Country Report Denmark July 2008

Outlook for 2008-09

• The minority Liberal-Conservative coalition has only a slim parliamentary majority with support from the Danish People's Party (DF), but will seek broader alliances to pass important legislation.
• The government will need to offer concessions, particularly to the DF, to steer a number of politically sensitive pieces of legislation through parliament.
• The government wants to hold referendums on scrapping Denmark's EU opt-outs from defence, judicial policy and the euro, though uncertainties over the future of the EU's treaty of Lisbon mean that a vote is now less likely in 2008.
• Reform of the welfare system and income taxes will dominate the policy agenda. The government will seek to address labour shortages, but will have to respect agreements with the DF on maintaining tight immigration controls.
• Fiscal policy will be mildly expansionary. Spending on public services is set to rise. Income tax has been cut in 2008 and will be reduced further in 2009.
• The Economist Intelligence Unit expects economic growth to remain below 1% in 2008-09. Turmoil in global financial markets means that there are major downside risks.

Monthly review

• The Danish Institute of International Studies (DIIS) has published a report, commissioned by the government, examining the consequences of removing Denmark's opt-outs from the EU's Maastricht treaty.
• Ireland's rejection of the EU's Lisbon treaty in a referendum on June 12th has cast doubt on the Danish government's plans to hold its own referendum this year on removing the opt-outs, although a single vote on defence is possible.
• The pay disputes between nurses and child-care workers and their local government employers were resolved in June, ending an eight-week strike.
• The government has reached agreement on the 2009 budget with representatives of the municipalities and the Danish regions. The agreements were broadly in line with the budget outlook published at the end of May.
• New legislation to close a loophole in the tax system will curb foreign investors' ability to conduct tax-free research in Denmark.
• The latest national accounts data suggest that Denmark was suffering a "technical recession" at the start of 2008, following two successive quarterly contractions of real GDP growth.
• Rising food and fuel prices pushed the inflation rate to 3.4% year on year in May. Private-sector wages grew by an average of 4.3% in the first quarter.