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Adrian Dragin, 3^rd year student of the faculty of International relations and geopolitics, Institute of World Civilizations, Moscow

Abstract: This article analyses economic problems in the sector of social policy in Denmark and actions to resolve these problems. One of the methods for solving these problems can be the entry of Denmark into the eurozone. The result of such actions will reflect in the empowerment of the national bank of Denmark to resolve the internal financial problems. Thus, it will give a rise to even greater economic stability of the state and will facilitate trade relations with the eurozone countries, which are Denmark’s main economic partners.

Keywords: Denmark, social security, Europe, eurozone

Many countries are discussing the ways to improve market mechanisms and social security policies. Some states prefer to talk about the ways to expand social security programs, while others say that this can lead to the deterioration of economic growth.

But the solution of this issue can be found by analyzing the successes in the economy of Denmark, Norway, the Netherlands and other countries. The Nordic countries manage a successful combination of social security with high incomes, stable economic growth and overall economic stability.

It should be noted that there are differences between the Scandinavian states. For example, social security spending is higher in Denmark, Netherlands, Norway and Sweden, and slightly lower in Iceland and Finland. A large level of taxation makes it possible to subsidize the state system of health care, education, pensions and other social services that is displayed in a low level of poverty and a small gap in income among the population.

The Danish economy seems to be very successful. The result of the impact of negative interest rates was: GDP per capita is higher than in 2007; The labor market is close to absolute employment rates; financial inequality is below average for Europe. However, there are some pitfalls here too. The Danish economy was affected by some potential threats in the years of ultra-low rates, and some of them are still in use today.

In the Nordic countries, there is a peculiar model of the state structure of the social democratic type, where the principle of universalism prevails in the provision of social services organized and financed by the state. This model of government was called “universal welfare” (Wohlfahrtsgesellschaft). This type of social policy was formed in a limited circle of countries, primarily Scandinavian. The necessary conditions for the formation and improvement of this policy were and still are the atmosphere of civil peace and the high political culture of the people. This model of social policy can function only with a high degree of socialization of national income. Here the principle is realized: from everyone – whenever possible, to each – according to needs. A distinctive feature of this system, compared with similar systems in other European countries, is the greater responsibility of society for solving social problems. In this regard, society plays a major role in regulating and fulfilling requirements aimed at ensuring satisfactory social security.

Denmark is a small country with a population of about 5.7 million people, staying between state members of the eurozone or states that have their own currency directly associated with the euro. The economy of the northern state is largely dependent on the eurozone: Germany acquires 17% of Danish export goods; France, Italy and the Netherlands are the main importers. The persistence of a stable relationship between the Danish krone and euro is an essential thing to the economy and the export sector of this state. The National Bank of Denmark must implement decisions aimed at euro rather than internal factors, which can provoke imbalances.

For a stable balance between krone and euro, the Danish state bank should not just determine rates of 0% or lower but also invade the foreign exchange market to increase the amount of the Danish krone. These interventions could led to an impressive increase of foreign exchange reserves and prevent the growth of the krone against the euro, but also it could increase the liquidity and money supply of Denmark, which implies a significant risk to asset prices. But financial assets are not the only thing that can be of excessive value.

In the period of low interest rates after the crisis, the cost of housing increases and this begins to resemble an economic bubble in the mid-2000’s. For this reason, serious measures are being taken, such as requiring greater financial stability for the buyer, who wants to take housing in a mortgage.

Even though families and Danish firms are making efforts to achieve a reduced level of debt in recent years, low interest rates have conflicting consequences. On the one hand, this simplifies the repayment of debt with an unstable rate, but also increases the demand for credit. Thus, private debt in Denmark remains above 200% of GDP, which is much higher than in many European countries.

In the beginning of 2018, the Danish Minister of Finance asked the European Central Bank to stop the incentive program, as there was a risk of financial “overheating”: there was a tightening of Danish financial and credit policy, while its economy was growing more than its capabilities, the labor market experienced the lack of human resources. Not only Denmark, but also several other states in the euro area, especially Germany, are in a situation of absolute employment and low interest rates, which form a threat of overheating and pressure on wages. The situation is that nominal wages in Denmark grow moderately, and real incomes rise above historical rates from the beginning of 2015.

At the beginning of this century, Denmark became the first country of the European Union, whose citizens opposed the transition to a single currency through the referendum. During the voting in 2000, 53.2% of Danes spoke against the euro. Thus, the Danish krone, introduced back in 1873, is still the country’s monetary unit. From the old EU countries at that time, the UK and Sweden also refused to switch to the euro. However, a survey of Danish residents in 2007 showed that 52% of the country’s inhabitants are no longer against the transition to the euro.

It is possible that Denmark’s entry into the eurozone may be a way out of the potential problem, but it will also have its own negative consequences, which can be seen in the case of other countries that previously switched from their national currency to the euro. One of the first problems will be an increasing of prices for consumer goods, but the level of wages will remain at the same level, which will be the most unwelcome, because it could engender mass protests concerning the wrong policy by the current state bodies.

However, there are positive sides to entering the euro area, this can help solve the potential economic problems discussed in this article. The central bank of Denmark can be able to change the course of maintaining the stability of the Danish krone to the euro into a simpler regulation of national capital, which is certainly the best economic situation for country if assume that other economic sectors will remain at the same high level.

Bibliography

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