Like many countries around the globe, Denmark must face up to the Coronavirus pandemic, a major economic and health crisis that will result in a contraction of GDP in 2020. Although the country does not seem to have been hit very hard to date[1], the government decided to introduce relatively strict confinement measures as of 13 March. Schools, universities, restaurants and most other public and cultural spaces have been closed, while non-essential public and private sector employees are urged to work from home.
Economic threat and massive fiscal measures
The crisis is expected to have a heavy impact on the economy, with a sharp contraction of GDP in Q2 2020. To handle the crisis, the government has adopted strict measures, taking advantage of its substantial manoeuvring room (recurrent fiscal surplus since 2015 and a mild debt ratio of 33% of GDP).
The biggest measure calls for the State to cover the payment of company operating expenses to limit job loss due to the shutdown of businesses. These measures are crucial in a country where household debt is very high (281% of net disposable income, the highest in the OECD) and supports the housing market. Under the Tripartite Agreement on Temporary Wage Compensation, which was passed on 14 March and strengthened on 31 March, the state will pay compensation for 75% of the wages of companies and self-employed workers experiencing hardships during a 3-month period (9 March to 9 June), within the limit of DKK 30,000 (EUR 4000) per person per month.
Like (nearly) every other country, the package also provided direct transfers under certain conditions (subsidies to help pay rent and other fixed charges), deferred tax and VAT payments, and guaranteed loans to companies for a total of DKK 60 bn (see box).