Address by Prime Minister Anders Fogh Rasmussen at the UMP conference on economic challenges in Paris, September 7th, 2005

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Ladies and Gentlemen

Thank you for inviting me to speak here today. It gives me great pleasure to be here and share my thoughts with one of the founding members of the European Union.

As a fellow-European - and Prime Minister of Denmark - I cannot fail to be interested in developments in the French economy and French society as a whole. Such matters are of vital importance not only to Denmark, but to all our European neighbours. What affects you affects us all.

Recently, the structural reform debate in France has, in a way, perhaps brought us a little closer. The French Government has initiated a number of reforms in the labour market. And I understand that some among you have indicated that the Danish model would be a good example for France to follow.

Whether this is so is not for me to say but I would like to sketch a brief outline of the economic situation in Denmark. And I would like to explain what I believe to be the reasons for the success of the “Danish model”.

I would also like to say a few words about how Denmark is tackling the challenge of globalization. Right now the news is good. The strong 2005 Danish economy is expected to remain so well into 2006.

• GDP per capita is among the highest in Europe.
• Economic growth is well above the European average – 2.4 percent a year.
• We have a substantial trade and current account surplus.
• We have high employment with a steadily decreasing unemployment rate of, at the moment, 4.8 %.
• At the same time we have a well-developed public sector with public finances showing solid surpluses.
• Public debt is among the lowest in Europe – and still going down.
• Indeed, a number of recent international surveys have labelled Denmark one of the most competitive countries in the world.

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So how to explain this trend? I believe that there are three main factors contributing to Denmark’s solid position - all elements of the “Danish model”:

• A sound and stable macroeconomic policy,
• “flexicurity”, and
• a decentralised labour market with responsible social partners.

First of all, a long-term, sound and stable macro-economic policy is essential. At the end of the 1970’s the Danish economy was in serious trouble. There was even talk of the country going bankrupt. We experienced huge annual deficits and a rapidly increasing level of public debt that was threatening to spiral out of control.

There was only one way to tackle this crisis – and that was head-on. It happened back in 1982. A new Liberal/Conservative Government made tough decisions to put the country back on course:

• Fixed exchange rate policy
• Public expenditure policy was tightened
• Privatisation programmes were launched
• The active labour market policy was introduced.

These reforms were far from popular at the time. But we have now all learned our lesson. The economic crises of the late 70’s and early 80’s have led to a shared understanding among the political parties, social partners – and indeed the general public – of the need for a responsible ­economic policy.

This means that since the beginning of the 1980’s successive governments have maintained a sound and stable macroeconomic policy. There may well be clear differences of opinion among the responsible political parties in the Danish Parliament. However, there is broad political support for the main requirements of such a sound and stable economy.

The second factor is the Danish speciality – flexicurity – which consists of three main elements:

• A flexible labour market with easy access to both hiring and firing.
• A high level of social security.
• An active labour market policy.

The main challenge for the flexicurity model is to achieve the right balance between these different elements. Historically, Denmark has had extremely flexible rules concerning hiring and firing. Where other European countries aimed at providing security of employment by making it more difficult for employers to fire their workers, Denmark chose instead to establish a relatively generous system of social security.

For instance, an unemployed who used to have a low income can receive up to 90 % of the former income in unemployment benefits.

However, such generous benefits may reduce incentives to work. Consequently, we have limited the period in which the unemployed can receive unemployment benefits. After this period the unemployed will be thrown on social benefits.

And, it is a prerequisite for receiving social benefits that the unemployed accepts job offers provided by the local municipalities.

If necessary, compulsory education or job-training can re-qualify the jobless to find new employment.

Failure to accept a job offer or compulsory education can lead to loss of benefits.

The results speak for themselves: Despite relatively generous social benefits, labour market participation is amongst the highest in Europe. The economy is flexible and the skills of the workforce are continuously updated. People are not afraid to change jobs and the qualifications of the work force generally meet the demands of employers. And employers are not afraid to take on more people when necessary – because it is easy and cheap to release them again should the situation change.

In fact, collectively, Danish employees change jobs more than 800.000 times a year. Which corresponds to about 1/3 of the labour force starting a new job each year. A significant factor in a world of increasing competition and globalization. However, while almost 300.000 jobs “disappear” each year – affecting almost 10 percent of the workforce – even more jobs are created annually. So the work is still there. It is just different.

The third element contributing to the present success of the Danish model is the decentralised nature of collective bargaining and the responsibility assumed by the social partners in the Danish labour market.

Denmark has a long history of leaving most of the labour market regulation to its social partners. The majority of workers are organised in trade unions and, instead of political legislation, most issues are settled in collective agreements between employers and employees. This, as opposed to rigid legislation, clearly adds to the flexibility of the labour market. In fact, studies by the OECD show that Denmark is among the countries with the lowest level of governmental labour market regulation.

Today, much of the collective bargaining in Denmark is decentralised. So, although the vast majority of workers are organized in larger unions, decentralised collective bargaining with individual companies allows for differences in pay and conditions if and when required. It is rare to see this combination of a high degree of union membership combined with the flexibility of a decentralised process of collective bargaining in the European context.

One example of social partners shouldering responsibility is the gradual build-up of private pension schemes, starting in the late 80’s. Each round of collective bargaining has led to increased contributions from both employer and employee to a mandatory pension scheme.

This means that, by the time they retire, most workers will have set aside a significant sum of money for their later years, lessening the demand for more generous publicly financed pensions. This should make it easier to sustain sound public finances in the coming years.

As in most other European countries we will see a higher percentage of pensioners as the post-war baby-boomers leave the job market. But we are prepared for that – though there is still some work to do.

* * *

Ladies and gentlemen, Denmark – like France and most of our other EU partners – is under pressure from globalization. We can choose to deal with the challenge by going on the offensive or the defensive. I see it as a strategic choice.

For me, there is little doubt. Globalization presents an opportunity for everyone. Globalization is not a threat. Globalization is a chance. If tackled positively, globalisation can benefit the vast majority of our citizens.

A defensive strategy, on the other hand, will require endless protection of industries and businesses that are clearly not competitive. And yes, in the short term, it might work. But I cannot see how this will enable Europeans to compete globally in the long run. I truly believe that – in the end – such a strategy will not save one single job in Europe.

Reaping the full benefits of a creative, positive strategy towards globalisation requires two things: Firstly, we must carry out the necessary reforms to prepare our societies for the challenges of the future and, secondly, we must work to liberalise trade through free and open markets.

Globalisation demands that all sectors of society adapt to changes which we cannot yet foresee. We believe that sound economic policies and flexicurity contribute to our adaptability.

But this alone is not enough. We must invest in people at all levels of Danish society. Investing in people will equip our businesses, our workforce, with the necessary knowledge, creativity and ability to change.

My Government will present ambitious goals in basic education, in lifelong learning and in research and development.

We intend to spend more than 3 % of GDP on research and development by 2010.

We also intend to pursue further initiatives to improve the Danish entrepreneurial spirit.

If we are to succeed we need to establish a broad political and public consensus on the challenges facing Denmark. This is the only way to ensure the necessary public support for such far-reaching reforms. We have therefore established a so-called Globalization Council.

The purpose of the Globalisation Council is to propose concrete initiatives to prepare Denmark for increased global competition. The Council consists of ministers, the social partners, academics and business representatives. I personally chair this Council.

Secondly, if we are to meet globalization head-on we must liberalise trade not only in Europe, but right across the board.

The European internal market has proved to be a huge success. Millions of jobs have been created. Businesses have access to the world’s largest single market. Consumers benefit from lower prices and greater choice. But we cannot just award ourselves a collective pat on the back and say “Well done!” We must continue to nurture and develop our markets and be prepared to take the lead in WTO-negotiations.

But we must make the right choices. Let me illustrate what I mean with a concrete issue. The quotas on Chinese textiles.

I believe that the agreement to limit Chinese export of textiles to the EU does not take into account the realities of modern international commerce. We encourage our enterprises to engage themselves in the world markets. We encourage them to take advantage of the opportunities of an open global economy in order to increase their competitiveness.

The most competitive European enterprises are concentrating on the activities where they have a competitive edge such as design and distribution. The production itself is often outsourced because enterprises cannot do this profitably.

By organizing their activities like this, these enterprises have been able to compete successfully in the world markets. However, the textile agreement is actually punishing these enterprises. Instead, these enterprises should serve as best practice cases.

This example of protectionism takes place in an area where companies have had 10 years to prepare for the competition from China. Such protectionism is bad policy for Europe.

It is positive that the Commission is trying to reduce the short-term impact by proposing to let the blocked textiles into the market. I hope this will get support from the Member States.

However, the quotas are a short-term solution to a long-term challenge which, in the end, will not save one job for European Industry.

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Ladies and gentlemen, to sum up: The main challenge for Europe, now and in the future, is dealing with globalisation and all it entails. I have tried to clarify how we in Denmark are preparing ourselves to meet these challenges: by nurturing the model of “flexicurity” and by investing in education, research and development.

Of course, one national economic model cannot necessarily be copied from one country to another. But we can learn from each other’s experiences. I sincerely hope that my remarks can be of benefit to UMP in its discussions of how to prepare the France of today to meet the challenges of tomorrow.

Mesdames et Messieurs,

La France est un pays important en Europe. L’Europe a besoin d’une France confiante et affichant une force d’innovation.

J’aime beaucoup ce pays, où je passe toutes mes vacances en famille dans notre maison du Midi.

Je crois que la France et les Français peuvent contribuer de manière positive au développement de l’Europe.

Et je suis convaincu que l’UMP fera tout son possible pour recréer une économie française forte et pour la moderniser.

Je tiens à vous souhaiter bonne chance pour ces travaux.