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 generous social/welfare system with hefty taxes (60 - 70 percent) required ensuring continued free medical and education services. Even with a 'socialized market economy', Denmark is very advanced with extensive government welfare measures and comfortable living standards. Denmark with a small population of 5.52 million is a very modern prosperous nation and home to a stable currency, the Danish krone.
POLITICS: Centre-right government, next election is scheduled for November 2011. Politically, Denmark is a very stable although the nation is virtually split down the middle on the euro vote issue (see below in Knowledge section). Denmark has opted out of joining the European Monetary Union. Going forward, it is likely that pressure will again surface for further integration into the European Union and ultimately joining the common euro currency zone. However, this political will maybe further delayed with the recent difficulties amongst current Eurozone countries and default risks that are prevalent in euro member countries such as Greece, Italy, Ireland, Portugal and Spain.
ECONOMY: rebounding from a deep recession from 2007-09 whereby the economy deflated real estate excesses out of the domestic economy with a corresponding drop of 20 percent in home values. As the EU’s 12th largest economy, 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 renewable energy, knowledge based industries with expansion into information technology and biotechnology.
Economic Statistics
GDP as measured by purchasing power parity is at 202 billion USD (2010) with corresponding GDP/Capita at 36,600 USD. GDP as measured by market prices came in at 311 billion USD (2010). GDP growth fell in year 2008 at 0.9 percent, 2009 fell by 5.2 percent, year 2010 at positive 2.1 percent, year 2011 estimated growth at 2 percent. Inflation quotes include year 2010 at 2.3 percent, inflation for 2011 estimated at 2 percent. Balance of payments is in surplus and the current account generally runs a surplus of 1.5 to 4.3 percent of GDP annually. Budget surplus is generally in surplus but it turned into deficit in 2009 with the recession – Denmark has one of Europe’s best fiscal overall positions. Unemployment remains in the 5 to 6 percent range. Services account for 70 percent of the economy and agriculture makes up only 3 percent of the total.
POSITIVES: healthy budget surpluses, net exporter of food, gross public debt has declined from a level of 80 percent of GDP in 1993 to the current level of 47 percent. CONCERN: demographic challenge with a rapidly ageing population with fewer workers to support retirees, 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 although year 2008 saw the emergence of a rare domestic banking system pressures due to the global financial crash during this time. Net foreign exchange assets as of May 2011 were measured at 453 billion DKK. Monetary policy is prudently managed with the krone/euro exchange link as the euro is competently managed by the European Central Bank that focuses on price stability. Central Bank rate as of December 2010 stood at 1.75 percent.
REGIONAL: European Union, Sweden, Germany, Estonia
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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 17-member euro zone, which forms the bulk of its export market.
CURRENCY: ISO symbol 'DKK', Danish kroner, krone. At time of review on March 21, 2011, the krone was valued at 5.256 DKK to 1 US dollar (USD) and/or 7.457 DKK to 1 Euroland euro (EUR). The currency exchange rate for the krone is tied to the ERM2 (European euro exchange rate mechanism) at 746.038 DKK per 100 EUR of which the krone will be maintained within a narrow 2.25 percent range on either side of its euro central parity. The rate was last adjusted in 1987. Prior to the exchange link to the euro, the krone was tied to the German Deutschmark since 1982. The euro peg with ERM2 essentially means the krone has inadvertently adopted the euro except in name. As of March 18, 20011 the krone as measured by purchasing power parity was 53 percent overvalued versus the US-dollar ('USD'). Minimal foreign exchange regulations are currently in place. The currency hit a high in May 2008 at 4.7931 DKK to the USD.
CURRENCY HISTORY: the Danish krone has been in circulation since 1875. In year 1967, the exchange rate was 7.6 DKK to 1 USD; in 1949 the exchange was 6.91 DKK. Historically, the krone is very stable with exchange valuations that include: January 2011 at 5.577 DKK to 1 USD, January 2010 at 5.216, January 2009 at 5.63, January 2008 at 5.06, January 2007 at 5.73, January 2006 at 6.15, January 2005 at 5.68, January 2004 at 5.89 DKK, February 12, 2003 at 6.92 DKK to 1 USD, December 2002 at 7.29, May 2002 at 8.10, September 21, 2000, a week prior to the euro referendum vote - the krone was at 8.67 DKK, 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.
CURRENCY FORECAST: at present, both the EUR and DKK are both overvalued to the USD at 10 percent and 50 percent respectively. However, with the rejection of the euro, the long term implication is negative as future trade relations and business may go elsewhere. Euro acceptance by other countries will continue to 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 such as Estonia did recently in January 2011. Inevitably, Denmark will be forced to join the euro as new referendum calls and political pressures increase. A revaluation of the peg to reflect purchasing power parity may occur to balance the discrepancy between euro and krone currency zones.
