VZCZCXRO4752
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHCP #0158/01 0900838
ZNR UUUUU ZZH
R 310838Z MAR 09
FM AMEMBASSY COPENHAGEN
TO RUEHC/SECSTATE WASHDC 4881
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 COPENHAGEN 000158 
 
SIPDIS 
 
STATE FOR EEB/IFD/OMA AND EEB/TPP/ABT 
TREASURY FOR DAVID WRIGHT 
COMMERCE FOR PAUL DACHER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD ELAB KTDB PGOV DA
 
SUBJECT: DENMARK: MARCH ECONOMIC HIGHLIGHTS 
 
REF: COPENHAGEN 105 (TAX REFORM MOVES FORWARD), COPENHAGEN 
51 (BANK BAILOUT PLAN) 
 
¶1.  Contents 
------------ 
ECON: Opposition Says Stimulate, Government Says Wait 
EAGR: Fat Tax Sounds Death Knell for Danish Pastry? 
ECON: Denmark by Numbers 
EFIN: More Grim News from the Financial Sector 
EFIN: Bankruptcy Hammer to Fall in September? 
ENRG: Vestas Loses Market Share to GE 
 
Opposition Says Stimulate, Government Says Wait 
--------------------------------------------- -- 
 
¶2.  Though many local economists and a growing number of 
business executives are joining Denmark's left-of-center 
opposition and labor unions in arguing that the Danish 
economy urgently needs a major public spending stimulus 
package to revive the economy, the Danish government appears 
content to maintain a wait-and-see approach while it gauges 
the impact of recently-enacted tax reform measures (Ref A). 
By implementing an across-the-board personal income tax cut 
that lowers tax for all Danes by 1.5 percent and an 
additional 6 percent for about half the population, the 
government projects that the reduction will boost GDP growth 
by at least 1.5 percent and create 19,000 new jobs. 
 
¶3.  In addition to the personal income tax cut, the 
government's tax reform package also allows citizens to 
withdraw contributions made to a special mandatory pension 
fund that was in effect from 1998 to 2003.  Polling 
indicates that more than half of all eligible Danes intend 
to make such a withdrawal when the program takes effect on 
June 1, and will spend the money on consumer items or pay 
down debt.  If so, this step alone could result in an 
additional 1 percent growth in GDP.  While the Danish 
government's tax reform package has drawn praise from the 
OECD, critics point out that the tax cuts only start in 2010 
and that any stimulating effects of the special pension fund 
withdrawal plan will not be realized until late 2009. 
 
Fat Tax Sounds Death Knell for Danish Pastry? 
--------------------------------------------- 
 
¶4.  The Danish government announced it will offset the loss 
of tax revenue caused by the newly-enacted personal income 
tax cut by imposing a new set of "environmental" taxes and 
duties on industry.  Among these is a new DKK 25 (USD 4.50) 
per kilo tax on saturated fats and sugar, a move that has 
elicited howls of outrage from the Danish baked goods 
industry and pastry gourmands.  Industry insiders estimate 
that the retail price of the delicacy known to most of the 
world as a "Danish pastry" (curiously, Danes call it "Vienna 
Bread") will increase by at least 15 percent.  The chief of 
the Danish Bakery and Confectionery trade association 
expressed fear that the move will lead to closure of many 
neighborhood bakeries and may even result in the demise of 
the Danish pastry in Denmark.  FAS reports that the new 
"environmental" taxes and duties are unlikely to affect 
American agricultural exports to Denmark. 
 
Denmark By Numbers 
------------------ 
 
¶5.  Denmark's inflation rate was 1.7 percent in February, 
unchanged from January and the first time in six months that 
inflation did not decline.  Inflation in Denmark is about 
0.5 percent higher than in the euro zone.  The Danish 
National Bank projects that the Danish economy will be in a 
recession throughout 2009 with a GDP contraction of 1.1 
percent, but projects a recovery in late 2011.  Most 
financial commentators scoff at what they characterize as 
overly hopeful projections, and claim that a more realistic 
forecast is GDP contraction of at least 2.5 percent in 2009. 
Unemployment continues to creep steadily higher: 
extrapolating from OECD's most recent January statistics, we 
estimate the current unemployment rate is just over 5 
percent. 
 
More Grim News from the Financial Sector 
---------------------------------------- 
 
¶6.  According to a recent survey conducted by a financial 
sector trade association, 20 percent of all Danish banks are 
at serious risk of not being able to pay employees and 
 
COPENHAGEN 00000158  002 OF 002 
 
 
creditors in the coming months.  The numbers are even worse 
when looking at the financial sector in general and not just 
banks, with 2,000 out of 7,400 financial firms in real 
danger of defaulting on payroll and operating expense 
payments during the next year.  Denmark's four biggest banks 
are projected to lose DKK 30-48 billion (USD 5.4-8.7 
billion) through non-performing loans in 2009 on top of a 
collective loss of DKK 30 billion in 2008.  If so, Danish 
banks would burn through two-thirds of the government's DKK 
75 billion bank bailout fund in less than one year, far 
faster than the government had anticipated (Ref B). 
Although government officials took pains to emphasize that 
the bailout plan was designed to facilitate increased 
lending, 38 percent of businesses say they are still 
experiencing difficulty in obtaining bank financing. 
 
Bankruptcy Hammer to Fall in September? 
--------------------------------------- 
 
¶7.  As part of the Danish government's recently-enacted tax 
reform package, Danish companies were granted an immediate 
six-month grace period in paying VAT and other taxes. 
According to the Danish Chamber of Commerce, this six-month 
tax holiday is the only thing that is keeping some companies 
afloat right now.  The Chamber issued a dire warning that 
the number of bankruptcies may explode in September when the 
tax holiday ends.  2009 has already been a banner year for 
bankruptcies and is on pace to far surpass the total number 
of bankruptcies in 2008, the worst year on record.  There 
were 513 bankruptcies in February, 10 percent up from 
January, and 120 percent more than February 2008. 
 
Vestas Loses Wind Turbine Market Share to GE 
-------------------------------------------- 
 
¶8.  Danish alternative energy dynamo Vestas Wind Systems 
ended 2008 with 19.8 percent of the global market share for 
wind energy, considerably lower than its stated goal of a 25 
percent market share and its 22.8 percent share in 2007.  GE 
Energy is gaining market share fast and is a close second on 
the global scene with a market share of 18.6 percent, up 
from 16.6 in 2007.  GE Energy is projected to overtake 
Vestas as the world's biggest wind turbine producer in the 
near future if current trends continue. 
 
McCulley