Denmark 2010 - Challenges after COP15

 Analysis and comments by

Globalist and Business Cycle Analyst Jorn Thulstrup, MA (Econ)  

The COP15 Climate Conference held in Copenhagen in December, fuelled by political and economic special interests and enthusiastically embraced by Danish media, preoccupied people in this country far more than the rest of the world. For a lengthy period of time, leading Danish politicians and commentators seemed to be suffering from the illusion that, in terms of climate and energy, Denmark could rule the world. A widespread perception flourished that Denmark, as host of COP15, could create some kind of platform to market Danish technology, especially wind energy and enzymes used in the production of bio-ethanol.  

Eventually, as expected, the concluding 'Copenhagen Accord' failed to live up to the exaggerated expectations and only confirmed the scepticism we expressed in August 2009. "But it does make anything more than a symbolic agreement extremely difficult and the COP15 Climate Conference in Copenhagen risks being a ritual event, on a par with The Kyoto Accord that ultimately has had no real influence on the world's CO2 emissions". 

Hosting the Climate Conference cost Denmark around a couple of billion kroner, but there are much larger indirect costs to be taken into account. COP15 tied up cabinet ministers, official business and the police for such a long time, and to such an extent, that many serious political and economic issues were neglected - Prime Minister Lars Løkke Rasmussen and his predecessor Anders Fogh Rasmussen, have taken their eye off the ball for the past two years. 

The disappointing organisation and outcome of COP15 has damaged Denmark's reputation as a country capable of hosting major events - with the exception of the police and security authorities who successfully managed to prevent serious riots breaking out. Fortunately, Copenhagen was free of the widespread destruction and vandalism that many had feared, but at the same time the crime rate has risen because the police, concentrating on COP15, haven't had sufficient resources for investigation and crime fighting 

The failed expectations of COP15 are disappointing, but only the tip of the iceberg. As the OECD, the Economic Council, and even the Ministry of Finance in its most recent reports, have pointed out, Denmark is facing some very serious challenges. The global economic crisis has left its mark throughout the country. Years of budget surpluses have been transformed into deficit in the necessary effort to prevent a collapse of the financial sector and limit growing unemployment.  

There's no doubt that everybody in Copenhagen, from the Prime Minister to the man on the street, breathed a sigh of relief when the thousands of delegates returned home and Christmas appeared. However, the Prime Minister hasn't had long to dwell on things, as his New Year speech to the nation showed. 

Domestic focus
The government is now focussed on the domestic agenda with the aim of securing a political platform that will lead to victory at the next general election, to be held sometime before November 2011. It's an election that can only be won if the government is able to convince voters that it's more capable than the opposition of solving the numerous problems that lie ahead, and even though that could prove difficult it's not impossible. The opposition, which recent polls show has gained a slight lead, still doesn't appear to present a viable alternative. Opposition leader Helle Thorning-Schmidt is inexperienced and has never had the responsibility of a cabinet posting, and pretty much the same can be said for the potential minister candidates put forward by the Social Democrats and Socialist People's Party.  

Small country, big ideals
Even though we'd like too, Denmark can't control developments in the world economy. We have to accept the reality of what's happening out there by focussing on domestic developments and the top priority is to restore economic growth. This requires an increase in exports but it could prove difficult for us to exploit the expected growth in our main export markets this year. The disappointing outcome of COP15 meant that green energy exports didn't get the international boost that has been forecasted - the thousands of NGO's, who were close to strangling the climate summit, don't have the authority to purchase windmills, enzymes or other environment related products. 

Another, more serious problem, is Denmark's inability to compete. Major wage hikes in this country and devaluation in many other countries have made Danish goods and services too expensive. Unfortunately, we haven't been able to compensate with an increased and more effective work effort - in fact, quite the opposite. Possibly, as a society, we just haven't taken the crisis seriously enough. Things have gone well for years and we appeared, after years of balance of payments and budget surpluses, capable of managing any setback .As Minister of Finance at the time, Thor Petersen, said in 2006: 'If the positive economic developments continue, in a thousand years we'll be able to buy the world". It was said tongue in cheek, but the quote has since been used on many occasions as a sign of Denmark's ability to overestimate itself. 

We've heard, and often been told, that we're the 'world's happiest people'. Time and time again politicians have told us that we're one of the world's richest nations and should be able to improve living conditions for ourselves and the rest of the world.  

The problem is, we're no longer wealthy or even very industrious. Ten years ago we were around 5th or 6th in the world rankings - now we've sunk to 11th-12th. The Welfare Commission, Labour Market Commission, Economic Council, have for years warned of the problem of lack of qualified manpower. Compared to other countries we have a high percentage of the population in the workforce, because many women work outside the home, but we just don't work enough hours per week, per year, or during a lifetime. For most people it's a case of short working days, long holidays, and a high amount of sick leave. Those under education take too long to become qualified and too many people retire early - at the state's expense. More and more are failing to contribute anything to production and are being supported by fewer and fewer. Over 800,000 people between the ages of 15 and 66 are now either taking an education or receiving some form of state-funded pension. Add to his around 180,000 unemployed and it means that nearly a million people, or a third of the potential labour force, is out of work, compared to just one in four eight years ago. And it's going to be worse in the coming years. 

At the same time, those in work suffer from low productivity - they don't work hard enough to cover their costs. This is a culture that has to change, but it will take time. It requires better training, education, leadership and more effort in the workplace. Unfortunately, the latter isn't a top priority for the trade union movement or wage earners. 

Slight progress in 2010
The immediate conclusion seems to be very little change in Denmark in 2010, in terms of economic growth. The majority will enjoy tax relief and those with variable mortgage loans will pay significantly less in interest than they did last year but there'll be no spending boom. Most people will act sensibly by increasing their savings and reducing their debts. This will maintain a balance of payments surplus and prevent speculation against the Danish krone, which is fairly positive, but on the other hand modest spending won't lead to more employment. 

The 'Wise Men of the Economy', alongside OECD expect modest 1.5 - 2 per cent growth in private spending this year. I don't believe it will exceed 1 per cent and it could even be lower. Constantly rising unemployment will continue to put a damper on growth. I agree with the pessimistic forecast of zero growth in exports but if events abroad go wrong, such as war or a major hike in oil prices, then we could experience a fall. However, there's a greater possibility of the price of oil falling, due to low global growth and energy cutbacks.  

A world at peace
The risk of something going seriously wrong abroad is however modest. Despite war and turbulence in a number of countries we're living in a relatively peaceful world, with no serious superpower conflicts. Neither the USA, China, Japan, Russia, nor other major nations would go to war with each other. There's too much mutual dependency to be maintained. We will continue to experience regional war and acts of terror, primarily in Asia, the Middle East and Africa, but nothing that could develop into world war. The greatest threat to peace, and thereby economic progress, is the possibility of Israel bombing Iran to prevent the development of nuclear weapons, but it's also an unlikely scenario.  

Growth in the global economy
The Consumer Demand Index (CDI), our survey of consumer behaviour in the USA, which celebrates its 10th anniversary in February this year, reflects positive signs for economic developments. The index, which provides a more definite forecast of private spending in the US than other indicators, has moved positively from minus 37 in February 2008 to plus 25 in December 2009. American consumption continues to be the locomotive of the world economy and if this positive tone continues we can expect to see increased growth in the world economy this year. 

Jorn Thulstrup 

Owner, CEO and publisher of News ex-press and Consumer Demand Index