REPORT FROM THE COMMISSION Denmark Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Denmark, budget deficit, budget policy, budgetary control, epidemic, gross domestic product, infectious disease, macroeconomics, public debt, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 544 final  REPORT FROM THE COMMISSION Denmark  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Denmark 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of  the 
general escape clause of the Stability and Growth Pact. The clause, as set out in Articles 5(1), 
6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles  3(5)  and  5(2)  of  Regulation 
(EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic 
downturn.  In  its  Communication,  the  Commission  shared  with  the  Council  its  view  that, 
given  the  expected  severe  economic  downturn  resulting  from  the  COVID-19  outbreak,  the 
current  conditions  permit  activation  of  the  clause.  On  23  March  2020,  the  Ministers  of 
Finance of the Member States agreed with the assessment of the Commission. The activation 
of  the  general  escape  clause  allows  for  a  temporary  departure  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. For the corrective arm, the Council may also decide, on a 
recommendation  from  the  Commission,  to  adopt  a  revised  fiscal  trajectory.  The  general 
escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth  Pact.  It  allows 
Member States to depart from the budgetary requirements that would normally apply while 
enabling  the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Data  notified  by  the  Danish  authorities  on  5  May  2020  and  subsequently  validated  by 
Eurostat1  show  that  the  general  government  surplus  in  Denmark  reached  3.7%  of  GDP  in 
2019, while general government  gross debt stood at 33.2% of GDP. According to the 2020 
Convergence  Programme,  Denmark  plans  a  deficit  of  8%  of  GDP  in  2020,  while  debt  is 
planned at 40¾% of GDP. 

The planned deficit for 2020 provides prima facie evidence of the existence of an excessive 
deficit as defined by the Stability and Growth Pact. 

Against this background, the Commission has therefore prepared this report, which analyses 
Denmark’s  compliance  with  the  deficit  criterion  of  the  Treaty  The  debt  criterion  can  be 
considered to be met as the debt ratio in 2019 is below the Treaty reference value of 60% of 
GDP.  It  takes  into  account  all  relevant  factors  and  gives  due  consideration  to  the  major 
economic shock linked to the COVID-19 pandemic.  

1 

https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f 

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Table 1. General government deficit and debt (% of GDP)  

2016 

2017 

2018 

2019 

0.2 

1.7 

0.5 

3.7 

2020 
COM 

-7.2 

2021 
COM 

-2.3 

37.2 

35.5 

33.9 

33.2 

44.7 

44.6 

Deficit 
criterion 

Debt 
criterion 

General 
government 
balance 
General 
government 
gross debt 

Source: Eurostat, Commission 2020 spring forecast 

2. 

DEFICIT CRITERION 

Based  on  the  Convergence  Programme,  Denmark’s  general  government  deficit  in  2020  is 
planned  to  reach  8%  of  GDP,  above  and  not  close  to  the  Treaty  reference  value  of  3%  of 
GDP. 

The planned excess over the Treaty reference value in 2020 is exceptional, as it results from a 
severe economic downturn. Taking into account the impact of the COVID-19 pandemic, the 
Commission 2020 spring forecast projects a contraction of real GDP in 2020 by 5.9%. 

The  planned  excess  over  the  Treaty  reference  value  would  be  temporary  based  on  the 
Commission 2020 spring forecast, which projects the general government deficit to fall under 
3%  of  GDP  in  2021.  However,  those  projections  are  surrounded  by  an  exceptionally  high 
degree of uncertainty.  

In  sum,  the  planned  deficit  for  2020  is  above  and  not  close  to  the  3%  of  GDP  Treaty 
reference value. The planned excess is considered to be exceptional as defined by the Treaty 
and  the  Stability  and  Growth  Pact  while  the  nature  of  the  excess  is  currently  considered 
temporary. Hence, the analysis suggests that prima facie the deficit criterion as defined by the 
Treaty and Regulation (EC) No 1467/97 is not fulfilled. 

3. 

RELEVANT FACTORS  

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”.  

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  that  “any  other  factors  which,  in  the  opinion  of  the  Member  State  concerned,  are 
relevant in order to comprehensively assess compliance with the deficit and debt criteria and 
which the Member State has put forward to the Council and to the Commission” need to be 
given due consideration.  

In the current  situation,  a key  additional factor to  take into consideration regarding 2020 is 
the economic impact of the COVID-19 pandemic, which has a very substantial impact on the 
budgetary situation and  results in  a highly  uncertain outlook. The pandemic has also  led to 
the activation of the general escape clause. 

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3.1. 

 COVID-19 pandemic 

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and  support  aggregate  demand.  Member  States  have  already  adopted  or  are  adopting 
budgetary  measures  to  increase  the  capacity  of  health  systems  and  provide  relief  to  those 
individuals  and  sectors  that  are  particularly  affected.  Significant  liquidity  support  measures 
and  other  guarantees  have  also  been  adopted.  Subject  to  more  detailed  information,  the 
competent statistical authorities are to examine whether those measures entail an immediate 
impact on the general government balance or not. Together with the fall in economic activity, 
those measures will contribute to substantially higher government deficit and debt positions. 

3.2  Medium-term economic position  

Denmark entered the COVID-19 crisis with strong economic fundamentals and without any 
major macroeconomic imbalances. Real GDP expanded by 2.4% in 2019, above its potential 
growth  rate,  with  positive  contributions  from  all  demand  components.  These  favourable 
trends continued into 2020 before coming to an abrupt halt in early March 2020.  Due to the 
COVID-19 pandemic, the Commission 2020 spring forecast projects GDP to decline by 5.9% 
in 2020, reflecting the disruption in economic activity caused by the lockdown measures and 
an unprecedented fall in external demand. Private consumption is projected to be hard-hit due 
to  an  increase  in  unemployment,  a  drop  in  wage  growth  and  weak  consumer  confidence. 
Investment is also set to fall strongly in 2020 as uncertainty mounts and many companies are 
postponing or cancelling investment decisions. Output is set to drop strongly in the first half 
of  the  year  and  then  to  gradually  recover  from  the  third  quarter  onwards.  In  2021,  GDP  is 
forecast  to  grow  driven  by  a  strong  recovery  in  household  consumption  and  investment. 
Nonetheless, GDP is unlikely to return to 2019 levels. Moreover, this outlook is marked by 
an  exceptional  degree  of  uncertainty2.  This  a  mitigating  factor  in  the  assessment  of 
Denmarks’s compliance with the deficit criterion in 2020. 

3.3 

 Medium-term budgetary position 

Based  on  outturn  data  and  the  Commission  2020  spring  forecast,  Denmark  was  compliant 
with the medium-term budgetary objective (MTO) in 2019.  

The  Convergence  Programme  provides  information  on  substantial  new  measures  to  contain 
the pandemic and to support the economy. It estimates these direct support measures with a 
budgetary impact at 4.9% of GDP in 2020. 

The  impact  of  the  pandemic  and  the  measures  to  contain  it  implies  that  the  economic  and 
budgetary situation in Denmark is subject to particularly high uncertainty.  

3 

 
 
 
                                                           
 
3.4 

Other factors put forward by the Member State 

On  14  May  2020,  the  Danish  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous sections already covers the key factors put forward by the authorities.   

 4. 

CONCLUSIONS 

According to the Convergence Programme, Denmark’s general government deficit in 2020 is 
planned to increase to 8% of GDP, above and not close to the 3% of GDP Treaty reference 
value.  The  planned  excess  over  the  reference  value  is  considered  to  be  exceptional  and 
currently considered to be temporary.  

In line with the Treaty and the Stability and Growth Pact, this report also examined relevant 
factors.  

Overall,  since  the  planned  deficit  is  well  above  3%  of  GDP  and  taking  into  account  all 
relevant factors, the analysis suggests that the deficit criterion as defined in the Treaty and in 
Regulation (EC) No 1467/1997 is not fulfilled. 

4