VZCZCXRO3971
RR RUEHIK
DE RUEHCP #0575 3571133
ZNR UUUUU ZZH
R 231133Z DEC 09
FM AMEMBASSY COPENHAGEN
TO RUEHC/SECSTATE WASHDC 5373
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS COPENHAGEN 000575 
 
SIPDIS 
 
STATE FOR EEB/IFD/OMA, EEB/TPP/ABT, EUR/NB 
TREASURY FOR DAVID WRIGHT 
COMMERCE FOR PAUL DACHER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV DA
SUBJECT: FINANCE MINISTER CAUTIOUSLY OPTIMISTIC ON ECONOMY 
 
¶1.  SUMMARY: Danish Finance Minister Claus Hjort Frederiksen gave a 
cautiously optimistic read-out of the Danish economy in a recent 
gathering with the local diplomatic corps.  Though Denmark has been 
affected by the global economic crisis, Frederiksen said the impact 
had been diminished by the fact that Denmark had been outperforming 
its neighbors in the run-up to the crisis.  He asserted that the 
Danish Government's reply to the crisis had been appropriate, swift, 
substantial, and temporary.  Response measures have turned the 2008 
budget surplus of about 2% of GDP into a projected deficit of around 
5% of GDP in 2010.  The Government is concerned that, besides the 
impact on the budget and Denmark's debt obligations, further fiscal 
stimulus could delay a necessary adjustment in wages.   Because of 
stimulus spending and decreased revenues, the Ministry's previous 
goal of achieving structural surpluses between 2011 and 2015 has 
been revised to restoring fiscal balance or surplus by 2015.  END 
SUMMARY. 
 
 
¶2.  Danish Minister of Finance Claus Hjort Frederiksen told 
diplomatic representatives at an annual Danske Bank-sponsored event 
that, though challenged by the global economic crisis, Denmark is 
performing well compared to its neighbors.   Denmark actually 
entered its current slowdown in 2007, but that came on the heels of 
a series of strong years, therefore the crisis has not been as 
severe in Denmark as in neighboring countries.  Though he expected 
the recovery here to lag behind neighbors', Frederiksen said 
increased consumer confidence, a stabilizing housing market, and the 
predicted pick-up of world trade will result in Danish economic 
growth in the near future. 
 
¶3.  Frederiksen repeated several times during his remarks that the 
Danish government's reply to the crisis had been appropriate, swift, 
substantial, and temporary.  He predicted that the substantial 
discretionary fiscal measures the Government undertook to dampen the 
impact of the global downturn, combined with low interest rates, 
will add to economic activity in 2010 by 4% of GDP and increase 
employment by 75,000 (2.7%).  However, these measures will also have 
an impact upon the public budget.  Automatic stabilizers (Denmark 
has some of the strongest stabilizers in the OECD, primarily via 
generous unemployment schemes) will further affect the budget.  The 
short-term developments in public finances will turn the budget 
surplus of around 2% of GDP in 2008 into a deficit of around 5% of 
GDP in 2010. 
 
¶4.  The Minister assured the audience that the government is 
monitoring the situation closely and will not hesitate to act, 
should further action be needed.  The Government is concerned though 
that, besides the impact on the budget and Denmark's debt 
obligations, further fiscal stimulus could delay a necessary 
adjustment in wages.  Denmark has experienced considerably higher 
wage increases than its primary trading partners in recent years, 
which, combined with slow productivity growth and an appreciation of 
the Danish Krone (plural:  Kroner), has weakened the Danish 
exporting businesses.  Because it will exceed the EU's 3% public 
deficit ceiling, the Government is also expecting to come under the 
"excessive deficit procedure" with ensuing recommendations for 
fiscal consolidation and a deadline for bringing the deficit below 
the reference value stated in the EU Stability and Growth Pact. 
 
¶5.  Finally the Minister touched on the long-term developments of 
public finances.  Denmark faces a significant change in demographic 
composition that will lead to increased expenditures for health and 
elderly care.  In addition, Denmark is facing less revenue from the 
North Sea, as reserves of oil and gas are gradually depleted.  The 
Government's 2015 plan for solidifying fiscal balance has been 
undercut by the economic downturn.  The previous goal of achieving 
structural surpluses between 2011 and 2015 has been revised to 
restoring fiscal balance or surplus by 2015.  The long-term 
sustainability of public finances will rely on structural reforms -- 
some already in place -- including an adjustment of the retirement 
age and eligibility for public pension schemes.  Other reforms 
include the fully-financed tax reform adopted in March 2009. 
Frederiksen also highlighted the newly established Growth Forum, 
aimed at giving the government fresh ideas for improving 
productivity and GDP growth through education, research and 
development, innovation and entrepreneurship reforms. 
 
FULTON