It was a unique experience to shake the hand of Danish Prime Minister Anders Fogh Rasmussen. This man was not only “the best looking prime minister in Europe” (in the words of Italian Prime Minister Silvio Berlusconi), but also the only head of government I had ever interviewed who had a budget surplus.
Not only that, but he presides over an economy with growth three times higher than the eurozone, one that is always in the top 10 most competitive economies in the world, according to the World Economic Forum rankings, and is one of only four countries in the EU that can compete with the US in terms of innovation, according to a recent EU Commission report.
On the other hand, it looks like a classic Scandinavian economy with high tax rates (including a marginal tax rate of 63%, which kicks in at only about £30,000), large social security benefits and a workforce that is 80% unionised.
The energetic prime minister, interviewed in the middle of a blizzard in a hotel mansion in Northern Zealand, after a meeting of his Globalisation Council, believes there is no contradiction in all this. “Marginal tax for personal income is quite high but we should realise people get something in exchange – high compensation in social security, which is part of “flexicurity” and is also part of competitiveness,” says the 52-year-old.
The cost of participation
The term “flexicurity”, coined by the Danes, can best be explained by looking at examples. For instance, the comprehensive system of child care is mainly financed by the government. It is costly but the result is that Denmark has one of the highest female participation rates of any economy in the world. The same goes for education, expensive for the state but better than most of its neighbours. Or the ease with which companies can fire and hire employees. To ensure calls for job security do not become an issue, there are four years of generous unemployment benefit.
The problem facing Denmark is mainly that of an ageing population and a falling birth rate, plus the usual forces of globalisation. This led to the 25-member Globalisation Council, which meets monthly, to come up with ideas on how to make the economy knowledge-based, entrepreneurial and innovative – and at the same time maintain its current, or at least a similar, level of welfare. Its conclusions will be incorporated into the 2007 budget. Denmark’s budget surplus – one in 2005 and another expected this year – will help finance the measures to be taken.
But businessmen and economists believe this reformist prime minister (whose aides always include jogging/biking or kayaking in his diary, even on foreign trips) is not courageous enough. His style is to set up a commission, ensure a lot of public discussion, arrive at a consensus, and then implement it. But surely far-sighted leaders must sometimes go against the approval of broader society?
“That is not a lack of leadership. On the contrary, it is modern leadership,” says Mr Rasmussen, pointing out that an educated population with access to information needs to be brought along with government decisions.
It is notable, though, that he failed to do just that when he chose to join the US’s coalition in Iraq, a deeply unpopular move in his country. What did he get back from President George Bush, who chose to spend his latest birthday with the Danish leader in Copenhagen?
“In an alliance like NATO we have an obligation to assist each other. It is not about bargaining. We do know it was controversial. In politics, principles should be the guide. For me it is a question of values,” he says, using his hands throughout to shape things in an almost Italian fashion.
As for recent calls by some European politicians to pass a version of the EU Constitution through Parliament rather than put it to a referendum, he is adamant that should not be done: “I do not think we should start considering taking out parts of the Treaty or whatever. It might be considered a lack of respect [to the will of the people].”
In its negotiations for the EU Maastricht Treaty in 1992, Denmark negotiated four opt-outs on joint currency and defence, judicial cooperation and European citizenship. Its currency, the kroner, is tied to the euro.
When it comes to Turkey joining the EU, Mr Rasmussen will only say that it is up to Turkey to fulfil the necessary criteria. He adds that with 80,000 pages of EU legislation having to be adopted within the next 10 to 15 years, Turkey will become a very different country to what it is today.
Advice to the French
Nicolas Sarkozy, the French presidential hopeful, invited him to the ruling UNP’s party congress to see what Danish prescription could be applied to the suffering French economic model. Mr Rasmussen, who has a summer house in the Languedoc, told party members that you cannot export 100% of it but that some aspects of best practice could be picked up.
Businessmen and economists, however, believe the Danish economic model needs some major changes and that the prime minister is not taking up the cudgels actively enough. They say Denmark’s high marginal tax rate is a disincentive for entrepreneurs who respond by moving abroad, while having the same effect on their recruitment of foreign talent – an ever-more important necessity when labour markets are becoming so tight.
Yet Mr Rasmussen promised voters in 2001 that he would freeze taxes. He has done so, and even presided over a small cut in the marginal rate on income tax, but widespread support for his policy among the electorate makes him averse to making bigger changes.
In fact, Denmark’s Welfare Commission, which was looking at increasing the retirement age and dealing with an absurdly generous early retirement package, also addressed the need for tax reform in its conclusions a few months ago, and was soundly put in its place by the prime minister. “Well, I did not get angry but I said the tax freeze is a cornerstone [of the welfare state],” he says with his usual focused purposefulness.
The problem for this government is how to create a sense of urgency about the need for change. The CDU’s Angela Merkel in Germany found herself having to water down her reform programme because, arguably, the German population did not have enough of a sense of crisis and therefore the willingness to make sacrifices.
How much more difficult it must be for a country that can already say that 70% of its gross domestic product (GDP) comes from services, including information technology and biotech; a country that creates 5000 new start-ups a year – a large amount when the population is only 5.4 million; and a country that already spends 2.4% of gross national product (GNP) on research and development, much more than many of its neighbours.
Some of Mr Rasmussen’s advisors told him at a certain point to press some flesh and kiss some babies in order to create a warmer feeling among the many voters who like him as prime minister but think he is a cold fish. “He was very awkward at it,” said someone who worked closely with him.
Meeting the electorate
He himself admits it is not his thing: “I do not like populist gestures or attitudes. On the other hand, part of my way of working is I like meetings with the electorate. I can confess it is my wife who has said I should not kiss babies publicly.”
For a man who from an early age wanted to be a politician – and myth has it wanted to be prime minister from the age of seven – that is quite a confession.
But perhaps in his search to have Denmark continue to be one of the most competitive economies in the world by facing up to the challenges of an ageing population and globalisation, a baby or two might need a smooch.
