Denmark set to win accolade for taming budget

Date: 18/04/1996

DENMARK, one of the two member states entitled to opt out of a future monetary union, looks set to join the honoured list of countries deemed to have tamed its budget in line with the Maastricht Treaty.

While the German government can expect to be included on the list of EU countries with 'excessive deficits' this year, Copenhagen is likely to receive a thumbs-up from finance ministers for its sustained efforts to rein in government spending and public debt.

All other member states - with the exception of Luxembourg and Ireland - are almost certain to be censured under this year's 'excessive deficit procedure', leaving them just two years to satisfy the entry rules for membership of the single currency bloc.

The annual inquiry began yesterday (17 April) when Economics Commissioner Yves-Thibault de Silguy informed his colleagues that all the necessary data had been supplied by member states and the two-month procedure could begin.

The investigation, under Article 104c of the treaty, calls on the Commission to “monitor the development of the budgetary situation and of the stock of government debt in the member states with a view to identifying gross errors”.

Using figures supplied by member states in February, the Commission must examine the overall budgetary performance of each member state, taking into account economic growth trends, how much is spent on investment and its government's medium-term plans.

The bottom line for each member state is that its budget deficit should be close to 3&percent; of gross domestic product and its public debt approaching 60&percent; “at a satisfactory pace”. However, the Commission may also consider whether governments look likely to sustain their performance in the near future.

In 1994, the Commission upset German Finance Minister Theo Waigel when it included Ireland on the list of countries deemed to have met the targets even though its stock of public debt topped 91&percent; of GDP.

This was because the Irish deficit had been kept below 3&percent; for four years and the stock of debt had been cut steadily from more than 118&percent; of GDP as recently as 1987.

The Commission felt that Dublin had to be rewarded for this extraordinary performance, a sentiment likely to be repeated for the Danes.

After all, Copenhagen has managed to hack away at the deficit, bringing it down from 4.9&percent; of GDP in 1994 to 1.5&percent; last year and a forecast 1.0&percent; this year. Moreover, unlike some countries, it is reducing the deficit in money terms from 1.98 billion ecu in 1995 to 1.36 billion ecu by the end of this year.

The Danes could not be rewarded last year because, it was felt, their public debt had only been declining for one year. But now Copenhagen can boast a reduction in the debt-to-GDP ratio from 80&percent; in 1993 to 72.1&percent; in 1995 and it is forecast to fall to 71.3&percent; this year.

The only threat to a clean bill of health for Denmark comes from criticism from private-sector economists that fiscal tightening of 0.3&percent; of GDP in 1995 and of 0.5&percent; in 1996 are insufficiently ambitious.

Nevertheless, once Commission recommendations have been made to the monetary committee on 28 May and then to the June meeting of finance ministers, Waigel is unlikely to complain about exempting the Danes from censure.

Waigel has already indicated his willingness to punish himself.

Germany, which was exempted last year, overshot its 1995 targets and reported a deficit of 3.6&percent;. Even the 26-billion-ecu budget-cutting package designed to offset falling tax revenues, due for publication on 25 April, will make little difference to the 1996 German deficit forecast of 3.5&percent; of GDP.