Michael de Laine

By Michael de Laine, Copenhagen, 7 November 2008

Danish Prime Minister Anders Fogh Rasmussen sees rising unemployment and lower economic growth in the coming couple of years. He also expects that a tax reform will be tabled next spring to reduce taxes on working incomes while raising energy taxes. And he will continue working to hold a referendum to introduce the euro to replace the Danish krone as the national currency.

“Despite everyone’s efforts, it is quite probable that the current financial crisis will hit the ordinary economic situation,” Anders Fogh Rasmussen told a group of business people from the Absi trading forum on 6 November 2008.

“We can be pleased that Denmark has a quite good starting point, but we will be affected by the crisis and we foresee that there will be lower economic growth and higher unemployment in the coming years. We have a record low unemployment with only 45,000 jobless - we must go back to the start of the 1970s to see a similar figure. So even if the jobless numbers should rise a little in the coming years, we are still a long way from previous unemployment figures.”

Despite rising unemployment, businesses have problems in recruiting staff. This is partly due to the lower number of people entering the labour force than those retiring.

“It’s a matter of the age distribution in the Danish population,” the Prime Minister said. Some 84,000 people born in 1943 will reach retirement age this year, but only 50,000 people born in 1983, 40 years later, will enter the labour force. “That is quite a large difference,” Rasmussen said, “and that means we will lack people in the coming years, both in the public and the private sector. Therefore we must find new workers in the coming years.”

Taxation is another area where action is necessary, because if we want people to choose to have their overtime paid in cash, rather than time off, the high taxes work as a disincentive, the Prime Minister explained.

“We will start working on proposals to reduce taxation on working income in the spring,” the Prime Minister said. “The tax commission is currently preparing a tax reform that aims at cutting taxes on work, but raising them on energy and pollution.” The idea is that it should pay to work, but it is also a good idea to cut back on energy use and pollution.

“In recent weeks we have seen that there is cost to Denmark for being outside the euro,” Fogh Rasmussen said. “We had a referendum in 2000, when 53% of the voters said no to going over to the euro. One of the arguments was that we can manage very well outside, so why adopt the euro? Since then, things have gone rather well economically for Denmark. But it is precisely when the global economic situation is characterised by the disturbances we’ve seen in recent weeks with the financial crisis, that we must stand together. One result is that the interest rate differential between Denmark and the euro zone has risen to 1.75%, which is still the differential today after both the European Central Bank and the Danish central bank cut interest rates. This differential is necessary for the Danish central bank to defend the krone. That’s the economic price.” The differential for a long time was 0.5% or less.

“But the most decisive argument for me is not the money but politics,” the Prime Minister said. “It’s a stupid situation, because we have no influence but must follow other’s decisions. We saw that a few weeks ago when Sarkozy hosted a summit of euro countries, where vital decisions on European economy - which also affect Denmark - were taken, but Denmark cannot participate in the decision-making process. That is a very bad way to serve Danish interests, especially when you remember that the krone is tied to the euro. This means we must follow the same economic and monetary policies as the others, but we must defend the krone by raising the interest rates. So things would be better with a common European currency. Seen from economic, practical and especially political aspects, the only right thing would be that Denmark adopts the euro. But I can’t decide that myself - it requires a referendum and broad political backing.”

Anders Fogh Rasmussen said he is working to create the necessary political backing, but cannot predict an outcome.

The Prime Minister also said he expects that the good relations he has had with outgoing US President George W Bush will continue with Barack Obama.

“I think we can look forward to continued good relations between Denmark and the US,” the Prime Minister said. “It is no secret that I have had good relations with President Bush and this has served Denmark’s interests well. And I am convinced that this will continue under President Obama.”

Fogh Rasmussen called the election “incredibly exciting”.

“I think it is really historic that a politician with his background can be elected to the highest public office in the USA,” the Prime Minister said. “I think we should all be pleased that that this can happen in the world’s largest and most powerful democracy.”

Fogh Rasmussen also outlined education, research, innovation, public transport, climate, and energy and security policies as areas the Danish government will concentrate on in the coming years.