Whilst British Prime Minister Boris Johnson recently illegally suspended Parliament, and US President Donald Trump faces an impeachment inquiry, new Danish Prime Minister Mette Frederiksen has faced far less turbulent times.
Firstly, a ferocious Liberal party power struggle has taken up all the domestic focus in recent months. Secondly, Denmark is in a fairly enviable position. Growth since the financial crisis has been steady, if unspectacular; unemployment is moderate; there is a whopping current account deficit; and Denmark enjoys one of the lowest levels of public debt in the rich world.
Nobody should be lulled into a false sense of security though. Firstly, although public debt is low, private debt in Denmark is high by international standards. Combined with concerns that property prices in Copenhagen may again be unnaturally high, a private debt bubble can’t be ruled out.
Secondly, as a small, relatively open economy, Denmark will inevitably be buffeted by wider concerns. After Ireland and the Netherlands, Denmark is one of the closest EU economies to the UK. Brexit, particularly a disorderly one, is therefore a clear risk for exporters, as is President Trump’s threats to put tariffs on certain EU goods.
Thirdly, some of the structural issues facing the Danish economy remain. For example, Denmark’s high de facto minimum wage, although providing decent pay for those in work, incentives employers to take on fewer staff at entry level positions. This is a big reason unemployment in immigrant communities, although coming down, remains astronomically high. To compound the matter, potential solutions like differentiated wage rates, or government support for certain long-term employees are anathema to trade unions.
The biggest issue remains the demographic challenges facing a country which has a famously generous welfare system. With the natural birth rate stagnating there are a number of solutions. One is immigration but, given this has been a lightning rod in Danish politics for at least a decade, few parties are willing to advocate large scale immmigration. Another possibility is an increase in taxation, but there is general agreement that one of the highest tax takes is close to its natural limit. A final option is to ration services, but that is hugely controversial in a country where meaningful government support for individuals when required is an embedded part of the culture.
Frederiksen has made a solid start, aided by the attention on the more gripping events elsewhere. Before long, though, focus will turn, and there is work to be done to ensure Denmark’s currently benign economic climate continues.