Danes Ready to Ditch Premier as Crisis Wrecks Election Vows

Danish voters are ready for a change of government one year after electing Helle Thorning-Schmidt as the first Social Democratic prime minister in a decade.

Support for the 45-year-old has dropped to 33 percent, versus 52 percent for opposition and Liberal Party leader Lars Loekke Rasmussen, according to a poll by Megafon published on Sept. 3. Only 21 percent of voters think she’s a good leader, a Sept. 5 poll for Ritzau by Voxmeter showed. Denmark’s first female premier is even losing backing among women, with 51 percent supporting the opposition, according to an Aarhus University review of Gallup polls.

Thorning-Schmidt is being punished for failing to deliver on an election promise to lead Denmark out of a slump triggered by its 2008 housing collapse. Instead, she’s reining in spending as the economy heads for its second recession in less than a year. That’s sparked disagreement within the ruling coalition, exposing political rifts as voters who were expecting more welfare spending turn their backs on the government.

“Thorning failed even before the election as her campaign said nothing of welfare services having to be cut, leaving her electorate unprepared for the meager years they had in store,” said Jacob Kirkegaard, a research fellow at the Washington-based Peterson Institute for International Economics, in a phone interview.

Backtracked

The premier has backtracked on key election pledges that propelled her into power in September 2011, including cutting bus fares and resurrecting a $2.5 billion early retirement program. She also pushed reforms to keep Danes at work two years longer until 67 and curbed municipal spending, which had caused budget overruns for more than a decade.

To blame for the about-face is Europe’s debt crisis and its corrosive effect on exports, the government says. The second- quarter GDP report, which revealed a 0.5 percent contraction from the first three months, showed the biggest drag on the economy was a 4.2 percent slump in business investment as companies cut purchases of machines, software and construction materials in anticipation of faltering demand. Households spent 0.9 percent less than in the first quarter.

Thorning-Schmidt’s government on Aug. 27 unveiled a budget with plans to cut the deficit in half next year as it reduces corporate subsidies by 2 billion kroner ($340 million) and raises corporate tax revenue by 5.8 billion kroner. The minority coalition also said it will reduce its domestic borrowing need by 29 percent in 2013 as the deficit is cut to 1.9 percent of gross domestic product.

‘Hasn’t Explained’

“The government hasn’t explained to its electorate why it reneged on election promises, and Social Democrats can’t recognize the prime minister they voted for,” Peter Hummelgaard Thomsen, the former head of the Social Democratic party’s youth wing, said in an interview.

Where Thorning-Schmidt has failed with voters, she’s succeeded with investors and her hard-line approach on spending has helped Denmark emerge as a haven from Europe’s debt crisis. The AAA rated country’s central bank has cut its deposit rate below zero as it seeks to ward off a capital influx that’s threatening the krone’s peg to the euro. Denmark’s two-year yields are negative, meaning investors pay for the privilege of lending the country money.

Fitch Ratings analyst Maria Malas-Mroueh said yesterday the country’s AAA rating and stable outlook are safe thanks to the government’s prudent fiscal policies. The rating company estimates Denmark’s budget deficit will be within the European Union’s 3 percent threshold in 2013 and 2014.

The premier said in a texted reply to questions on Aug. 27 that the government will get rid of its budget deficit in the “medium term” as economic growth picks up in the Nordic country.

Red Green

Her handling of the economy, as well as the European Union presidency in the first half of 2012, won approval from analysts. A survey of 78 economists published in the summer by Copenhagen-based daily Borsen ranked her economic policy above any proposals by other Danish political parties.

Voters, in contrast, would give her three-party coalition - - which rules with the backing of the Red Green Alliance -- 77 seats in parliament, compared with 98 seats for Rasmussen’s Liberal-Conservative coalition, the Voxmeter poll showed. The next election is due in 2015.

The push for austerity has led the Red Green Alliance, which wants banks to be nationalized and unemployment benefits to be broadened, to threaten to withdraw its backing. Thorning- Schmidt’s Social Democrats rule with the Socialist People’s Party, which want increased spending, and the more tax-cut- friendly Social Liberal Party.

Tax Cuts?

Margrethe Vestager, the economy minister and leader of the Social Liberals, said on Aug. 29 after the budget was unveiled that the government may need to reconsider its tax increases to boost growth. “We will approach the budget negotiations with an open mind and are willing to discuss any proposal that strengthens the Danish economy,” she said.

The Confederation of Danish Industry has also criticized the government for failing to support employers through its taxation policy.

“This government has done half right as reforms will boost labor availability, while it is still short of doing anything to cut costs for businesses allowing us to create jobs,” said Kent Damsgaard, the policy director of the confederation, the biggest Danish employer lobby. “That’s what’s puzzling people as they may have to work longer but the government hasn’t created any jobs for them.”

Thorning-Schmidt said she regrets that her government “simply didn’t do a decent job of explaining itself” to voters, in an interview with Jyllands-Posten, published Aug. 10. “We did too much, and it was difficult to find the time to tell people why we were doing what we did.”

Contract Breach

The economy Thorning-Schmidt inherited from her predecessor put her “on par with southern European leaders,” Kirkegaard said. “What Thorning-Schmidt has done is straight out of the textbook for what peripheral crisis economies must do.”

Danish voters had been accustomed to 10 years of a tax- freeze and spending increases under Rasmussen and Anders Fogh Rasmussen before him. Both leaders had followed a strict program of so-called contract politics, enacting laws flagged to voters years earlier.

“Many voters sees what the government has done as a breach of a contract,” said Simon Kleis Nielsen, a lecturer at Roskilde University. “That’s how most voters would perceive it after the years with Fogh Rasmussen.”

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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