nils bernstein : overview of developments in denmark speech by mr nils bernstein, governor of the national bank of denmark, at the annual meeting of the danish bankers association, copenhagen, 30 november 2009. * * * the recession in the world economy seems to be over. most oecd countries are returning to positive growth rates. world trade is slowly beginning to pick up again after its sharp downturn. turning to denmark, we currently only have an overview of developments in the first half of the year. we still don ’ t have a full picture of how things have evolved since the early summer, but in the assessment of danmarks nationalbank, denmark is also gradually beginning to move out of the recession that set in around the turn of the year 2008. it looks as if our aggregate output bottomed out in mid - 2009 at a level of 7 per cent below the most recent peak in 2007. most forecasts show that the recovery will be slow, and in our assessment we will not be back at the 2007 output level until some time in 2013 at the earliest. the business sector has considerable spare capacity, and unemployment is therefore set to rise for another year or so. crucial factors will be consumer spending and the contribution from exports to growth. right now the extensive stimulus packages launched in denmark and abroad, as well as inventory adjustments, are the main factors that have halted the slowdown and are once again driving the economy forward. it remains to be seen whether this momentum will be self - sustaining once the stimulus packages and expansionary fiscal and monetary policies are phased out. the outlook for the coming years is particularly uncertain – much can go wrong – but we believe that the economy will gradually recover. one of the current challenges is how to finance the large government deficits resulting from the expansionary fiscal policies in denmark and abroad. if these policies are rolled back too late, fear of a debt spiral and inflation may push up interest rates. on the other hand, if they are rolled back too early, the financial markets may, once again, come under strong pressure. further stimulus packages may be required. this balancing act is very much about ensuring investor confidence in the sustainability of the future economic policy. lack of confidence will cause interest rates to rise, which in turn could trigger a downward spiral of increasing budget deficits and interest costs. this risk could dampen growth, so we need to have a sustainable fiscal consolidation plan. and a sustainable and credible plan requires agreement – not only on the objectives, but also

pension for a 60 - year - old, 1990 - 2035 25 years with early retirement benefits and state pension political agreement on velfærdsaftale welfare adjustment, 2006 langsigtsniveau long - term level forslag om fremrykning new proposals 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2035 source : labour market commission danmarks nationalbank retirement saving is exposed to a number of risks depending of the form of saving. however, longevity and macroeconomic risks affect all forms of retirement saving, cf. slide 10. risks affecting retirement saving macroeconomic risks longevity risk state pension government budget deficit occupational pension defined benefit decline in corporate profits defined contribution inflation risk danmarks nationalbank private pension investment risk depending on the type of pension plan, it is either the sponsor or the retiree that bears the longevity and investment risk. as the defined benefit retirement plans are being reduced in favour of defined contribution plans the risks are shifted from the sponsors to individuals. some sponsors have attempted to renegotiate the agreed pension plans with the retirees within the scope of the pension contracts to take into account the longevity risk. anyhow, appropriate risk management for interest rate, inflation and longevity risks are needed, cf. slide 11. types of pension plans defined benefit plan defined contribution plan • benefit determined by a set formula • benefit depends on contributed amount and investment returns • sponsor bears investment or longevity risk • retiree bears investment and longevity risk no matter who bears the risks, instruments for investment and longevity risk bearing and hedging are needed danmarks nationalbank long - term government bonds the ultra - long government bonds are not a recent invention. perpetuals were used in war financing for example in united kingdom that in 1919 issued two ultra - long bonds, 57 - year " victory bond " and 71 - year " funding loan ". today many governments have long - dated outstanding loans with maturities up to 50 years. the issued ultra - long bonds tend to end up in investors'buy - and - hold positions, which affects bond liquidity. in germany, for instance, the turnover ratio of the 10 - year bund is almost the double compared to the 30 - year bund, cf. slide 12. government bonds with maturities over 30 years, oecd - countries overview of long - term governm ent bonds count ry lat est mat urit y nominal / linker aust ria........