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Danish Retirement Repayment Surge Fails to Boost Spending

Denmark has repaid 53 percent more than it predicted from a change to an early retirement program, funds that so far have failed to spur consumer spending.

The government has repaid 27 billion kroner ($4.7 billion) in premiums, according to Lea Willumsen, a section head at the National Labor Market Authority. That compares with the 17.6 billion kroner the government had expected to repay, she said in an e-mail in response to questions.

“This hasn’t had any visible effect,” said Steen Bocian, chief economist at Copenhagen-based Danske Bank A/S, the country’s largest lender. “As long as the housing and labor markets are shaky, people will be hesitant to spend.”

Denmark is struggling to emerge from a burst real estate bubble that’s forced the collapse of a dozen banks and an industry retrenchment that’s triggered a funding squeeze among businesses and falling employment. Property prices have sunk about 25 percent since their 2007 peak, and will decline 3.5 percent on average, the government estimates.

“If you look only at financial wealth, excluding pensions and including housing, you’ve had quite a substantial kickback in the wealth level,” Bocian said.

Danes faced an Oct. 1 deadline to decide whether to get the premiums back tax-free. Today’s figure is preliminary and final the tally is expected by the end of this month, Willumsen said. Standard & Poor’s estimated in July the reimbursements alone would make up 19 percent of this year’s government deficit.

Not Clear

Spending data shows the reimbursements haven’t galvanized consumers, according to Jes Asmussen, chief economist at Handelsbanken AB. The value of transactions using Dankort, a nationwide debit card, fell 0.3 percent in September when corrected for seasonal swings and increased use, he said.

“There is no clear sign that the money is being sent further into the Danish economy in the form of higher consumption,” Asmussen said in a note. “Based on developments in consumer confidence, the reimbursements haven’t lifted households’ assessments of their economic situation either.”

Still, the intention of the changes, which was to reduce future expenses, is working, Bocian said.

“The main aim was to reduce future payments, to strengthen the sustainability of the welfare state,” he said. “From that perspective, it has been a huge success. Fewer people will be able to retire early, so there will be fewer payments in the future.”

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