalities.7 

1.4. 

Financial sector  

The stability of the financial system and of the housing market remain issues of a high 
concern  in  Denmark.  The  high  level  of  household  indebtedness  has  been  in  the  focus  for 
some  years  but  recent  research  suggests  that,  although  to  date  the  risks  to  financial  and 
economic stability seem to be contained the situation would require continued monitoring.  

Private sector indebtedness and the housing market 

7  Danish  Council  of  Environmental  Economics:  Economy  and  Environment  (2013),  Chapter  II  (car  taxation).  English  summary: 
http://www.dors.dk/graphics/Synkron-Library/Publikationer/Rapporter/Miljo_2013/Trykt/M13_English_summary.pdf 

14 

 
 
 
 
 
 
                                                 
In  2012  the  Council  Recommendation  for  Denmark  contained  a  CSR  concerning  the 
stability of the financial system and the need to consider further preventive measures to 
strengthen  the  stability  of  the  housing  market.  Although  high  levels  of  household  gross 
debt  have  long  been  a  structural  feature  of  the  Danish  economy,  housing  market 
developments have contributed to the build-up of excessively high household debt levels, that 
may be considered beyond sustainable levels. As a result of the sharp rise in house prices and 
the  accompanying  surge  in  residential  investment,  the  debt  of  Denmark’s  households 
increased markedly, by 52  %, between 2001 and 2009. The composition of mortgage loans 
has  also  changed  since  2003  with  deferred-amortisation  loans  (which  are  instalment-free  in 
the  initial  years  of  the  loan)  and  adjustable-rate  loans  becoming  more  popular  than  the  less 
risky but more expensive fixed-rate loans. 

The high level of household debt may pose risks not only to financial sector stability but 
also to private consumption. The household debt-to-gross disposable income ratio decreased 
from  an  historical  high  of  302%  in  2009  to 286%  in  2011.  According  to  a  recent  report  by 
Danmarks Nationalbank,8 the share of variable-rate loans in total lending by mortgage banks 
rose from 46  % in the beginning of 2005 to 68  % in the third quarter of 2012. Over the same 
period, the share of deferred-amortisation loans in total mortgage lending rose from 20  % to 
56  %. Worryingly, these proportions are particularly high among households with the lowest 
incomes,  considered  to  be  the  most  vulnerable  group.  For  this  reason  country-specific 
recommendation addressed in 2012 to Denmark called for action to improve the stability of 
the housing market, taking into account the results of a study by the Ministry of Business and 
Growth  on  the  distribution  of  assets  and  liabilities  across  households.  This  study  indicated 
that the risks to financial stability from household indebtedness are relatively contained, due, 
in  particular,  to  the  large  proportion  of  overall  household  debt  held  by  high-income 
households, which are better equipped to service their debt if interest rates rise. Accordingly, 
even  if  interest  rates  were  to  rise  quite  substantially,  the  potential  volume  of  loans  that 
households  would  not  be  able  to  service  does  not  seem  to  pose  a  threat  to  the  financial 
stability  of  the  economy.  Nevertheless,  in  the  current  fragile  financial  and  macro-economic 
environment,  the  high  level  and  the  composition  of  mortgage  debt  have  increased  the 
exposure  of  the  financial  system  to  adverse  developments.  As  pointed  out  in  the  2013  In-
Depth  Review  for  Denmark,  in  the  event  of  a  simultaneous  materialisation  of  a  number  of 
risks, such as low growth, rising unemployment, rising interest rates and a fall in house prices, 
Denmark’s financial stability could be severely undermined. 

Measures to address the risks to financial stability in Denmark have been appropriate. 
The Danish authorities have taken measures to improve the robustness of the mortgage credit 
system, such as a risk labelling scheme for housing mortgage loans and the formalisation of 
informal  requirements  for  borrowers,  according  to  which  variable-interest  and/or  deferred-
amortisation loans are only granted if the household can afford a fixed-interest loan with non-
deferred amortisation. The mortgage credit institutes, which belong to the private sector, have 
also taken measures to ensure the provision of additional collateral. While these measures go 
in  the  right  direction,  they  need  to  be  closely  monitored  so  as  to  assure  that  they  have  the 
desired impact. 

Banking 

The financial sector is recovering from the housing market crisis, which is still weighing 
on  bank  profitability,  and  losses  on  non-performing  loans  remain  significant.  In  2012, 
total bank assets in Denmark grew by 1.1%, a rate comparable to previous years.. Total bank 

8 Danmarks Nationalbank (2012). 

15 

 
 
 
                                                 
assets  grew  by  1.1   %.  Lending  to  households  remained  flatand  lending  to  companies  was 
negative. On the liabilities side, the exceptionally low share of non-financial entities'deposits 
in  the  balance  sheet  resulted  in  a  still  very  high  loan-to-deposit  ratio  of  of  296%  in  2012, 
down from 306% in 2011.. Capital adequacy of the Danish banks improved in 2011.9The net 
operating income of banks declined, mainly due to the fall in lending volumes and increasing 
funding  costs,  reflecting  the  2011  turmoil  in  the  international  markets.  The  low  income 
combined  with  the  persisting  write-downs  for  non-performing  loans  has  resulted  in  low 
profitability of Danish banks. 

Denmark’s financial supervision framework has been strengthened in recent years. This 
was  achieved  in  particular  by  bringing  in  the  so-called  ‘supervisory  diamond’10  and  other 
tools to monitor individual banks more closely, by creating a bank resolution regime based on 
the Financial Stability Company11 and by setting up new institutions responsible for macro-
prudential oversight12 of the financial sector and the economy. 

Given  the  high  share  of  market  funding,  the  Danish  banking  sector  is  exposed  to 
relatively high liquidity and refinancing risks. In recent years, the Danish banks have made 
attempts to strengthen their funding structure. The share of retail deposits has been increasing, 
especially  in  smaller  banks.  Regarding  market  funding,  short-term  debt  issuance  fallen  and 
long-term  issuance  was  substantial  in  2012,  resulting  in  longer  and  more  evenly  spread 
average  bond  maturities.  However,  the  largest  banks’  increasing  dependence  on  short-term 
funding from foreign banks was a negative development since it has the potential to increase 
liquidity  risks.  The  tackling  of  funding  risks  has  been  supported  by  the  Danish  Financial 
Stability  bringing  in  requirements  on  excess  liquidity  coverage  and  by  making  the  funding 
ratio binding since 2012. 

The  forthcoming  new  regulatory  requirements  may  pose  challenges  to  the  Danish 
banking  sector.  The  expected  increase  in  risk  weighting  of  mortgage  bonds  is  a  particular 
concern  for  banks,  given  the  role  of  this  instrument  in  the  Danish  banking  market.  Another 
concern  is  the  40   %  limit  for  mortgage  bonds  in  the  portfolio  of  liquid  assets  needed  to 
comply with the Basel III liquidity requirements. 

Access to finance 

Lending conditions are not expected to return to pre-crisis levels any time soon. In 2012, 
the  level  of  outstanding  loans  to  non-financial  corporations  decreased  by  2   %,  bringing 
theaccumulated  decrease  since  2008  to  almost  5   %.13.Access  to  loans  has  become 
increasingly  difficult  for  small  and  medium-sized  enterprises  (SMEs)  since  the  start  of  the 
economic crisis in spite of the very low interest rates in Denmark: the rejection rate for loan 
applications is 20  % (compared to the EU of 15  %) and the cost of credit is 50  % higher than 
for  large  companies.14  This  may  also  have  a  negative  impact  on  the  development  of 
innovative research projects by SMEs. 

9  This  was  confirmed  by  the  EBA  2012  EU  Capital  Exercise,  in  which  the  four  participating  Danish banking groups demonstrated  strong 
capital buffers as per June 2012. Three of them increased their buffers compared to the previous year and one showed a decrease. 

10 A set of five supervisory requirements with benchmark values phased in in the period 2010-2012. 
11 During the crisis, the Danish authorities resolved one third of banks out of the total pre-crisis number of institutions, but their aggregated 

assets corresponded to only 6  % of the sector. 

12  The  Systemic  Risk  Council  and  the  interagency  committee  to  develop  prudential  arrangements  for  systemically-important  financial 

institutions (SIFIs). 

13 ERST, Danish government. 
14 European Commission, Small Business Act Fact Sheet 2012. 

16 

 
 
 
                                                 
The  authorities  have  adopted  some  initiatives  to  tackle  the  problem  of  corporate 
financing: the ‘Danish Growth Capital’ (Dansk Vækstkapital, a state investment fund), 
the  ’Development  Package’  (Udviklingspakken)  and  a  ‘Credit  Package’.  The  latter 
includes  measures  related  to  additional  subordinated  loans,  which  range  from  Vækstfonden 
loans  to  to  guarantees  from  the  Export  Credit  Agency  (EKF)  to  support  export-  oriented 
projects. A study is being prepared on the corporate bond market. In addition, an initiative is 
aimed at providing a credit guarantee scheme for smaller bank loans (up to DKK 2 million [€ 
0.3 million]), to be run from 2013-2015.  

1.5. 

Labour market, education and social policies 

Increasing  the  labour  supply  remains  a  key  long-term  challenge  for  Denmark. 
Combining  ambitious  labour  market  reforms  with  improvements  of  the  effectiveness  of  the 
education system, reducing drop-out rates and increasing the number of apprenticeships will 
help  to  increase  employment,  in  particular  for  young  people.  Removing  labour  market 
bottlenecks is crucial for increasing Denmark’s economic growth potential and could directly 
feed into productivity and competitiveness gains. 

Labour market 

Denmark  has  traditionally  had  a  very  well-functioning  labour  market  with  smooth 
labour  market  transitions,  high  employment  rates  and  universal  social  protection. 
Nevertheless, it was affected by the crisis. In 2012, the employment rate for people aged 20-
64 was 75.4  %, which is above the EU average of 68.5 %. The unemployment rate more than 
doubled from its record low of 3.4 % in 2008 to 7.5 % in 2012. However since 2010 it started 
to stabilise at 7.5 %. The unemployment rates for disadvantaged groups, such as people with 
migrant background, low skilled workers, long-term unemployed, people with reduced work 
capacity  and  older  workers,  are  higher  than  the  average.  Youth  unemployment  has  also 
increased,  although  it  remains  well  below  the  EUaverage.  Long-term  unemployment,  as  a 
proportion of total unemployment, rose from 13.5 % in 2008 to 28.0 % in 2012. In addition, 
the share of people living at a risk of poverty and in low work-intensity households increased 
markedly between 2008 and by 2.6% and 3.1% respectively.  

In  2012,  the  Council  recommendation  addressed  to  Denmark  included  a  CSR 
concerning the labour market and the need to take further steps to enhance long term 
labour supply. The policy response was to reform of the disability pension and flex-job 
systems,  which  has  been  adequate.  These  schemes  cover  approximately  10   %  of  the 
working-age  population,  which  constitutes  a  significant  labour  supply  potential.  The  main 
elements  of  the  reforms  include  new  individual  resource  programmes  for  persons  under  the 
age of 40 (instead of a disability pension) and better targeted subsidies in the flex-job scheme. 
One  objective  is  that  as  many  as  possible  should  work  in  the  ordinary  job  market.  As  a 
consequence  of  the  reform  all  municipalities  are  now  required  to  establish  rehabilitation 
teams. The teams will ensure that people with complex problems receive support across the 
areas of employment, health, social services and education, with a focus on individual needs. 
Persons below 40 years will, as a general rule, not have access to disability pension, but will 
instead  undergo  a  labour  market  reintegration  process.  The  reform  also  amends  the  flex-job 
system.  Persons  under  40  years  may  receive  a  flex-job  for  a  maximum  of  five  years,  while 
people  over  40  years  will  have  a  possibility  to  keep  the  flex-job  after  the  five-year  period. 
Under the new scheme the highest subsidies will be paid to persons with the lowest incomes, 
while presently the highest subsidies are paid to persons with the highest salaries. The reform 
bill was adopted by the parliament on 23 December 2012 and came into effect from 1 January 

17 

 
 
 
2013 (the reform aims to save DKK 1.9 billion in total [€ 0.3 billion]). Furthermore, two new 
committees have been set up to review Denmark’s active labour market policies (ALMP). At 
present,  Denmark’s  spending  on  ALMP  in  terms  of  GDP  is  the  highest  in  the  EU.  The 
committee will examine how to ensure that in the future ALMP can provide quick and lasting 
employment opportunities based on individual needs, respecting the principle of availability 
to work and ensuring optimal cooperation between the public employment service and private 
companies. 

There is room for increasing the labour market participation of people with a migrant 
background.  At  54.5%  in  2012,  the  employment  rate  of  non-EU  citizens  was  considerably 
lower than the overall employment rate and also below the EU average. The government aims 
at increasing the number of employed workers with a migrant background by 10 000 by 2020 
in order to reduce the employment gap compared with the rest of the working population. The 
authorities  are  not  considering  initiatives  specifically  targeted  at  people  with  migrant 
background,  but  plans  reaching  this  target  through  ongoing  reforms  of  the  social  benefit 
system and active labour market measures, as outlined in the government’s vision paper from 
November  2012.  Furthermore,  an  agreement  was  reached  in  April  2013  between  the 
government and the opposition on a reform of the national social assistance scheme. The main 
objective is to break the practise of passive support, where people are left on social assistance 
for years with limited assistance or follow-up. For  people  below 30, the reform  reduces the 
level  of  social  assistance  to  that  of  a  student  allowance.  It  will  be  important  to  monitor  the 
effect of the envisaged changes on regular employment and on levels of poverty and material 
deprivation.  Moreover,  the  ‘Acute’  package  approved  in  August  2012  introduces  additional 
active labour market measures for people losing their rights to unemployment benefits due to 
the recent shortening of the length of eligibility and for young people. The apprenticeship and 
vocational training initiatives included in the 2013 budget are also expected to have a positive 
impact  on  the  employment  levels  of  young  people  with  a  migrant  background.  However, 
besides  the  reform  of  the  cash  benefit  system,  there  may  be  a  need  for  further  measures 
designed  to  break  down  the  additional  barriers  to  labour  market  participation  faced  by  this 
group, to facilitate their integration on the labour market. 

The  risk  of  marginalisation  of  the  growing  group  of  unemployed  is  an  emerging 
challenge on the Danish labour market. The marked increase in long-term unemployment 
since the beginning of the crisis suggests that an increasing amount of people has been losing 
their foothold on the labour market. This is confirmed by a significant increase in the number 
of people receiving cash benefits, many of them classified by the Public Employment Service 
as not being fit to work. Recent reforms of the social and unemployment benefit systems have 
reshaped  the  balance  between  security  and  flexibility  on  the  Danish  labour  market,  putting 
more weight on ALMP so as to assure that people who are at the margins of the labour market 
are keptas close as possible to employment, in order to avoid the loss of human capital and an 
increase in inequality. 

The overall progress in addressing the country-specific recommendation on the labour 
market has been significant. The disability pension reform, the reform of flex jobs and the 
cash  benefit  reform  respond  adequately  to 
the  practical 
implementation and effects of the reforms will need to be closely monitored and followed up 
by further measures if necessary. In order to raise long-term labour supply and reduce the risk 
of  unemployed  people  becoming  marginalised,,  further  efforts  are  warranted  to  enhance  the 
employability of those people, who are the furthest from the labour market, including people 
with a migrant background, the low-skilled and the long-term unemployed. 

the  recommendation,  but 

18 

 
 
 
 
Education 

Despite  Denmark’s  generous  spending  on  its  education  system,  educational  outcomes 
are dismal in a number of key areas. The upper secondary completion rate is low, and early 
drop-out  rate  from  vocational  youth  education  is  high.  This  high  drop-out  rate  seems  to  be 
linked to insufficient quality of educational programmes, a lack of apprenticeship places and 
insufficient basic skills such as literacy and numeracy. Furthermore, lengthy study periods at 
tertiary  level  have  long  been  a  characteristic  of  the  Danish  higher  education  system.  The 
relatively  poor  performance  of  the  education  system  is  arguably  one  of  the  factors 
contributing to weak productivity growth. 

In  2012,  a  country-specific  recommendation  given  to  Denmark  addressed  the  need  to 
improve the cost-effectiveness of the education system. The authorities have set ambitious 
targets  and  implemented  plans  that  partly  address  the  challenges  faced  by  its  education 
system.  The  government  is  planning  general  reforms  of  the  compulsory  (primary  and  lower 
secondary  education)  and  upper  secondary  and  tertiary  education  system,  with  the  aim  of 
improving  cost-effectiveness,  enhancing  quality  and  decreasing  the  number  of  drop-outs.  In 
December  2012,  the  Danish  government  proposed  a  reform  of  the  public  school  system 
(folkeskolen) aiming at increasing the number of hours students spend in school and at more 
practical  training,  activity-based  education  and  improving  basic  skills.The  proposal  is  still 
under negotiation in the parliament, with a view to implement the reform in the school year 
2014-15. As regards vocational education and training (VET), the budget for 2012 provided 
funding for 10.400 additional apprenticeship places and created 1 500 extra in-school training 
places. There is a political agreement to improve quality in vocational training and strengthen 
the ‘education guarantee’ (ensure the apprenticeship places). In addition, as part of the 2013 
budget, a political agreement was reached on increasing the use of social clauses on training 
and  apprenticeships  in  public  procurement.  Moreover,  reforms  are  in  preparation  and  the 
Expert  Committee  on  Vocational  Youth  Education  (formed  by  representatives  of  the 
government,  municipalities,  regions  and  social  partners)  is  due  to  make  its  final  proposals 
before  summer  of  2013  in  order  to  find  a  solution  to  the  continuing  problem  of  a  lack  of 
private apprenticeships and high drop-out rates. The reform should also strengthen the role of 
guidance  centres  and  trade  committees  and  support  high-quality  and  attractive  upper 
secondary VET. Additional recent measures, including the recently announced reform of the 
students allowance scheme, should accelerate the throughput of students. Under this reform, 
receipt of student allowances will become more dependent on academic progress. For 2013, in 
order  to  address  youth  unemployment,  the  government  has  proposed  a  new  package 
stimulating job rotation, apprenticeships and vocational education. 

Some progress has been made in addressing the country-specific recommendation on the 
education system. While the measures adopted so far go in the right direction, but the reform 
of public school system is still at an early stage stage and its implementation will need close 
monitoring.  Lasting  and  ambitious  solutions  are  needed  to  remedy  the  lack  of  places  for 
apprenticeships, to address the high drop-out rates in the vocational youth educational system 
and to improve thecareer guidance system. 

19 

 
 
 
 
 
 
1.6. 

Structural measures promoting growth and competitiveness 

Spurring growth and competitiveness remains a key challenge for Denmark. In order to 
boost  Denmark’s  external  competitiveness  educational  outcomes  need  to  improve  and 
obstacles to competition need to be removed. The findings of the Productivity Commission, 
expected  by  the  end  of  2013,  will  be  central  to  a  more  comprehensive  policy  agenda.  A 
continued  focus  on  wage  moderation  and  productivity  growth,  resulting  in  further 
improvements to cost competitiveness, should limit and reverse the trend of declining export 
market shares of goods. 

Internal market, liberalisation and competition 

In  2012  the  Council  recommendation  for  Denmark  contained  a  CSR  on  competition 
policy and the need to remove related obstacles. Structural features, such its small market 
size and large public sector, influence the conditions for competition in the Danish economy. 
Despite the efforts already made to improve the functioning of the regulatory framework, for 
instance by loosening the restrictions on shop opening hours, evidence suggests that there are 
still obstacles to efficient competition in several areas of the economy.15 

Weak  domestic  competition  is  resulting  in  high  mark-ups  of  services  and  goods  prices 
According to an analysis made by the Danish Competition Authority16, prices in Denmark are 
about  14  %  higher  for  services  and  5  %  higher  for  goods  compared  to  an  average  of 
sevencomparable  EU  countries17,  and  a  substantial  part  of  this  difference  would  be  due  to 
weak  competition.  Services  stand  out  as  the  main  challenge,  as  they  are  often  less  tradable 
than goods and frequently subject to specific regulation. According to the Danish Competition 
Authority, this is the case in the construction and the retail sector, and these two sectors have 
shown  poor productivity developments over the past decade. The preliminary findings  from 
the  Danish  Productivity  Commission  are  identify  the  service  sector  as  a  potential  area  for 
improvement.  Although  Denmark  has  transposed  the  Services  Directive,  some  restrictions 
remain  for  cross-border  service  providers.  However,  challenges  also  remain  for  the  goods 
sector. For instance, EU firms who have already passed the internal market requirements may 
encounter  additional  specifically  Danish  technical  requirements,  which  may  constitute  entry 
barriers to the Danish market18. While Denmark generally complies well with internal market 
rules,  including  the  service  directive,  it  should  be  able  to  generate  additional  growth  by 
removing further obstacles to competition. A liberalisation of planning and zoning restrictions 
could for example boost competition in the retail sector.. 

The  Danish  government  launched  a  ‘competition  package’  in  October  2012, which  sets 
out  to  improve  competition  in  Denmark  through  three  broad  channels:  the  competition  law, 
sectorial issues (notably non-tradable services) and measures to increase the effectiveness of 
public  services.  In  December  2012,  the  Danish  government  amended  the  Competition  act, 
which included a significant increase in the level of fines for undertakings and natural persons 
and made it possible to significantly increase the level of fines for businesses and individuals 
and impose custodial penalties on individuals participating in cartels. The new legislation is 
expected  to  improve  competition  and  enhance  compliance  with  international  standards.  The 
government has also appointed a Productivity Commission to come up with recommendations 
(by  the  end  of  2013)  on  how  to  increase  productivity  in  the  Danish  economy  and  created 

15 See for instance European Commission: ‘The Industrial Performance Scoreboard 2012’. 
16 See competition and consumer report 2011 from the Danish Competition and Consumer Authority. 
17 Corrected for differences in VAT, excise duties and levels of prosperity. 
18 According to a recent Conference held by The Association of Danish Industry and the European Commission on the topic of obstacles in 

the internal market   

20 

 
 
 
                                                 
business-government  task  forces  (Growth  Teams)  to  make  policy  recommendations  in 
specific areas, such as better regulation, public-private partnerships, attracting foreign direct 
investment, export promotion and branding.  

Improving competition in several regulated services through sectorial measures requires 
continued  efforts.  In  2011,  the  Competition  Authority  and  the  government  launched  a 
number  of  initiatives  to  improve  the  regulation  of  services19  and  the  competition  package 
from 2012 sets out additional sectorial projects20. Furthermore, the Competition Authority is 
planning to present sectorial strategies for 10-15 priority sectors in Denmark. Some additional 
useful  steps  have  been  taken,  including  a  review  of  consumer  policies  from  August  2012 
containing  proposed  23  proposals  for  initiatives  to  make  it  easier  for  consumers  to  make 
active choices. 

The public sector in Denmark is relatively large and the effectiveness of the provision of 
public  services  is  thus  of  high  importance  to  the  overall  economic  performance  of  the 
is  generally  well  managed,  further 
country.  Although,  Denmark’s  public  sector 
improvements  in  performance  could  generate  relatively  large  benefits.  According  to  the 
notices of contracts awarded published in Tenders Electronic Daily (TED), local and regional 
authorities published slightly more procurement contracts as a percentage of the national total 
than their counterparts in the EU (52 % against 44 % in on average 2006-2011). A report from 
the Danish Competition Authority on competition in the public sector from December 2012 
indicates that the greatest potential for further opening up to competition is within the health 
area,  which  is  administered  by  the  regional  authorities.  For  local  authorities,  the  social  area 
represents  the  largest  potential  for  open  procurement.  As  the  procurement  performance  of 
local authorities differs widely, there appears to be room for improvement at some authorities. 
Studies by the Danish Procurement Council show that public procurers find the procurement 
rules  too  difficult  to  apply  and  that  complaint  cases  can  impose  large  costs  on  procurers. 
Therefore, the government is planning to introduce a new legislation on public procurement, 
which  will  also  implement  the  new  EU  directives  in  this  area  while  emphasising  effective, 
simple and more flexible rules and a more effective complaint system. The government also 
intends to inform procurers better about the procedures to be followed. 

To address the broader competitiveness challenge, a ‘Growth Plan’ has been agreed, the 
aim of which is to create new jobs by 2020, primarily by cutting costs for businesses, has 
been agreed. Its main features are a gradual reduction of the corporate tax rate (from 25  % to 
22   %),  lower  excise  duties  on  energy  and  packaging,  reintroduction  of  tax  credits  for 
construction works in private homes, lower costs on waste water, increased public investment 
and investment in rural regions. According to the government, the plan is to be fully financed 
and  will  not  jeopardise  the  objectives  of  the  government’s  budget  policy.  Nevertheless,  the 
actual effect of the package remains to be seen. Some additional useful steps have been taken 
by  the  government  to  increase  competition,  including  a  review  of  consumer  policies  from 
August 2012 containing proposed 23 initiatives to make it easier for consumer to make active 
choice. 

The  analysis  leads  to  the  overall  sconclusion  that  some  progress  has  been  made  with 
regard  to  CSR  4.  The  effectiveness  of  measures  taken  by  the  government,  notably  in  the 
sectorial and public services area, remains to be seen. Various policy initiatives are still at a 

19 Such as construction, telecommunications, electricity, postal services, taxi services and pharmacies. 
20  In  the  field  of  TV-distribution,  pharmacies,  dentists,  the  retail  sector,  construction,  energy,  waste,  financial 

services, real estate agents, local train services, taxi services, etc. 

21 

 
 
 
                                                 
very  early  stage  of  implementation  and  continued  efforts  are  needed  to  ensure  effective 
implementation. 

Research and innovation 

In  December  2012,  Denmark  launched  a  strategy  to  boost  innovation.  The  innovation 
environment for firms in Denmark is favourable and compares well with its European peers. 
Denmark  achieved  its  R&D  investment  target  of  3  %  already  in  2009.  However,  in  some 
areas,  Denmark  lags  behind  other  innovation  leaders,  in  particular  in  private  funding  for 
innovation,  in  some  aspects  of  entrepreneurship,  in  cooperation  between  universities  and 
business and in the intensity of local competition. The country may face growing challenges 
to  maintain  its  leading  position  in  the  global  competition  in  the  field  of  environmental 
technologies.  To  tackle  these  challenges,  Denmark  has  recently  launched  reforms  and 
initiatives  to  boost  innovation  and  has  adopted  a  new  comprehensive  innovation  strategy. 
Given  the  low  productivity  growth  in  Denmark  and  the  need  to  shift  to  broader  innovation 
activity in firms, Denmark would benefit from combining the strategic focus of its innovation 
policy with effective public investments in R&D. 

Energy, climate and environment 

Regarding energy efficiency, Denmark continues to slowly decrease its primary energy 
consumption.  Transport  and  household  energy  consumption  are  by  far  the  largest  final 
consumption sectors. The public sector is fulfilling an exemplary role by reducing the energy 
consumption  in  national  administration  buildings.  The  Danish  Energy  Agency  assesses  and 
publishes  the  government  institutions’  energy  consumption  and  presents  it  to  the  Energy 
Committee  of  the  Danish  parliament.  This  monitoring  should  be  aligned  with  the 
requirements  put  forward  by  the  Energy  Efficiency  Directive.  The  national  energy  saving 
obligation scheme is currently being revised. 

Under  the  Europe  2020  Strategy,  Denmark  has  to  reduce  its  carbon  emissions  not 
covered  by  the  EU  Emissions  Trading  Scheme  by  20  %  in  2020  compared  to  2005. 
Domestically,  the  government  has  pledged  to  reduce  all  carbon  emissions  by  40%  in  2020. 
According  to  the  latest  national  projections,21  Denmark  is  expected  to  reduce  its  non-ETS 
greenhouse  gas  emissions  by  2  2%,  which  would  meet  the  2020  target.  A  climate  plan  is 
expected to be published in spring 2013, with the required legislation scheduled for late 2013. 
The  plan  is  expected  to  set  out  the  strategy  to  achieve  the  target  of  the  40  %  emissions 
reductions by 2020.22 Non-ETS emissions were 7.2 % below the 2005 level in 2011.  

Currently  energy  labelling  of  buildings  and  support  schemes  for  household  wind 
turbines are being implemented, but the challenge remains to further reduce emissions 
in the energy sector. In the transport sector, since vehicle and fuel taxation appear to be the 
highest in the EU (1.5 % of GDP), further emissions reductions should come through shifts to 
the  use  of  public  transport  modes  and  towards  taxing  actual  transport  use.  Earlier  plans  to 
introduce  green  road  pricing  for  cars  have  been  scrapped,  and  a  dedicated  commission  is 

21 Source: European Environmental Agency: Greenhouse gas emission trends and projections in Europe 2012 — Tracking progress towards 

Kyoto and 2020 targets, http://www.eea.europa.eu/publications/ghg-trends-and-projections-2012. 

22http://www.kemin.dk/da-

DK/KLIMAOGENERGIOGBYGNINGSPOLITIK/danmark/reduktionafdrivhusgasser/Maalsaetninger_og_rammer/Sider/Forside
.aspx. 

22 

 
 
 
 
 
                                                 
currently  working  on  proposals  for  the  reduction  of  congestion  and  pollution  in  and  around 
Copenhagen. Greenhouse gas emissions from agriculture have not fallen since 2005 and their 
share in total emissions is rising. The Nature and Agriculture Commission was set up in mid-
2012  and  is  due  to  report  by  April  2013  on  recommendations  and  measures  for  structural 
change in this sector. 

As set out in the National Energy Agreement for 2012-20, measures should be taken to 
drive the change towards 100  % renewable energy in 2050. As of 2010 (latest available 
data),  Denmark’s  share  of  renewables  in  energy  consumption  stood  at  21.8  %.  Meeting  its 
national  renewable  energy  sources  target  of  30  %  in  2020  would  require  developing  a 
consistent, stable and predictable renewable energy policy, including further implementation 
of the Danish national renewable energy action plan. Moreover, particular attention is needed 
to  ensure  the  supply  of  intelligent  demand  solutions  and  investment  in  electricity  grids  as 
Denmark is expected to have more than 50 % renewable electricity by 2020.  

There is further room for Denmark to step up efforts to address key challenges within 
the  broader  context  of  resource  efficiency.  The  amount  of  municipal  waste  generated  in 
Denmark is the highest in the EU, and the country has the highest proportion of incinerated 
waste  (54  %).  Reducing  waste  generation  would  improve  the  resource  efficiency  of  the 
Danish economy. Denmark is a leading exporter of environmental solutions and technology 
and  a  number  of  sectors  have  high  potential  for  future  eco-innovations  and  resource 
efficiency, including industry, shipping, bio-technology and water technology.  

1.7.  Modernisation of public administration  

It  is  widely  recognised  that  the  Danish  public  administration  system  performs  well, 
when  compared  with  other  countries.  Composite  indicators  regarding  government 
effectiveness,  corruption  and  fraud,  business  start  and  licenses,  public  procurement,  tax 
compliance  and  administration,  and  civil  justice  are  above  the  EU  average.23  However, 
regarding  the  efficiency  of  the  public  sector,  the  burden  for  firms  in  participating  in  public 
procurement  competitions,  both  in  terms  of  costs  (relative  to  GDP)  and  of  person-days 
needed, Denmark is above the EU average. In addition, regarding civil justice, there is room 
to  improve  the  indicator  on  the  costs  (expressed  as  percentage  of  the  claim)  of  contract 
disputes: court costs, enforcement costs and average attorney fees. 

Regarding  the  public  administration  modernisation,  the  indicators  tracking  the 
availability  of  e-government  services  and  the  use  of  evidence-based  instruments  are 
above  the  EU-average.  This  is  due  to  the  spread  of  ICT  applications,  modern  human 
resources  management  techniques  and  evidence-based  steering  and  planning  instruments. 
Denmark’s  NEM-ID  system  which  is  a  common  portal  giving  secure  access  to  electronic 
public  services  and  banking  services  is  a  good  practice.  Among  the  most  recent  initiatives, 
registering  a  property  was  made  easier  by  allowing  the  electronic  submission  of  property 
transfer applications at the land registry. However, e-health including patients e-records is an 
area where further progress is required.  

23 European Commission (2011-2012), "Excellence in public administration for competitiveness in EU Member States"  

23 

 
 
 
 
 
                                                 
4. 

OVERVIEW TABLE  

2012 commitments 

Summary assessment 

Country-specific recommendations (CSRs) 

Significant progress 

CSR 1: 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  MTO,  including  meeting  the 
expenditure benchmark. 

CSR 2: 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  a  migrant 
background. 

CSR 3: 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. 

24 

- The 2013 budget aims to achieve a budget deficit 
of 2½ % in 2013 and 2¾ % in 2014. 

- 2020 plan includes MTO of max. 0.5 % structural 
deficit by 2020. 

-  Budget  law  implements  provisions  of  fiscal 
compact and sets expenditure ceiling at the central, 
municipal and regional level. 

 Significant progress  

-  Tax  reform  from  spring  2012  lowers  taxes  on 
earned income. 

-  Reform  of  disability  pension  and  the  ’flex-job’ 
system  by  creating  rehabilitation  teams  and  setting 
the  minimum  age  of  40  to  access  the  disability 
pension and ‘flex-job’ scheme. 

- ‘Acute  package’ aims to create job opportunities 
for the long-term unemployed. 

- Reform of the social assistance scheme [also under 
CSR3] proposed by the government. 

Some progress  

-  The  2013  budget  provides  additional  DKK  2.9 
billion  [€  0.4  billion]  for  education  and  vocational 
training. 

-  An  expert  committee  is  working  on  proposals 
(planned  for  spring  2013)  to  strengthen  the  quality 
of  youth  vocational  education,  create  additional 
apprenticeships  and  provide  a  well-functioning 
youth education guarantee 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
includes 
-  The  new  youth 
instruments  to  support  weak  students  in  the  youth 
education system. 

reform  package 

-  Planned  reform  of  the  public  school  system 
increases  the  number  of  hours  students  spend  in 
school (6-15 years old). 

- In February, the government presented proposal to 
reform the student allowance system.  

-  The  new 
education measures 

innovation  strategy  also  coverss 

 Some progress  

 A  Productivity  Commission  has  been  appointed 
with the task of advising the government by the end 
of 2013 on ways to increase competitiveness. 

-  The  government  has updated  the  Competition  act 
introducing  more  deterrent  penalties  under 
the 
competition 
possibility  of  custodial  sentences.  Refer  also  to  the 
two other pillars of the Competition plan 

law,  with  higher 

fines  and 

- Regarding the removal of obstacles to competition 
in the retail sector, the Danish law on opening hours 
expired and shop owners can open shops when they 
want.  However,  some  restrictions  remain  in  retail 
services  sector  and  competitive  bottlenecks  in  the 
provision of local public services still persist. 

Some progress  

-  The  study  on  the  distribution  of  assets  and 
liabilities  across  households  was  published  by  the 
Ministry  of  Business  and  Growth  in  January. 
According  to  its  results,  household  debt  does  not 
constitute  a  great  risk  to  the  economy  as  debt  is 
concentrated in households with the highest income, 
which are robust to deal with interest rate hikes. 

- The government has implemented a ‘traffic light’ 
labelling  scheme 
loans 
according to their riskiness. 

labels  mortgage 

that 

CSR  4:  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 
have a sufficiently deterrent effect. 

to 
CSR  5:  Consider  further  preventive  measures 
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  tax  system  and  the  municipal  land 
value tax system. 

-  The  government  had  formalised  already  existing 
requirements for borrowers to be allowed to take up 
variable  rate  and  deferred-instalment  loans,  only  if 
they  can  afford  fixed  interest  rate  and  repayment 

25 

 
 
 
 
 
 
 
 
 
 
 
Employment rate target: 75 % 

R&D target: 3 % 

loans. 

-  Although  cadastral values continue  to be  updated 
every  two  years  to  reflect  market  values,  the 
property value tax has been frozen in nominal terms 
since  2002.  The  government  has  signalled  no 
intention to review the property value tax system. 

Europe 2020 (national targets and progress) 

Employment rate  

2010: 75.8 %  
2011: 75.7 %   

Denmark  reached  its  national  3  %  R&D  intensity 
target  already  in  2009  (3.16  %).  Its  ambition  can 
thus  be  questioned.  Since  2010  R&D  intensity  has 
remained at slightly above 3 % (2010:3.07 %, 2011: 
3.09  %).  In  2011  business  R&D  expenditure 
represented  2.09  %  of  GDP  (national  target:  2  %), 
public  spending  0.99  %  of  GDP  (target  1  %). 
Denmark  has  hence  also  reached  the  targets  for 
public  and  private  sector  R&D  spending,  despite  a 
slight  decline  in  business  research  intensity  in 
recent years. 

Greenhouse gas (GHG) emissions target:  

Change in non-ETS greenhouse gas emissions 

-20 % (compared to 2005 emissions, ETS emissions not 
covered by this national target) 

between 2005 and 2011: -7.2 %  

to 

the 

According 
latest  national  projections 
submitted  to  the  Commission  and  when  existing 
measures  are  taken  into  account,  the  target  is 
expected  to  be  met:  -22    %  in  2020  compared  to 
2005  

Renewable energy target:  30 % 

Share of renewable energy in the transport sector:  10 % 

Share  of  renewable  energy  in  gross  final  energy 
consumption  was  23.1%  in  2011  and  0.2 %  in 
transport.  (Source:  Eurostat  April  2013.  Only 
formally  reported  compliant  biofuels  with  Art.  17 
and 18 of Directive 2009/28/EC are included). 

Indicative  national  energy  efficiency  target  for  2020: 
primary energy consumption of 744.4 PJ (17.781 Mtoe) 
in 2020.  

This implies reaching a 2020 level of 17.8 Mtoe primary 
consumption and 14.8 Mtoe final energy consumption. 

of 

Denmark  has  set  an  indicative  national  energy 
efficiency  target  in  accordance  with  Articles  3  and 
24 
the  Energy  Efficiency  Directive 
(2012/27/EU).  It  is  also  expressed    in  terms  of  an 
absolute 
final  energy 
consumption in 2020 and has provided information 
on the basis on which data this has been calculated. 

level  of  primary  and 

Early school leaving target: <10 % 

Early school leaving rate:  

(Less  than  10  per  cent  school  drop-out  rates  of  the 
population aged 18-24) 

2010: 11.0 %  

2011: 9.6 %  

26 

 
 
 
 
 
 
The  EU  target  has  already  been  achieved.  Slight 
increase compared to 2006: 9.1 % 

Tertiary education target: >40 % 

Tertiary attainment rate:  

(At least 40 per cent of the population aged 30-34 having 
completed tertiary) 

2010: 41.2 %  

2011: 41.2 %  

The  EU  target  has  already  been  achieved.  Slight 
decrease compared to 2006: 43 % 

Target on the reduction of population at risk of poverty 
or social exclusion in number of persons:  

For DK:  

Number  of  people  in  households  with  low  work 
intensity: 

Reduce  the  number  of  people  in  households  with  low 
work intensity by 22,000 towards 2020. 

2010: 433.000 persons 

27 

 
 
 
 
5. 

ANNEX 

Table I. Macroeconomic indicators 

Core indicators
GDP growth rate
Output gap 1
HICP (annual % change)
Domestic demand (annual % change) 2
Unemployment rate (% of labour force) 3
Gross fixed capital formation (% of GDP)
Gross national saving (% of GDP)
General Government (%  of GDP)
Net lending (+) or net borrowing (-)
Gross debt
Net financial assets 
Total revenue 
Total expenditure
  of which: Interest
Corporations (%  of GDP)
Net lending (+) or net borrowing (-)

1995-
1999

2000-
2004

2005-
2009

2010

2011

2012

2013

2014

2.8
0.8
1.9
2.9
5.7
19.4
21.0

-0.9
65.4
-32.5
56.5
57.3
5.0

1.5
1.0
2.1
1.9
4.9
19.6
23.1

1.3
48.8
-18.9
55.5
54.3
3.0

0.2
1.3
2.0
0.6
4.4
20.4
24.2

3.2
34.2
0.4
56.0
52.9
1.7

1.6
-3.8
2.2
1.6
7.5
16.9
22.7

-2.5
42.7
1.6
55.0
57.5
1.7

1.1
-3.5
2.7
0.3
7.6
17.2
23.2

-1.8
46.4
-3.3
55.7
57.5
1.8

-0.5
-4.5
2.4
0.3
7.5
17.5
22.8

-4.0
45.8
n.a
55.5
59.5
1.6

0.7
-4.6
1.1
1.3
7.7
17.7
22.4

-1.7
45.0
n.a
56.1
57.8
1.6

1.7
-4.0
1.6
1.3
7.6
17.4
22.5

-2.7
46.4
n.a
54.1
56.8
1.6

3.6

2.8

3.2

9.3

9.2

9.8

9.7

10.4

n.a
n.a
10.5
23.0

n.a
n.a
10.7
22.0

n.a
n.a
10.5
21.4

-61.6
-6.1
13.5
20.6

-85.9
-9.8
13.2
19.9

-60.3
-2.9
13.5
20.1

-88.6
2.5
10.6
20.7

-0.3
n.a
49.6
1.3
23.7
2.6

-101.0
0.3
10.1
20.8

-3.2
94.3
50.0
1.2
21.1
2.8

-1.8
73.3
49.5
1.6
22.0
3.2

-1.1
73.2
49.6
1.2
21.3
4.1

-1.4
113.8
49.8
1.0
23.1
3.5

-0.7
109.1
50.1
1.0
22.8
3.5

Net financial assets; non-financial corporations
Net financial assets; financial corporations
Gross capital formation
Gross operating surplus
Households and NPISH (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Gross wages and salaries
Net property income
Current transfers received
Gross saving
Rest of the world (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Net exports of goods and services
Net primary income from the rest of the world
Net capital transactions 
Tradable sector
Non tradable sector
  of which: Building and construction sector
Real effective exchange rate (index, 2000=100)
Terms of trade goods and services (index, 2000=100)
Market performance of exports (index, 2000=100)
Notes:
1 The output gap constitutes the gap between the actual and potential gross domestic product at 2005 market prices.
2 The indicator on domestic demand includes stocks.
3  Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within two weeks. 
The labour force is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.

5.9
-22.6
5.2
2.4
0.3
36.4
49.6
4.1
107.6
101.4
95.8

5.3
n.a
4.4
3.0
0.1
36.1
49.8
4.0
104.0
101.2
95.9

5.9
-8.3
5.6
2.3
0.0
37.0
49.1
3.8
109.3
103.9
94.3

3.0
1.8
3.5
1.5
0.0
37.9
47.2
4.8
106.3
100.1
99.2

5.3
n.a
4.3
3.1
0.3
n.a
n.a
n.a
103.6
101.3
95.1

4.6
n.a
3.9
3.1
0.0
n.a
n.a
n.a
104.3
101.3
95.5

0.9
22.9
4.0
-1.1
0.1
40.8
44.8
4.3
93.4
93.5
103.7

2.7
13.9
5.9
-1.0
0.0
40.2
45.5
4.5
93.8
96.1
104.0

-1.9
n.a
48.8
1.8
23.6
2.7

-3.0
n.a
49.3
1.8
23.6
1.6

Source :
Commission services’ 2013 spring forecasts (COM); Convergence programme (CP).

28 

 
 
 
 
 
 
 
 
 
Table II. Comparison of macroeconomic developments and forecasts 

Real GDP (% change)

Private consumption (% change)

Gross fixed capital formation (% change)
Exports of goods and services (% change)
Imports of goods and services (% change)
Contributions to real GDP growth:

- Final domestic demand

- Change in inventories

- Net exports
Output gap1
Employment (% change)

Unemployment rate (%)

Labour productivity (% change)

HICP inflation (%)

GDP deflator (% change)

Comp. of employees (per head, % change)
Net lending/borrowing vis-à-vis the rest of the 
world (% of GDP)

2012

2013

2014

2015

2016

COM CP

COM CP

COM CP

-0.5

-0.5

0.6

1.4
0.9
2.5

0.6

-0.3

-0.8

-4.5
-0.5

7.5

0.0

2.4

2.1

1.2
5.3

0.6

2.2
0.9
2.5

n.a.

n.a.

n.a.

-4.4
-0.3

7.7

-0.2

2.4

2.1

1.0
5.2

0.7

0.8

2.5
1.1
2.2

1.2

0.1

-0.5

-4.6
-0.2

7.7

0.9

1.1

1.4

1.4
4.6

0.7

0.5

3.3
1.0
2.0

n.a.

n.a.

n.a.

-4.3
-0.1

7.6

0.8

1.1

1.2

1.6
4.7

1.7

1.8

0.7
4.3
3.7

1.2

0.0

0.5

-4.0
0.3

7.6

1.4

1.6

1.6

2.1
5.3

1.6

1.2

1.9
3.7
3.3

n.a.

n.a.

n.a.

-3.4
0.4

7.3

1.2

1.5

1.5

2.0
5.0

CP

1.7

2.0

2.7
6.8
7.1

n.a.

n.a.

n.a.

-2.5
0.6

6.9

1.1

1.8

1.5

2.2
5.3

CP

2.4

2.5

6.1
5.8
6.5

n.a.

n.a.

n.a.

-1.2
0.9

6.4

1.4

1.7

1.7

2.4
4.8

Note:
1In percent of potential GDP, with potential GDP growth recalculated by Commission services on the basis of the programme 
scenario using the commonly agreed methodology.

Source :

Commission services’ 2013 spring forecasts (COM); Convergence programme (CP).

29 

 
 
 
 
 
Table III. Composition of budgetary adjustment 

(% of GDP)

Revenue

of which:

- Taxes on production and imports

- Current taxes on income, wealth, etc.

- Social contributions

- Other (residual)

Expenditure

of which:

- Primary expenditure

of which:

Compensation of employees

Intermediate consumption

Social payments

Subsidies

Gross fixed capital formation

Other (residual)

- Interest expenditure

General government balance (GGB)

Primary balance

One-off and other temporary measures

GGB excl. one-offs
Output gap2
Cyclically-adjusted balance

2

3
Structural balance (SB)
Change in SB

Two year average change in SB 

Structural primary balance
Change in structural primary balance

3

Expenditure benchmark

Applicable reference rate

4

5

Deviation
Two-year average deviation (% GDP)

 (% GDP)

2012

2013

2014

2015

2016

COM COM

55.5

56.1

16.8

30.4

1.9

6.5

59.5

16.9

31.4

1.6

6.2

57.8

CP

55.0

16.9

31.4

0.9

5.8

56.5

COM1

54.1

16.6

30.1

1.4

6.0

56.8

CP

54.1

16.7

30.8

0.9

5.7

55.8

CP

52.0

16.9

28.8

0.9

5.4

54.8

CP

51.9

17.0

28.7

0.8

5.4

53.9

57.8

56.2

54.8

55.3

54.1

53.2

52.3

18.4

10.0

18.9

2.6

2.5

5.5

1.6

-4.0

-2.4

-1.6

-2.4

-4.5

-1.2

0.3

0.1

0.3

2.0

0.86

0.6

0.0

18.4

10.0

19.0

2.7

2.3

3.9

1.6

-1.7

-0.1

1.1

-2.8

-4.6

1.1

0.0

-0.3

-0.1

1.6

-0.4

0.86

-1.9

-0.6

18.2

10.0

19.5

2.7

2.2

2.2

1.7

-1.6

0.2

0.7

-2.3

-4.3

1.0

0.3

-0.1

0.0

2.0

0.0

0.86

-1.9

-1.4

18.2

9.9

18.9

2.6

2.1

3.6

1.6

-2.7

-1.2

0.0

-2.7

-4.0

-0.3

-0.3

-0.3

-0.3

1.3

-0.3

1.12

0.4

-0.8

17.9

10.0

19.3

2.6

2.2

2.1

1.7

-1.7

0.0

0.3

-2.0

-3.4

0.4

0.1

-0.2

-0.1

1.8

-0.2

1.12

-0.2

-1.0

17.7

9.9

19.2

2.6

2.0

1.8

1.6

-2.8

-1.2

-0.9

-1.9

-2.5

-1.3

-0.4

-0.4

-0.3

1.2

-0.5

1.12

-0.3

-0.3

17.5

9.9

18.8

2.5

2.0

1.8

1.6

-2.0

-0.4

-0.7

-1.3

-1.2

-1.2

-0.5

-0.2

-0.3

1.1

-0.2

1.12

-0.3

-0.3

Change: 
2012-2016
CP

-3.6

0.2

-1.7

-1.1

-1.1

-5.6

-5.5

-0.9

-0.1

-0.1

-0.1

-0.5

-3.7

0.0

2.0

2.0

0.9

1.1

3.3

0.0

-0.9

-

-

-0.9

-

-

-

-

Notes:

1On a no-policy-change basis.
2Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by Commission services on 
the basis of the programme scenario using the commonly agreed methodology.
3Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.
4 Reference medium-term rate of potential GDP growth. The (standard) reference rate applies from year t+1, if the country has reached its 
M TO in year t. A lower  rate applies as long as the country is adjusting towards its M TO, including in year t.The reference rates applicable 
to 2014 onwards have been updated in 2013. 
5 Deviation of the growth rate of public expenditure net of discretionary revenue measures and revenue increases mandated by law from the 
applicable reference rate. The expenditure aggregate used for the expenditure benchmark is obtained following the commonly agreed 
methodology. A positive sign implies that expenditure growth exceeds the applicable reference rate. 

Source :

Convergence programme (CP); Commission services’ 2013 spring forecasts (COM); Commission services’ calculations.

30 

 
 
 
 
 
Table IV. Debt dynamics  

(% of GDP)

1
Gross debt ratio
Change in the ratio
Contributions 2 :

1. Primary balance

2. “Snow-ball” effect

Of which:

Interest expenditure

Growth effect

Inflation effect

3. Stock-flow adjustment

Of which:

Cash/accruals diff.

Acc. financial assets

Privatisation

Val. effect & residual

5,6

Gap to the debt benchmark
7
Structural adjustment
To be compared to:
Required adjustment8

Notes:

Average
2007-2011

38.1

2.9

-1.8

1.0

1.6

0.1

-0.8

3.7

2012

45.8

-0.6

2.4

1.0

1.6

0.2

-0.9

-3.9

2013

2014

COM

45.0

-0.8

0.1

0.6

1.6

-0.3

-0.7

-1.5

CP

44.0

-1.8

-0.2

0.9

1.8

-0.3

-0.6

-2.5

COM

46.4

1.4

1.2

0.1

1.6

-0.7

-0.7

0.2

CP

42.4

-1.6

0.0

0.3

1.7

-0.7

-0.7

-1.9

2015
CP

43.5

1.1

1.2

0.3

1.6

-0.7

-0.6

-0.3

2016
CP

43.8

0.3

0.4

-0.1

1.6

-1.0

-0.7

0.0

2013

2014

2015

2016

2012

COM / 

3

CP
n.r.
n.r.

n.r.

n.r.
n.r.

n.r.

4

CP

n.r.
n.r.

COM / 

3

CP
n.r.
n.r.

4

CP

n.r.
n.r.

n.r.

n.r.

n.r.

CP

n.r.
n.r.

n.r.

CP

n.r.
n.r.

n.r.

1End of period.
2The snow-ball effect captures the impact of interest expenditure on accumulated debt, as well as the impact of real GDP growth 
and inflation on the debt ratio (through the denominator). The stock-flow adjustment includes differences in cash and accrual 
accounting, accumulation of financial assets and valuation and other residual effects. 

3 Assessment of the consolidation path set in CP assuming growth follows the COM  forecasts.
4Assessment of the consolidation path set in the CP assuming growth follows the CP projections.
5Not relevant for M ember Sates that were subject to an EDP procedure in November 2011 and for a period of three years 
following the correction of the excessive deficit.
6Shows the difference between the debt-to-GDP ratio and the debt benchmark. If positive, projected gross debt-to-GDP ratio 
does not comply with the debt reduction benchmark.
7Applicable only during the transition period of three years from the correction of the excessive deficit for EDP that were ongoing 
in November 2011.

8Defines the remaining annual structural adjustment over the transition period which ensures that - if followed – M ember State 
will comply with the debt reduction benchmark at the end of the transition period, assuming that COM  (SP) budgetary 
projections for the previous years are achieved.

Source :

Convergence programme (CP); Commission services’ spring 2013 forecasts (COM); Commission services’ calculations.

31 

 
 
 
 
 
Table V. Sustainability indicators 

S2

of which:

Initial budgetary position (IBP)

Long-term cost of ageing (CoA)

of which:

Pensions

Health care

Long-term care

Others

S1 (required adjustment)*

of which:

Initial budgetary position (IBP)

Debt requirement (DR)

Long-term cost of ageing (CoA)

S0 (risk for fiscal stress)**

Debt,  % of GDP (2012)

Age-related expenditure, % of GDP (2012)

DK

EU27

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

1.7

0.1

1.6

-1.3

0.7

2.6

-0.3

-2.5

-1.8

-0.8

0.1

2.0

0.3

1.7

-1.2

0.6

2.6

-0.3

-2.3

-1.4

-1.1

0.2

3.0

0.8

2.2

1.0

0.9

0.6

-0.4

2.2

0.0

1.9

0.3

0.24

45.7

30.4

:

87.0

25.8

1.3

-0.9

2.2

1.1

0.8

0.6

-0.3

0.5

-1.8

1.9

0.4

Note: 
The 'No-policy change' scenario depicts the sustainability gap under the assumption that the budgetary position 
evolves according to the Commissions' spring 2013 forecast until 2014. The 'Programme (SCP)' scenario depicts the 
sustainability gap under the assumption that the budgetary plans in the programme are fully implemented.                   
* The required adjustment of the primary balance until 2020 to reach a public debt of 60% of GDP by 2030.               
** The critical threshold for the S0 indicator is 0.44.

Source : 
Commission services; 2013 stability programme.                                                                                                   

(% of GDP)
90

Gross debt as % of GDP - DK - Medium term debt projections

80

70

60

50

40

30

20

10

0

0
9
9
1

2
9
9
1

4
9
9
1

6
9
9
1

8
9
9
1

0
0
0
2

2
0
0
2

4
0
0
2

6
0
0
2

8
0
0
2

0
1
0
2

2
1
0
2

4
1
0
2

6
1
0
2

8
1
0
2

0
2
0
2

2
2
0
2

4
2
0
2

6
2
0
2

8
2
0
2

0
3
0
2

COM no-policy change scenario

COM + Shock ( -1p.p. in the short-term/long-term interest rate on maturing and new debt from 2015)

COM + Shock (+1p.p. in the short-term/long-term interest rate on maturing and new debt from 2015)

COM consolidation scenario (0.5% per year on SB) in order to achieve MTO

COM consolidation scenario (1% per year on SB) in order to achieve MTO

SCP scenario

32 

 
 
 
 
 
Table VI. Taxation indicators 

Total tax revenues (incl. actual compulsory social contributions, % of GDP)

47.9

49.6

47.8

47.8

47.4

47.7

2002

2006

2008

2009

2010

2011

Breakdown by economic function (% of GDP)1
     Consumption

              of which:

              - VAT

              - excise duties on tobacco and alcohol

             - energy

             - other (residual)

     Labour employed

     Labour non-employed

     Capital and business income

     Stocks of capital/wealth

     p.m.  Environmental taxes

2

3
VAT efficiency
     Actual VAT revenues as % of theoretical revenues at standard rate

Note: 

15.8

16.3

15.4

15.2

14.9

15.1

9.6

0.9

2.6

2.7

21.2

4.9

3.5

2.7

4.8

10.3

0.7

2.2

3.1

19.9

4.7

6.2

2.7

4.8

10.1

0.6

2.1

2.6

20.6

4.8

4.2

2.9

4.2

10.2

0.6

2.2

2.2

20.6

6.4

2.9

2.9

4.0

9.8

0.6

2.3

2.2

9.9

0.6

2.3

2.2

19.4

19.3

5.0

5.4

2.8

4.0

5.1

5.6

2.8

4.1

60.2

64.7

62.4

59.2

58.3

59.0

1 Tax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission 
(2013) Taxation trends in the European Union, for a more detailed explanation.

2 This category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.

3 The VAT efficiency is measured via the VAT revenue ratio. The VAT revenue ratio is defined as the ratio between the actual VAT revenue collected and the 
revenue that would theoretically be raised if VAT was applied at the standard rate to all final consumption. A low ratio can indicate a reduction of the tax base due 
to large exemptions or the application of reduced rates to a wide range of goods and services ('policy gap') or a failure to collect all tax due to e.g. fraud ('collection 
gap'). See European Commission (2012), Tax reforms in EU M ember States, European Economy 6/2012 and Taxation Papers 34/2012 for a more detailed 
explanation.

Source: Commission

33 

 
 
 
 
 
 
Table VII. Financial market indicators 

Total assets of the banking sector (% of GDP)

464.0

494.2

481.3

476.1

475.8

2008

2009

2010

2011

2012

Share of assets of the five largest banks (% of total assets)

Foreign ownership of banking system (% of total assets)
Financial soundness indicators:
              - non-performing loans (% of total loans)1)
              - capital adequacy ratio (%) 2)
              - return on equity (%) 1), 3)
Bank loans to the private sector (year-on-year % change)

Lending for house purchase (year-on-year % change)

Loan to deposit ratio

CB liquidity as % of liabilities
Banks' exposure to countries receiving official financial assistance  (% of GDP)4)
Private debt (% of GDP)
Gross external debt (% of GDP)5)
            - Public
            - Private

Long term interest rates spread versus Bund (basis points)*

Credit default swap spreads for sovereign securities (5-year)*
Notes: 

1) Latest data (September 2012).
2) Latest data (M arch 2012).
3) Tier 1 capital.
4) Covered countries are CY, EL, ES, LV, HU, IE, PT and RO.
5) Latest data 2012Q3.
* M easured in basis points.
Source :

66.0

17.6

1.2
12.4

7.0

11.1

5.9

64.0

19.9

3.3
16.1

-3.2

-1.9

5.2

64.4

…

4.1
16.0

0.0

1.2

2.5

66.3

…

3.7
17.2

-0.6

-1.3

1.9

…

…

4.2
17.9

1.0

-0.4

1.2

308.2

301.1

307.9

306.2

295.5

5.5

10.0

1.9

7.6

0.6

6.4

0.9

5.7

218.4

226.7

217.4

211.5

13.8
41.7

0.3

116.3

16.0
47.0

0.4

58.1

16.0
47.1

0.2

29.0

21.1
43.9

0.1

64.0

1.4

4.8

…

22.9
44.3

-0.1

80.5

Bank for International Settlements and Eurostat (exposure to macro-financially vulnerable countries), IMF (financial soundness indicators), 
Commission (long-term interest rates), World Bank (gross external debt) and ECB (all other indicators).

34 

 
 
 
 
2007

2008

2009

2010

2011

2012

79.0

79.7

77.5

75.8

75.7

75.4

Table VIII. Labour market and social indicators 

Labour market indicators
Employment rate
(% of population aged 20-64)
Employment growth 
(% change from previous year)
Employment rate of women
(% of female population aged 20-64)
Employment rate of men 
(% of male population aged 20-64)
Employment rate of older workers 
(% of population aged 55-64)
Part-time employment (% of total employment, 
15 years and more)
Part-time employment of women  (% of women employment, 15 
years and more)
Part-time employment of men  (% of men employment, 15 years 
and more)
Fixed term employment (% of employees with a fixed term 
contract, 15 years and more)
Transitions from temporary 
to permanent employment
Unemployment rate1 (% of labour force, 
age group 15-74)
Long-term unemployment rate2 (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)
Youth NEET rate (% of population aged 15-24)

2.8

74.7

83.2

58.9

23.7

35.5

13.3

9.1

:

3.8

0.6

7.5

4.3

1.7

75.5

83.9

58.4

24.4

36.0

14.3

8.5

:

3.4

0.5

8.0

4.3

Early leavers from education and training (% of pop. 18-24 with at 
most lower sec. educ. and not in further education or training)

12.9

12.5

Tertiary educational attainment (% of population 30-34 having 
successfully completed tertiary education)
Formal childcare (from 1 to 29 hours; % over the population less 
than 3 years)
Formal childcare (30 hours or over; % over the population less 
than 3 year)
Labour productivity per person employed (annual % change)

Hours worked per person employed  (annual % change)
Labour productivity per hour worked (annual % change; constant 
prices)

Compensation per employee (annual % change; constant prices)

Nominal unit labour cost growth (annual % change)

Real unit labour cost growth (annual % change)

38.1

39.2

7.0

63.0

-1.1

-1.0

-0.2

1.3

4.8

2.4

8.0

65.0

-2.4

0.0

-2.5

-0.7

6.1

1.8

-2.3

74.5

80.5

58.2

25.9

37.5

15.3

8.7

:

6.0

0.6

11.8

5.4

11.3

40.7

10.0

63.0

-3.4

-1.6

-1.8

1.7

5.9

5.2

-2.3

73.0

78.6

58.4

26.3

38.4

15.1

8.4

:

7.5

1.5

14.0

6.0

11.0

41.2

10.0

68.0

3.9

0.1

3.9

-1.4

-1.2

-5.1

-0.4

72.4

79.0

59.5

25.9

37.6

15.3

8.8

4.1

7.6

1.8

-0.5

72.2

78.6

60.9

25.7

36.4

16.0

8.5

:

7.6

2.1

14.2

14.2

6.3

9.6

6.6

9.1

41.2

43.0

5.0

69.0

1.5

0.2

1.3

0.9

0.1

-0.6

:

:

-0.1

-0.2

0.0

-0.2

1.8

-0.2

Notes:
1 Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within 
two weeks. The labour force is the total number of people employed and unemployed.

2 Long-term unemployed are unemployed persons for at least 12 months.

Sources: 
Commission (EU Labour Force Survey and European National Accounts) 

35 

 
 
 
 
 
Expenditure on social protection benefits (% of 
GDP)
Sickness/Health care

Invalidity

Old age and survivors

Family/Children

Unemployment

Housing and Social exclusion n.e.c.

Total

of which:  means tested benefits
Social inclusion indicators
At-risk-of-poverty or social exclusion1 
(% of total population)
At-risk-of-poverty or social exclusion of children 
(% of people aged 0-17)
At-risk-of-poverty or social exclusion of elderly 
(% of people aged 65+)
At-Risk-of-Poverty rate2 (% of total population)
Severe Material Deprivation3  (% of total population)
Share of people living in low work intensity households 4 (% of 
people aged 0-59)
In-work at-risk-of poverty rate (% of persons employed)
Impact of social transfers (excluding pensions) on reducing 
poverty
Poverty thresholds, expressed in national currency at constant 
prices5
Gross disposable income (households)
Relative median poverty risk gap (60% of median equivalised 
income, age: total)

2006

2007

2008

2009

2010

6.14

4.24

10.78

3.74

2.05

0.66

28.45

0.85

6.44

4.20

10.67

3.67

1.58

0.69

27.99

0.89

6.67

4.35

11.00

3.77

1.39

0.70

28.64

0.91

7.52

4.88

12.01

4.17

2.13

0.75

32.31

0.99

7.30

4.81

12.22

4.03

2.43

0.75

32.41

0.99

2007

2008

2009

2010

2011

16.8

14.2

18.3

11.7

3.3

9.9

4.2

16.3

12.7

18.6

11.8

2.0

8.3

5.1

17.6

14.0

20.6

13.1

2.3

8.5

5.9

56.8

57.6

58.0

18.3

15.1

18.4

13.3

2.7

10.3

6.6

54.3

18.9

16.0

16.6

13.0

2.6

11.4

6.4

54.2

104460

106235

106229

107694

108360

770904

796214

816971

853250

878394

17.0

18.0

18.4

21.6

21.4

Notes:
1 People at-risk-of poverty or social exclusion (AROPE): individuals who are at-risk-of poverty (AROP) and/or suffering from severe 
material deprivation (SM D) and/or living in household with zero or very low work intensity (LWI).
2 At-risk-of poverty rate (AROP): share of people with an equivalised disposable income below 60% of the national equivalised median 
income. 
3 Share of people who experience at least 4 out of 9 deprivations: people cannot afford to i) pay their rent or utility bills, ii) keep their 
home adequately warm, iii) face unexpected expenses, iv) eat meat, fish, or a protein equivalent every second day, v) enjoy a week of 
holiday away from home once a year, vi) have a car, vii) have a washing machine, viii) have a colour tv, or ix) have a telephone.
4 People living in households with very low work intensity: share of people aged 0-59 living in households where the adults (excluding 
dependent children) work less than 20% of their total work-time potential during the previous 12 months.

5 For EE, CY, M T, SI, SK, thresholds in nominal values in Euros; HICP -  index 100 in 2006 (2007 survey refers to 2006 incomes)

Sources: 
For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC.

36 

 
 
 
 
Table IX. Product market performance and policy indicators 

Performance indicators

Labour productivity1 total economy (annual 
growth in %)
Labour productivity1 in manufacturing (annual 
growth in %)
Labour productivity1 in electricity, gas, steam and 
air conditioning supply (annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Total number of patent2 applications per million of 
labour force

Policy indicators

Enforcing contracts 3 (days)
Time to start a business 3 (days)
R&D expenditure (% of GDP)
Tertiary educational attainment 
(% of 30-34 years old population)
Total public expenditure on education 
(% of GDP)

Product market regulation4, Overall
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Retail
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Network Industries 5
(Index; 0=not regulated; 6=most regulated)

2003-
2007

1.1

3.4

2008

2009

2010

2011

2012

-2.4

-3.4

3.9

-5.5

-3.7

11.2

1.5

4.0

-0.1

4.9

-4.2

-3.7

-8.3

16.6

-14.8

n.a.

-2.6

1.8

-0.4

-8.6

8.7

-2.6

397.4

426.9

438.3

461.5

n.a.

n.a.

2003-
2007
380

6

2.5

2008

2009

2010

2011

2012

380

6

2.9

380

6

3.2

410

6

3.1

410

6

3.1

410

6

n.a.

40.8

39.2

40.7

41.2

41.2

42.8

8.17

7.68

8.72

n.a.

n.a.

n.a.

2007

2008

2009

2010

2011

2012

n.a.

n.a.

1.1

2.9

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

1.2

n.a.

n.a.

n.a.

n.a.

n.a.

Notes:
1 Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Total number of patent applications to the European Patent Office (EPO) per million of labour force

3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 

4 The methodologies of the product market regulation indicators are presented in detail on the website 
http://www.oecd.org/document/1/0,3746,en_2649_34323_2367297_1_1_1_1,00.html. The latest available product market 
regulation indicators refer to 2003 and 2008, except for Network Industries.
5 Aggregate Energy, Transport and Communications Regulation (ETCR).
*figure for 2007.

Source :
Commission, World Bank - Doing Business  (for enforcing contracts and time to start a business) and OECD (for the 
product market regulation indicators). 

37 

 
 
 
 
 
 
 
Table X. Green Growth 

Green Growth performance

Macroeconomic
Energy intensity 
Carbon intensity 
Resource intensity (reciprocal of resource productivity)
Waste intensity 
Energy balance of trade 
Energy weight in HICP
Difference between change energy price and inflation 
Environmental taxes over labour taxes
Environmental taxes over total taxes

Sectoral 

Industry energy intensity 
Share of energy-intensive industries in the economy
Electricity prices for medium-sized industrial users**
Gas prices for medium-sized industrial users***
Public R&D for energy 
Public R&D for the environment
Recycling rate of municipal waste
Share of GHG emissions covered by ETS*
Transport energy intensity
Transport carbon intensity
Security of energy supply
Energy import dependency
Diversification of oil import sources 
Diversification of energy mix
Share renewable energy in energy mix

kgoe / €
kg / €
kg / €
kg / €
% GDP
%
%
ratio
ratio

kgoe / € 
% GDP
€ / kWh
€ / kWh
% GDP
% GDP
ratio
%
kgoe / €
kg / €

%
HHI
HHI
%

2002-
2006

0.11
0.38
0.78
n.a.
1.3%
n.a.
n.a.
19.0%
9.8%

0.08
9.9
n.a.
n.a.
n.a.
n.a.
94.8%
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

2007

2008

2009

2010

2011

0.11
0.35
0.81
n.a.
1.9%
11
-1.6
18.4%
9.4%

0.08
6.9
0.09
0.03
0.02%
0.02%
95.0%
43.8%
0.33
0.85

0.10
0.33
0.77
0.08
1.7%
11
4.1
16.5%
8.8%

0.07
7.2
0.10
0.06
0.03%
0.02%
95.9%
41.6%
0.37
0.95

0.11
0.33
0.66
n.a.
0.8%
10
-3.8
14.4%
8.2%

0.07
6.5
0.09
0.05
0.03%
0.03%
96.9%
41.8%
0.39
0.99

0.11
0.33
n.a.
0.08
1.1%
11
5.1
16.3%
8.4%

0.07
n.a.
0.10
0.06
0.05%
0.02%
96.5%
41.3%
0.35
0.90

-24.7% -21.7% -20.4% -16.9%

0.19
0.28
15.6%

0.17
0.26
16.8%

0.22
0.28
16.8%

0.12
0.27
19.2%

0.10
n.a.
n.a.
n.a.
0.7%
11
4.5
n.a.
n.a.

n.a.
n.a.
0.10
0.07
0.05%
0.02%
n.a.
38.2%
n.a.
n.a.

-8.5%
n.a.
0.27
21.5%

Country-specific notes: 
The year 2012 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN elaborations indicated below
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices)
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)
          Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)
          Resource intensity: Domestic M aterial Consumption (in kg) divided by GDP (in EUR)
          Waste intensity: waste (in kg) divided by GDP (in EUR)
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP  
Energy weight in HICP: the share of the "energy" items in the consumption basket used in the construction of the HICP
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %-change)
Environmental taxes over labour or total taxes: from DG TAXUD's database "Taxation trends in the European Union"
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR) 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP
Electricity and gas prices medium industrial users: consumption band 500  - 2000M Wh and 10000 - 100000 GJ;  figures excl. VAT.
Recycling rate of municipal waste: ratio of municipal waste recycled over total municipal waste
Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP
Share of GHG emissions covered by ETS: based on greenhouse gas emissions as reported by M ember States to EEA (excl LULUCF)
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transp industry gross value added (2005 EUR)
Transport carbon intensity:  greenhouse gas emissions in transport activity divided by gross value added of the transport sector
Energy import dependency: net energy imports divided by gross inland energy consumption incl. energy consumption international bunkers

Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin 

Diversification of the energy mix: Herfindahl Index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels

Share renewable energy in energy mix: %-share in  gross inland energy consumption, expressed in tonne oil equivalents

*Provisional data (15 April 213). Commission Services and EEA.

** For 2007 average of S1 & S2 for DE, LU, NL, FI, SE & UK. Other countries only have S2.

*** For 2007 average of S1 & S2 for IT, NL, FI, SE & UK. Other countries only have S2.

38