Denmark - Future trends

Danish manufacturing remains a strong base for growth, especially as research and development help support its further extension into high-tech industry. The Danish government's support for the growing use of Internet services for both businesses and individuals bodes well for Danish flexibility and responsiveness to global market trends. Public investment in education, particularly in relation to computers and computing, also supports prospects for growing computer-related services.

Unemployment has been reduced for the present, but the main mechanism was to shrink the size of the work-force through early-retirement plans and state-funded sabbaticals. A smaller workforce drives wages up, raising production costs for many Danish businesses, which makes them less competitive internationally. This has affected Denmark's balance of payments , which has even dipped into negative territory in recent years. It is not clear what effect this will have on the economy, but if the government can manage to strike a balance, keeping inflation and interest rates low without hurting industrial competitiveness, then a small deficit may be an acceptable price to pay.

Denmark's greatest challenge for the future is due to its aging population. Its welfare and social security system will be severely strained by the demands of the growing population of elderly people and the shrinking work-force and sources of tax revenues. If nothing is changed, Denmark will not be able to maintain the standard of benefits it currently grants to its citizens. As most Danes are fiercely supportive of state guarantees of a standard of living, any government attempting to reduce those guarantees faces hostility and resistance. The current government has made some changes in the labor market (reducing and altering some benefits and pensions), but it is unclear how much the public in the highly-unionized workforce will stand for reductions in benefits or wages. The governing coalition must tread carefully if it is to make changes without seeming to compromise its commitment to material equality.

In October of 2000, Danes voted not to join the last stage of the European Monetary Union, and to keep its own currency. Despite the urging of Prime Minister Poul Rasmussen, the Danish public did not support the euro. However, the krone is still closely tied to the euro, and Denmark's economic decisions, particularly monetary ones, will be heavily influenced by the EU. Resistance to the EMU has been made more on political grounds than economic ones. There is some fear that opting out of the EMU will hurt prospects for foreign investment, which in the previous 5 years had increased dramatically in Denmark. The current government has demonstrated its friendliness to business by lowering corporate taxes and other business taxes, which may help to counteract any possible flight of investment. It is too soon to tell if either effect has come to pass.