Denmark’s euro problem19 October, 2015 at 08:35 | Posted in Economics | 2 Comments
Denmark has combined high taxes and strong social benefits (free college, heavily subsidized child care, and more) with strong employment and high productivity. It shows that strong welfare states can work.
But it is worth noting that Denmark has had a fairly bad run since the global financial crisis, with a severe slump and a very weak recovery. In fact, real GDP per capita is about as far below pre-crisis levels as that of Portugal or Spain, although with much less suffering. What’s going on?
My interpretation is that Denmark is paying a high price for shadowing the euro — it hasn’t joined, but it runs monetary policy as if it had — and also, for the past few years, for imposing a lot of fiscal austerity despite very low borrowing costs.
None of this has much bearing on the welfare state issue: short-run macro policy is a different subject. But just in case you wanted to think of Denmark as a role model across the board, this is a useful reminder.