Edging closer to the mainstream

Eurozone crisis puts strain on flexicurity

Denmark is often cited as the sort of dynamic, innovation-focused economy that other EU member states should emulate.

Speaking in Copenhagen on January 12, José Manuel Barroso, the president of the European Commission, said that Denmark, which will hold the presidency of the EU's Council of Ministers for the next six months, could be a “role model” for the EU.

The Danish economy has strengths. Its growth rate is forecast to be 1.4% this year, well ahead of the eurozone average of 0.3%. Government debt is expected to be around 44.6% of gross domestic product, far below the eurozone average of 90.4%. Its deficit level as a percentage of GDP is expected to be 4.5% this year and the government is confident it will be able to bring it down to 3% by 2013.

Enviable job-creation record

Denmark's record on job creation is one of its most enviable achievements. This year unemployment is expected to be 7.3%, more respectable than the average in the eurozone of 10.1%. In 2009 the rate was 6.0%, while in 2008 and 2007 it was under 3.3% and 3.8% respectively. The Danish economy has not been immune to the financial and economic crisis, and has shed 175,000 of a total of 2.5 million jobs.

But it has enjoyed labour market success because of the successful application of flexicurity, a model which combines social security provision with labour market flexibility. The system makes it easy for companies to get rid of workers in downturns, but the knowledge that they can shed surplus staff easily encourages them to take on workers to meet demand. One of the effects of flexicurity is a very high turnover of labour, with around 700,000 people moving in and out of jobs every year.

Denmark's economic success has also been built on high levels of spending in education, research and development. The country's focus on investment in green technologies has reaped benefits. Energy technologies account for around 10% of all exports.

Embarrassingly for the Danish presidency, which has made green growth one of its priorities, Vestas, the Danish company which is the world's largest producer of wind turbines, has announced it is shedding 2,300 jobs, including 1,300 in Denmark. The company blamed a slump in orders caused by the economic crisis. Barroso and Helle Thorning-Schmidt, Denmark's prime minister, said that the news would not deter the focus on green growth. But the timing of the announcement, on the day that the Commission was meeting the Danish government to discuss the presidency's priorities, dented Denmark's reputation as the economic model for others to follow.