GREENLAND Denmark, a member of the European Union (EU) is a first world wealthy industrialized nation with a modern socialized market economy. Denmark is one of the world's most liberal countries, cradle to grave gernerous social/welfare system with hefty taxes (60 - 70 percent) required to ensure continued free medical and education services. Even with a 'socialized market economy', Denmark is very advanced with high-tech agriculture, extensive government welfare measures and comfortable living standards. Denmark with a small population of 5.37 million is a very prosperous nation and home to a stable currency, the Danish krone.
POLITICS: very stable although the nation is virtually split down the middle on the euro vote issue (see below in Knowledge section). Prime Minister Anders Fogh Rasmussen of the centre-right Liberal party is in power since November 27, 2001 supporting a platform of tightening up immigration and a cap on taxes. Denmark has opted out of European Union's Maastricht Treaty.
ECONOMY: very stable with sound economic fundamentals as price stability has been paramount with inflation averaging 2 percent since 1997. Denmark has a top sovereign credit rating. The government is successful in meeting third phase of convergence criteria for EMU (European Monetary Union). Denmark is an export driven economy that has produced surpluses for years. Industries include pharmaceuticals, chemicals, textiles, food processing & high tech agriculture, shipbuilding, extensive fishing industry as Denmark has one of the world's largest commercial fishing fleets and is also home to a large merchant marine. Denmark's economy is well diversified and is not reliant on any one particular industry or commodity for revenue. In fact, its light industry component is home to a large number of small firms that are flexible and able to meet any changing economic need quickly. Future revenue growth will come in areas of energy -wind, knowledge based industries with expansion into information technology and biotechnology. Appreciation of the euro/krone relative to the US-dollar will not impact Denmark's economy significantly since major trading partners include Germany and Sweden.
Economic Statistics
GDP as measured by purchasing power parity is at $155.5 billion USD (2002) with GDP/Capita at $29,000 USD (2002). GDP growth estimate for year 2003 is 2.4 percent for a high, GDP growth for 2002 came in at 1.8 percent, 2001 at 1.2 percent. Low CPI inflation at 2.3 percent for 2002 and is projected to remain low at the 2 percent level. Balance of payments are in surplus and the current account surplus for 2003 is projected at 2 percent of GDP. Budget surplus for 2003 is estimated at 2.2 percent of GDP. External debt is at $21.7 billion USD (2000). Unemployment is in the 5 to 6 percent range. Net energy importer - primarily coal and Denmark is also a net exporter of food. Services account for 70 percent of the economy and agriculture makes up only 3 percent of the total.
POSITIVES: marginal tax rates to be lowered for corporations, healthy budget surpluses, excellent communication - modems & cellular phone availability, gross public debt has declined from a level of 80 percent of GDP in 1993 to the current level of 50 percent. CONCERN: demographic challenge with a rapidly ageing population, high taxes - 'brain drain', high level of taxation may discourage entrepreneurialism with Danish tax rates that are 50 percent higher when compared to other OECD countries except for Sweden, very generous welfare state, affordable over the long term?
BANKING SYSTEM: modern, stable and advanced. January 2003 official reserve assets stood at $28.8 billion USD. Monetary policy is prudently managed with the krone/euro exchange link as the euro is competently managed by the European Cental Bank that focuses on price stability.
REGIONAL: European Union, Sweden, Germany
Denmark is surrounded by very wealthy OECD countries which compliments its high standard of living.
KNOWLEDGE: Denmark decided not to join the 11 other EU members who launched the euro on 1 January 1999. On September 28, 2000, a national referendum in Denmark voted down the option of solidifying Denmark's relationship with the EU. The people of Denmark said NO to replacing the krone with the euro as the new national currency for Denmark. The vote was rejected by 53 percent for the 'No' side in favor of keeping the krone. With this rejection for the euro, the Danish government will stay consistent with the krone by maintaining participation to the krone's fixed exchange rate policy toward the euro by keeping to a close band tied to ERM2. The voters supporting the NO side tend to be those in favor of protecting the welfare state, politically leaned to the left. The YES camp won the support of the business community and tend to lean to the right politically. Opponents/no forces to the euro suggested that the euro would threaten Denmark's extensive welfare state and lead to an erosion of sovereignty with more powers to the EU headquarters in Brussels, Belgium and to the European Central Bank based in Frankfurt, Germany.
Membership to the eurozone would have offered Denmark enhanced economic stability. Denmark must now maintain prudent public finances to help keep any interest rate premium to a minimum since it has decided to remain outside of the euro. The prevailing view by the YES side was the feeling that the closer connected to the EU that Denmark is, the better off economically since the majority of Denmark's trade is with the EU, particularly with Germany & Sweden. Denmark ties its fiscal and monetary decisions to those made by the current 12-member euro zone, which forms the bulk of its export market.
CURRENCY: ISO symbol 'DKK', Danish kroner, krone. At time of review on March 14, 2003, the krone was valued at 6.956 DKK to 1 USD. The currency exchange rate for the krone is tied to the ERM2 (European euro exchange rate mechanism) of which the krone will be maintained within a narrow 2.25 percent range on either side of its euro central parity. Prior to the exchange link to the euro, the krone was tied to the German Deutschmark since 1982. The trading band/range to the euro from January 1995 has fluctuated from a high of 7.11 DKK to 1 EUR and to a low of 7.56. Since the Danish krone is tied to the euro, its global value will be highly correlated to euro valuations. The euro during year 2000 did experience exchange volatility when compared to the USD. Moreover, the krone rides the same tide for this exchange movement. On September 21, 2000, a week prior to the euro referendum vote - the krone was at 8.67 DKK to the USD while back in January 2000 the exchange rate was at 7.33 DKK to 1 USD. As of March 14, 2003, the krone as measured by purchasing power parity was 22 percent overvalued versus the US-dollar ('USD'). Minimal foreign exchange regulations in place.
CURRENCY HISTORY: the Danish krone has been in circulation since 1875. Historically, the krone is a very stable with exchange valuations that include: February 12, 2003 at 6.92 DKK to 1 USD, December 2002 at 7.29, May 2002 at 8.10, October 2000 at 8.73, May 2000 at 8.22, year 1999 at 6.9, 1998 at 6.7, 1995 at 5.6, 1993 at 6.4, August 1992 at 5.57, July 1991 at 6.9 and January 1991 at 5.8 DKK to the USD. The recent appreciation of the krone versus the USD is directly correlated to the fact that the krone is tied to the euro of which the euro has appreciated by approximately 20 percent percent versus the weakening USD over the last year.
CURRENCY FORECAST: the 1 year forecast has the krone at 6.5 DKK to the USD as a high, conversely, at 7.5 DKK to the USD as the low. The euro is expected to continue to modestly appreciate further to the declining USD as the United States is in a most precarious financial situation with massive twin deficits (fiscal and current account deficit running at 5 percent of GDP). The near term will see both the krone and euro appreciate versus the USD. However, with the rejection of the euro, the long term implication are negative as future trade relations and business may go elsewhere such as the case with Sweden if they should decide to join the euro later in year 2003. Rejection of the euro is sending a negative signal to the European community and may isolate Denmark economically in the years to come as many central and eastern European nations 'new competitors to Denmark' accept to join the common euro currency union. Inevitably, Denmark will be forced to join the euro as new referendum calls and political pressures increase. UPDATED: March 14, 2003
