Finance Minister Mogens Lykketoft discusses the economic and political implications of his country's decision to stay out of European monetary integration

Denmark, along with the UK, has an opt-out from Economic and Monetary Union. Why?

Denmark's opt-out is not founded on economic considerations. It is a political consequence of the referendum of 1992 which rejected the Maastricht Treaty. This outcome meant that we had to define a new foundation for participation in European co-operation. This was accomplished by the Edinburgh agreement in December 1992, which was eventually accepted by a second referendum in Spring 1993. Part of the agreement was the decision not to participate in stage three of monetary union.

The Danish opt-out, however, does not imply that we are not taking part in the convergence process. On the contrary, Denmark participates fully in the second stage of EMU. In fact, we are one of only three countries in Europe already meeting the convergence criteria on government budgets and debts, inflation, interest rates and exchange rates.

Our strong commitment to fulfil the convergence criteria simply represents a continuation of a disciplined macroeconomic policy, which is necessary if we want to achieve sustainable long-term, growth in wealth and employment. Moreover, Denmark's current fixed exchange rate policy towards the core EMU countries will be continued towards the new euro if and when EMU gets going later this decade.

Will the country exercise its opt-out?

Denmark will only participate in the third stage of EMU. A decision to change this can only be taken by Danish voters in a referendum.

How do you assess the mood of the Danish people towards closer integration?

In general, I find that a significant majority of Danish people do not oppose closer economic integration, in terms of trade, investment and fixed exchange rate arrangements. We are a small nation dependent on our international links. Accordingly, we encourage free trade and economic openness in the various international forums. Moreover, there is widespread support for integration into the EU of the new market economies of central and eastern Europe.

However, there is considerable opposition to further political integration within the EU. According to the polls, some 50-60 per cent of voters want to maintain the four Danish exemptions from the Maastricht Treaty. Thus, there is no foundation for a new referendum on either of the exemptions for the time being.

What are the key domestic economic issues in the coming year?

The overall objective is to ensure sustainable growth and further reductions in unemployment. This means that we have to continue fiscal consolidation into 1997 and the implementation of various labour market measures. Moreover, some emphasis will be put on new legislation on competition in domestic markets for goods and services. The aim is to achieve a more competitive environment - especially in sheltered sectors like service.

How successful have your efforts to bring down unemployment been?

Thus far, we have managed to reduce unemployment more than we anticipated a year ago. Since spring 1994 the overall unemployment rate has been cut by a third, from more than 350,000 to 250,000. The major reasons behind this dramatic drop are first and foremost a sharp increase in private sector employment, mainly in the service sectors, and secondly labour market initiatives. Third, labour market reforms have turned the emphasis towards active measures such as training.

All three Baltic states are keen to expand economic links with western Europe. How do you see relations developing in coming years?

Denmark has close historical links with the Baltic states. It was therefore only natural that Denmark should have been at the forefront of political and economic support when the Baltic states became independent after the collapse of the Soviet Union. Since then, links have become ever closer. Denmark is now one of the leading Western trading and investment partners with the Baltic states. In coming years, we hope to expand bilateral relations further and to have the Baltic states more closely integrated with western Europe. With respect to full EU membership, Denmark, together with the other Scandinavian countries, has pushed hard to ensure that the Baltic states enjoy equal opportunities as the other central and eastern European countries.

What do you see as the major obstacles to Denmark's future economic success?

The current favourable economic situation in which we find ourselves is a good starting point for achieving our long-term objectives in terms of sustaining the welfare society. Denmark is a very stable society, both socially and politically, with high standards of living, an extended social safety net and a diversity of public services available in areas like education and healthcare. Moreover, our economy is characterised by an openness to trade, capital- and skill-intensive production, a highly productive labour force and good infrastructure.

In order to maintain these advantages, the main challenge facing firms and employees is the ability and willingness to change. For people in work today, life-long education and further education is a major factor if we are to boost employment, not least in the light of rapid technological changes. The main task for Danish firms is to be competitive, both in terms of efficiency and by being at the forefront of technological change. This means that Danish firms must spend more on research and development than they currently do.

The political challenge is to provide the right framework for change, and at the same time sustain the welfare society. This requires, among other things, a continued stable macroeconomic environment with low inflation and a surplus in the government budget.

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