Danes Told to Abandon Unfunded Welfare Expectations After Crisis

Denmark’s government said it can’t afford to provide welfare services for which there’s no funding as Scandinavia’s weakest economy deals with the aftermath of the financial crisis.

Providing either social benefits or tax cuts without first finding the financing is “per default a bad idea,” Finance Minister Bjarne Corydon said yesterday in an interview at the parliament in Copenhagen.

Denmark’s budget deficit will reach 3 percent of gross domestic product next year, testing the limit tolerated under European Union rules, the Finance Ministry said last month. Though the AAA-rated nation was only just removed from a list of countries monitored by Brussels for breaching budget rules, Danske Bank A/S has warned Denmark may find itself on the list again as a sluggish economy bloats the deficit relative to GDP.

The nation has shown some signs of emerging from the fallout of its 2008 housing bust, which set off a 20 percent decline in property prices through last year. A report in May showed consumer confidence rose to its highest since 2007. In the first quarter, the economy expanded 0.9 percent, trouncing the 0.6 percent estimate in a Bloomberg survey of economists. GDP contracted 0.5 percent in the fourth quarter.

Corydon’s comments were underscored by Prime Minister Helle Thorning-Schmidt, who told lawmakers yesterday her administration won’t conduct economic experiments that risk its fiscal credibility. Her cabinet targets creating more jobs and welfare through a “balanced” policy, she said.

“We are stretching ourselves as far as we can,” Corydon said. “You need to stimulate as much as you can considering the framework you’re in. The big news these days is that it turned out to be a wise thing to do.”

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