31-03-2023 08:02

Danish finance minister eyes ‘golden opportunity’

Denmark’s finance minister, Nicolai Wammen, spoke to institutional clients at Nordea’s recent symposium on the Danish economy and government debt. He highlighted the strength of the economy but also the need to tackle some big challenges ahead.
Christiansborg Palace, Copenhagen

The Danish economy is in a strong position, but that doesn’t mean policymakers can lean back. That was the message from Denmark’s finance minister Nicolai Wammen, speaking at a recent event for Nordea’s institutional clients in Copenhagen.

“We have some very big challenges ahead,” he said. “We’ve gained speed approaching the foot of the mountain. Now we need to go up the mountain.”

He underscored that the unique composition of the current Danish government, bridging the left-right divide for the first time in recent history, provides a “golden opportunity” to tackle those challenges with meaningful reforms.

Danish economy on solid footing

Wammen started off by highlighting Denmark’s economic successes. The country weathered the COVID-19 pandemic better than many feared. He attributed the strong and rapid recovery, in part, to the government aid packages rolled out when the pandemic hit.

“Go big and go fast,” was the mantra that the finance minister used in an interview with CNN at the start of the pandemic, when Denmark was an early mover in providing aid for businesses and individuals. The result was that Danish businesses could hold on to their employees instead of firing them, which allowed companies to ramp up again quickly and take advantage of the upswing, according to Wammen.

He noted that employment remains high, although the hot labour market is cooling down, with unemployment rising from a low level. Inflation is still high but on the way down. Wammen said he expects inflation to continue to fall in 2023, although much depends on what happens in the rest of the world. Public finances and government debt are also in good shape, he added.

Denmark's Minister of Finance Nicolai Wammen and Nordea Group Chief Economist Helge Pedersen
We have a unique opportunity to  make decisions in this country, which we haven’t seen in the same way in many, many years.

A ‘unique opportunity’ to pass reforms

Looking to the future, Wammen highlighted a number of significant challenges for Danish society:

  • Meeting Denmark’s ambitious climate goals, which include climate neutrality by 2045 and reducing emissions by 110% by 2050 compared to 1990
  • Demographic challenges, with around 125,000 more elderly over 69 and 50,000 more children under 7 by 2030
  • A welfare system under pressure, with psychiatric services lagging behind
  • Helping those hit hardest by inflation without fanning the flames
  • A shortage of labour in both the public and private sector
  • A NATO commitment to boost defence spending to 2% of GDP by 2030

Just hours after the Nordea event, the Danish Parliament was set to vote on a controversial proposal to abolish the public holiday, Great Prayer Day (Store Bededag). The government has said that cancelling the holiday will provide an extra 3 billion DKK to go towards the country’s defence budget. The proposal had met opposition from trade unions, religious leaders and opposition lawmakers.

Wammen said the benefit of having a coalition government that spans the left-right divide is the ability to make unpopular political decisions in order to futureproof the Danish society.

“We believe we have a duty to do that,” he said. “We have a unique opportunity to  make decisions in this country, which we haven’t seen in the same way in many, many years.”

After fielding questions from the audience, Wammen left to make it back to Christiansborg in time for the vote, which he said was “expected to be quite close.”

The vote came down 95-68 in favour of eliminating the public holiday.

A closer look at Denmark’s government debt

The event, “The Danish economy and sovereign debt symposium,” took place on 28 February 2023, and also featured Martin Wagner Toftdahl, Head of Banking and Markets at Denmark’s National Bank.

Wagner Toftdahl discussed the development of Denmark’s central government debt, noting that it fell to 323 billion DKK in 2022, just shy of 12% of GDP. Denmark has maintained the highest credit rating (AAA) with a stable outlook, thanks to sound public finances and low debt.

He also delved into the Danish government’s funding strategy and primary market as well as how it is working to support a well-functioning market. The government maintains a diversified palette of products, matching a diversified investor base, Wagner Toftdahl said.

One of those is the green twin bond, first launched in 2022, for which Nordea was the structuring advisor. Following the twin bond principle introduced by Germany, the bond has the highest possible environmental rating (dark green) and was structured based on the EU Taxonomy, a classification system for sustainable economic activities. Denmark plans to launch another green twin bond later this year.

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