20th Oct 2016

Danish answer to euro-crisis: make workforce more flexible

  • Prime Minister Thorning-Schmidt still believes in green technology, despite the recent lay-offs (Photo: Valentina Pop)

Workers who are easy to hire and fire, unemployment benefits linked to job hunting, a higher retirement age - Danish economists say these measures are essential for the eurozone's recovery, even though their country is also experiencing a rise in unemployment.

The key word is "flexicurity". First coined by then Danish prime minister Poul Nyrup Rasmussen in the 1990s, the term refers to a welfare model that combines social security with a flexible work force, making it easy for employers to hire and fire staff.

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"Flexicurity is part of the solution to Europe's problems. You can't find anywhere a drop in unemployment without a flexible labour market," says Per Callesen, the governor of Denmark's national bank.

Speaking on the same panel in Copenhagen on Thursday (12 January), Nordea bank strategist Henrik Drusebjerg recalled that in the 1980s, Denmark was seen as a bad example: high unemployment rates, huge deficits and soaring debt.

"In the 90s, we passed several labour market reforms and moved to fix the exchange rate to the euro, which restored Denmark's credibility. It took a while, but it showed that structural reforms pay off," he said.

He conceded that passing reforms co-ordinated at eurozone level has become increasingly difficult for leaders, who run into resistance in their national parliaments and then get hammered by voters.

"It is difficult to be a national politician and act inthe EU interest. Increasingly, public opinion blames the EU for the debt crisis, rather than seeing that it would have been much worse without the EU," Drusebjerg said.

The euro-crisis has taken its toll on Denmark as well.

According to Karsten Dyvbad from the Confederation of Danish industry, 175,000 jobs were lost last year in the private sector, out of a total population of 5.5 million. Investments into Denmark have slowed down, while companies continued to relocate out of Denmark in 2011.

"If we don't improve competitiveness and the debt crisis drags on, investments will continue to leave Europe. In Denmark, wage increases were higher than in neighbouring countries - so we have a competitiveness and labour cost problem," the Danish industry confederation chief said, speaking one week into negotiations with trade unions on a collective agreement.

Torben Andersen, an economics professor from the University of Aarhus, noted that the economic forecast for his country was "grey and chilly like Danish weather" - a growth rate of one percent this year and slightly higher in 2013 "but not sufficient to boost employment."

Although unemployment has risen over the last three years to 7.8 percent in 2011, it is still below the EU average of 10 percent. "This is thanks to our flexicurity, there are high turnovers in the labour market and only one third of unemployed people don't find a job three months after losing their previous one," Andersen explained.

Sad start

In a glitch for Denmark's official launch of the EU presidency, world-leading wind turbine manufacturer Vestas on Thursday said it will lay off around 2,300 employees, mainly in Denmark, because of a market downturn caused by the financial crisis.

Speaking at a press conference in Copenhagen later that day, Prime Minister Helle Thorning-Schmidt called this a "setback" for the green agenda Denmark is trying to promote.

"This is very sad news for Denmark. This is one of the businesses we thought would be one of the new ways of doing things: green technology. It is still my hope and my belief that we need to invest in green technology," she said.

EU commission chief Jose Manuel Barroso, speaking alongside her, said this was not the only sector where people are losing their jobs. "It is a consequence of the crisis in Europe. It is a setback, of course, but should not question our determination to go forward with our green agenda in Europe," he added.


Europe ready to tackle Greek debt relief

The Greek government has built and broadened alliances in EU institutions and member-states that acknowledge the need to restructure the debt and deliver another economic model for the eurozone.

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