VZCZCXRO2443
RR RUEHIK
DE RUEHCP #0085/01 0431232
ZNR UUUUU ZZH
R 121232Z FEB 10
FM AMEMBASSY COPENHAGEN
TO RUEHC/SECSTATE WASHDC 5495
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 COPENHAGEN 000085 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/IFD/OMA, EEB/TPP/ABT, EUR/NB 
TREASURY FOR TTORGERSON 
COMMERCE FOR PDACHER AND JDERSTINE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND ELAB ETRD KTDB PGOV DA
 
SUBJECT: DENMARK JANUARY ECONOMIC HIGHLIGHTS 
 
REF: Copenhagen 46 
 
COPENHAGEN 00000085  001.2 OF 002 
 
 
(U)  SENSITIVE BUT UNCLASSIFIED; PROTECT ACCORDINGLY.  NOT FOR 
INTERNET DISSEMINATION. 
 
Contents: 
------------ 
ECON: Spending or Reform 
ELAB: Labor Negotiations Slow Going 
ECON: Denmark by the Numbers 
EFIN: Danish National Bank Stress-Tests Banking Sector 
 
Spending or Reform 
------------------ 
¶1.  (SBU) The Chairman of the Economic Council Hans Joergen 
Whitta-Jacobsen, who assumed his post on January 1, revised the 
Council's recommendations on economic policy.  The Council no longer 
finds that the time is right for additional stimulus, but rather 
believes that reforms of social welfare benefits, especially early 
retirement and unemployment benefits, are much more pressing matters 
to ensure economic stability in the long run.  The economy may still 
need further stimulus, but developments in 2010 should be watched 
until the planning of the 2011 budget in August before any new 
initiatives are prepared.  The Minister of Finance declared that no 
reform of the early retirement scheme is forthcoming, and given the 
PM's recent statements indicating that fiscal belt tightening may be 
in the offing (reftel), the Government seems more willing to cut 
spending on the margins rather than instigate any major reform of 
the benefit schemes or the labor market. 
 
Labor Negotiations Slow Going 
----------------------------- 
¶2. (U) New labor market accords are being negotiated this winter and 
spring, and from the outset the negotiations have been tough. 
Employers have stated that the financial crisis leaves very little 
room for wage increases and the diminished competitiveness of Danish 
firms needs to be restored before pay increases can be justified.  A 
recent Green's Analysis poll showed that 57% of Danish CEOs expect a 
zero real wage increase and 9% expect decreases.  At the same time, 
the Danish Confederation of Trade Unions (LO) stated expectations of 
wage increases of 2.5% in 2010 and 3% in 2011, placing the 
negotiators rather far apart.   In addition, negotiators for labor 
are demanding increased protection against wage pressures due to 
competition from foreign unorganized labor.  Labor has indicated 
willingness to trade wage increases for social regulation like 
maternity leave, flexible work hours, equal pay for men and women, 
and minimum wage regulations during the negotiations and in the 
past.  A Gallup poll showed that only 31% think wages are the most 
important issue. 
 
¶3.  (SBU) Many local observers are projecting that the negotiations 
could lead to a general labor market conflict.  The positions are 
far apart, the labor unions have been out saying they have plenty of 
funds for months of conflict, and a one-day work stoppage at 
Carlsberg breweries is being interpreted as indicative of the 
unions' willingness to use conflict to achieve their aims.  On the 
employer side, a poll from Berlingske Research showed 77% of CEOs 
preferring a conflict to real wage increases.  The last major labor 
conflict was in 1998; historically, general labor market conflicts 
have arisen every 12 years. 
 
Denmark by the Numbers 
---------------------- 
¶4.  (SBU) The National Bank lowered its leading interest rate on 
January 8 and again unexpectedly on January 15, leaving the rate at 
1.05%, with the spread to the ECB rate at only 5 basis points.  The 
Harmonized Consumer Price Index (HCPI inflation) rose 1.1% in 2009 
compared to an increase of 3.6% in 2008.  Seasonally adjusted 
production fell 1.8% from November to December 2010, continuing the 
plummet that has caused production to fall 22.6% from December 2008 
to December 2009.  Danish goods trade experienced a severe blow in 
2009 with imports down 21% or DKK 117 billion (USD 21.54 billion) 
compared to 2008, and exports down a little less by DKK 95 billion 
(USD 17.49 billion) or 16%.  Goods exports increased by 0.7% in 
December and goods imports increased 2.4% from November.  The 
composite consumer confidence indicator was at 1.1 in January, a 
move toward the positive and the highest level since December 2007. 
Business confidence indicators, on the other hand, remained negative 
and basically unchanged in December, with the construction sector 
still deeply depressed.  Extrapolating from the most recent OECD 
statistics, we estimate total seasonally adjusted Danish 
unemployment by end of January at 7.7%. 
 
Danish National Bank Stress-Tests Banking Sector 
--------------------------------------------- --- 
 
COPENHAGEN 00000085  002.2 OF 002 
 
 
¶5.  (U) The National Bank finished stress-testing the fourteen 
largest Danish banks in January (80% of the market) and found that 
the Danish banking sector is generally adequately capitalized.  The 
Bank judges that the infusion of capital via banks availing of Bank 
Package 2 assistance, stock issuance, and other means, will ensure 
that the banks will survive 2010-2011, though some banks may need to 
raise additional capital by the end of 2011.  The Bank recommends no 
new initiatives to help the sector, but predicts that the 
consolidation in the banking sector will pick up through 2010 with a 
substantial reduction in the number of banks on the Danish market. 
Several CEOs in the Danish banking sector have recently made similar 
projections.  The National Bank's most likely scenario for 2010-2011 
is total loan losses of 1.5% of all lending or DKK 50-70 billion 
(USD 9.2 - 12.9 billion), almost three times the amount of losses in 
2009 which was at 0.52% of all lending. 
 
FULTON