Denmark: shifting Leftwards and closer to Europe

The centre-left just scrapes in, hoping to boost productivity to fund increased spending. Will that reduce spiralling deficits?

Once the envy of all Europe, Denmark was the land of milk, salami and budget surpluses. But economic woes, exemplified by nine local banks being nationalised, have tranformed the books into a deficit-running mess. A burst housing bubble triggered a domestic banking crisis and stifled household spending. And now Denmark trails all other Scandinavian economies. Can newly elected Helle Thorning-Schmidt's Social Democrat-led left-leaning bloc turn things around?

Fiscal restraint has been promised, which is a positive sign. Yet the new government has pledged to spend an extra US$3.9bn more than the outgoing centre-right lot, according to Bloomberg. There've been charges that such action might jeopardise Denmark's prized AAA credit rating. So, an extra twelve-minutes' work from every worker each day to boost productivity has been the unusual proposal from Thorning-Schmidt's team. Novel if somewhat difficult to promote or moniter, I suspect. 

A further complication will arise even before that programme can be implemented, as the SocDems will have to form a coalition with Social Liberals with whom they disagree about extending retirement dates and pension entitlements. The Social Democrats' vote share declined by 1%, while the Social Liberals increased their tally by 8%. So their partners enter parliament with enhanced bargaining power.

This new government looks likely to take a more Europhile stance than its predecessor, a centre-right coalition which incorporated Eurosceptic elements.

With GDP expected to rise this year by a paltry 1.25%, there's much to turn around. Despite having robust press liberty, the cartoon issue (when the Profit was ridiculed) has cost Denmark dearly: few Islamic nations will boost trade while that thorny issue is so fresh in recent memory. Germany is the biggest recipient of Danish exports (taking 17.5%) so economic stagnation there will hit Denmark. In fact, bar the US (at 6%), all of Denmark's main export destinations are across Europe. Not a healthy trading position to be in.

This new government could perform poorly unless new markets can be penetrated like India, Brazil, Indonesia, Mexico or China. And fast. Despite brand-recognition of its famed bacon, it is machinery and instruments which top Denmark's list of exports. Given that, emerging giants might be more than happy to sit down and negotiate.

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