jens thomsen : some risks to the danish economy statement by mr jens thomsen, member of the board of governors of the national bank of denmark, at the meeting of the danish economic council, copenhagen, 1 june 2006. * * * this is an interesting report that pinpoints the problems which the danish economy could be facing if the pace does not slow down. the council has more zest than the ministry of finance : " economic survey, may 2006 ", which is reflected in a pronounced deterioration of the balance of payments. it is, however, evident that if the assumptions – which are described as optimistic – are not met, in terms of productivity and the labour force, the risk of overheating is more imminent. the calculations of structural unemployment in box i. 10 show that the central estimate is just over 150, 000, a substantially higher figure than the current one. it is noted that the estimate is subject to considerable uncertainty. unemployment in 2006 is estimated at 129, 000, indicating a fall by approximately 1, 000 a month throughout the rest of the year. from february to march 2006 the figure fell by 4, 300. as usual, the forecast is self - stabilising. the above tendency is positive. it is, nevertheless, difficult to model overheating, as pages 112 - 113 show. however, the council should not be criticised for having published this calculation. it is hard not to share the report's conclusion that there is a substantial risk of overheating. the tight labour market can to some extent be eased by importing labour, and consequently unnecessary barriers should be avoided. in iceland, 80 per cent of those aged 60 - 64 are in work, in denmark only 40 per cent. that provides food for thought. moreover, the number of danes on the early retirement scheme ( 142, 000 in 2006 ) now exceeds the number of unemployed in denmark. it is also evident that expansionary fiscal policy contributes to strong demand. in the current situation it is therefore extremely important to keep a tight rein on government expenditure. it will be interesting to see when growth in public spending once again falls below 1. 0 per cent. since the millennium this has only been the case in 2003. does the council believe it will be in 2007, when growth of 0. 7 per cent is anticipated? the development in house prices also illustrates our forecast problems. increases of 15 per cent are now expected in 2006. six months ago, the forecast was 7. 0 per

to a small degree. since 2004 the propensity to consume has shown an increase equivalent to approximately kr. 15 billion, while housing wealth has risen by kr. 670 billion. it is true that the capital gains have been further mortgaged, but the proceeds have mainly been used for home improvements or pension contributions, or invested in other financial assets. for more than 200 years we have had a secure mortgage financing system with a large, standardised mortgage - credit bond market that has given borrowers access on equal terms to finance real property at long - term interest rates in the capital market. however, in recent times the mortgage - credit system has undergone many changes : mortgage credit no longer comprises associations of borrowers, with members holding joint and several liability that join forces to gain access to a less developed capital market. today, the players are profit - maximising limited - liability companies in an economy with well - developed capital markets. mortgage - credit institutes and banks have become more closely connected in different ways. credit institutions from other eu member states can compete freely in denmark, and danish credit institutions have become active in financing real property abroad. finally, there has been considerable development of new products – for example adjustable - rate loans, capped adjustable - rate loans and deferred - amortisation loans. in this way, mortgage credit has become a product like other commercial financial products in an open economy with a mature financial system. this dynamic has not changed danmarks nationalbank's fundamental perception of the mortgagecredit system. danmarks nationalbank has always found it to be a secure system, beneficial for borrowers, lenders, the capital market, and financial stability. now a new type of covered bonds enters the market, called sdos. at the last annual meeting i called for a thorough review of the future regulations for use of sdos. i would like to acknowledge that this review has been undertaken, and there is now political agreement on a new act on sdos. overall, i believe this to be a good result. the bill also makes it possible for the mortgage - credit institutes to provide mortgage credit financed by issuing bonds in exactly the same way as today. danmarks nationalbank has considered this to be important. for some years the banks have competed with the mortgage - credit institutes to offer mortgage credit, among other things by introducing their mortgage loans. in addition, they also increasingly compete with foreign credit institutions – both in denmark and abroad. now the banks will have the