Danmarks Nationalbank broadly shares the Chairmanship's assessment of the current outlook for the Danish economy. Activity rose steadily in the 1st half of the year, especially if the declining output from raw materials extraction is disregarded, and in the labour market employment is rising and unemployment falling. Household disposable income and wealth have increased, partly as a result of the very low level of interest rates, so the overall picture of the economy also indicates that there is a basis for further strengthening of the ongoing upswing.
Consequently, Danmarks Nationalbank agrees with the Chairmanship's assessment that growth in the Danish economy will accelerate in 2015 and 2016, so that 40-50,000 more people are expected to be in employment by 2016 compared with now. However, Danmarks Nationalbank is sceptical when it comes to the Chairmanship's assessment that this growth in employment can take place without a fall in gross unemployment from its current level of 132,000. It is doubtful whether there are so many people outside the labour force who have the required qualifications and can step onto the labour market at short notice.
The Chairmanship bases its forecast on a current GDP level that is 4½ per cent below its potential level and an employment gap of almost 90,000 people, dominated by a considerable labour force gap. The Chairmanship gives a thorough account of the calculations forming the basis for the forecast of the structural labour force, emphasising the uncertainty about its size.
The Chairmanship presents an analysis of the unemployment benefit system comprising four potential changes. Danmarks Nationalbank notes that all four changes contain elements that could increase structural unemployment. The Chairmanship mentions that cyclically dependent unemployment benefits can reduce structural unemployment. Danmarks Nationalbank is not convinced that such a system can be implemented in practice with a positive overall impact on employment.
A cyclically dependent unemployment benefit system would boost the automatic stabilisers in the economy, but at the expense of large fluctuations in public finances and a reduced cyclical stabilisation effect from wage formation. At the same time, it is doubtful whether it is possible to design a rules-based unemployment benefit system that is stable and future-proof with fixed rules for the level and fluctuation limits of the entitlement period.
The Chairmanship proposes a strong increase in benefits in connection with short spells of unemployment. At present there are some 200,000 people annually who are briefly unemployed between jobs. These spells could lengthen if there is an increased incentive to remain unemployed. Moreover, the analysis does not seem to take into account the risk of a short "sabbatical" being interposed between many of the further 500,000 or so annual job changes where there has been no gap in employment so far. This would affect those permanently on the labour market and the wage leadership groups. On a broader scale, it might lead to undesirable cultural shifts towards increased use of the unemployment benefit system if the system is designed and based on a perceived need for "juste retour".
The Chairmanship considers recent years' development in mortgage loans to households, with special focus on adjustable rate mortgages. The widespread use of these loans has increased households' interest rate sensitivity, so that the pass-through from monetary policy interest rates has increased. As a main rule, this has a cyclical stabilisation effect, as the Danish economy is very much in synch with that of the euro area.
It is indisputable that the Danish euro opt-out entails a risk of pressure on the Danish krone and that greater interest rate sensitivity increases macroeconomic risks in that situation. However, temporary fluctuations in monetary policy interest rates as a result of a potential currency crisis will have a limited effect on short-term bond yields.
It is of significance, as the Chairmanship also notes, that the act on maturity extension now ensures a predictable handling of the situation if an auction fails or interest rates suddenly rise sharply.
The Chairmanship's extensive review of Danish mortgage credit contains virtually nothing about deferred amortisation loans. In Danmarks Nationalbank's assessment, the loan-to-value limit for these loans should be reduced. That would contribute to the security of the bonds, so that the mortgage credit system remains robust, even if house prices are plummeting.