Prime Minister Lars Løkke Rasmussen’s address at The Annual Meeting with Ambassadors in Denmark, Copenhagen, 1 March 2011

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Ambassadors, Your Excellencies,

Thank you for coming today. I highly appreciate this opportunity to discuss with you the challenges facing Denmark today and issues on the international agenda.

At our meeting 11 months ago, I made the point that that period was a particularly dynamic period in Danish politics with a very active debate, new initiatives being launched and lots of talk about elections on the horizon. It seems like not much has changed.

I will focus on four main topics: 1) the economic agenda in Denmark, 2) developments in the EU, 3) the situation in the Middle East, and 4) Afghanistan.

Before I go through these points, let me briefly outline some of the key features of the context for Danish politics and our foreign policy priorities:

- In terms of the global economy, the international effort to return to a stable growth path continues in the G20 and elsewhere. The G20 has been effective in addressing the crisis. But the right balance between effectiveness and legitimacy and a workable link to the global institutions with universal membership have not yet been found.

- The economic recovery is gaining ground, yet Denmark and most Western countries are still experiencing growth rates that fall well below levels in Asia and other emerging economic centres. In short, we need to find a new foundation for our future prosperity. Exports are critical for Denmark and we must continue to push for free trade.

- We also need to push ahead with the transition to a green economy. Just last week, my government took an important step with the launch of our Energy Strategy 2050 that lays a path to a low-carbon economy. And internationally, we need to make further progress on climate change, building on the positive result at COP16. And we must work for a successful and concrete outcome of Rio+20 in 2012.

- The EU is a vital framework for Denmark in terms of our economy and our possibilities to influence global affairs in the future. At the same time, Danish foreign and security policy remains firmly anchored in transatlantic cooperation and our deep-rooted partnership with the United States.

- Over the past year, we have been reminded that we are still faced with a very real threat from terrorism. And our engagement in Afghanistan – while undergoing transition – remains our top security policy priority.

- A central element in Denmark’s active foreign policy will continue to be a strong and focused development assistance effort. We see this as a key instrument in promoting Danish values and interest. To ensure that we get the most out of our assistance and make a real difference, we must also be ready to focus on fewer countries and sectors.

- The most remarkable – and surprising – international developments are taking place as we speak in the Middle East and Northern Africa. It is too early to say where this will end. But there is no doubt there we are witnessing a fundamental, historic shift. This will have a profound impact on the lives and freedom of millions of people who until recently could not have hoped for such a change. It will also fundamentally change our own foreign policy towards this region and the way we support democracy and human rights. We have a responsibility to assist the people in their quest to create a better future. I expect that we will see a changing balance in the international community’s engagement in the Middle East in favour of strengthened support for democracy, rule of law and human rights. This is a development that Denmark fully supports.

1) The Economic Challenge in Denmark
I will revert to the Middle East. But indeed the quest to create a better future also applies to the domestic context in Denmark. Like most other European countries, we face two fundamental economic challenges.

Firstly, we have to consolidate our public finances after the crisis. In May last year, we passed a fiscal consolidation plan that ensures compliance with EU’s recommendation and is a significant step towards reaching fiscal balance in 2015. However, looking beyond 2015, we are still faced with challenges.

Secondly, we need to improve our long-term growth and employment potential through forward-looking reforms.

How to respond to these two challenges is the dominant theme in Danish politics at the moment.

The economic crisis worsened a number of challenges that were present even before the crisis hit us: Increasing global competition from the emerging economies and demographic changes have forced us to take a critical view of our productivity and growth potential. Otherwise we will not to be able to sustain our welfare society that our populations take for granted.

The crisis has shown how fast the world’s economic gravity is shifting towards the emerging markets. While most developed countries have experienced low or even negative growth, countries like China and India have had growth rates in the range of 8-10 pct. And now that we are back on a more stable, positive path, these countries are only accelerating their growth.

The growth of the emerging economies is a positive development as it will bring improved standards of living and new wealth to these countries. It will also act as an important engine for the global economy in the years to come. We must be ready to seize these opportunities.

However, it is also clear that the relative position of Europe and other Western countries in the global economy is under pressure. We must be realistic. We risk losing influence. This underlines that business as usual is not a viable path for us.

The truth is that we face tough competition in all parts of the value-chain, including innovation, research and development. To address this, my government has proposed a wide range of reforms. A few examples:

- Primary school reform to ensure better results through clear national goals and more freedom to schools and teachers.

- Using our state education grant scheme more proactively to encourage students to complete their studies and start working.

- Increasing competition in different sectors and improving public-private cooperation in delivering welfare services. We are strengthening the market for venture capital up to 10 billion DKK in a public-private partnership – with a focus on small and medium sized enterprises.

- Reforming disability pensions and flexi-job schemes.

- And paving the way for a society fully independent from fossil fuels – built on renewables. We have set the goal that Denmark should be among the three leading countries in the world with regard to energy efficiency and renewables by 2020. As mentioned, just last week we announced the first national strategy in the world on how to become fully independent of fossil fuels by 2050.

Another important challenge is to increase work supply: Today only 50 pct. of Danes in the working age actually work. Last year, we reduced the duration of unemployment benefit from 4 to 2 years. And in my New Year’s speech, I launched the proposal to phase out our voluntary early retirement pension scheme [“Efterlønnen”]. The purpose of these reforms is to increase our work supply while also contributing to sound public finances.

As you know, reforming our early retirement scheme is politically extremely sensitive in Denmark. My proposal has been hotly debated over the past months and it will no doubt be a centerpiece in the upcoming election campaign. But I am fully convinced that it is the right thing to do in the current situation with limited public resources for core welfare services and falling labor supply due to demographic changes.

A central part of my government’s growth and employment strategy is our national Growth Forum. We asked the Forum to address a number of the fundamental challenges:

1) Competiveness: How do we ensure that Denmark can continue to be able to develop, produce and sell products that are competitive internationally? In recent years, our wages have risen more than in comparable countries, whereas our productivity growth is lower than most other OECD-countries.

2) Education: Denmark needs to improve the quality of its education system – not least our primary school system. And we must ensure that a higher share of young people receive a qualifying education.

3) Competition: Competition is weak in Denmark, as only a small part of the economy is exposed to foreign competition. Increased competition can open the productivity potential of both the private and public sector.

4) Green growth: To take advantage of the dramatic global increase in the demand for green technology, we need to continue to invest for the long-term in research, innovation and development in this field. Danish companies have a strong global position but the competition is getting tougher, not least from emerging economies. There is no room for complacency.

The work of the Growth Forum is coming to an end. I have asked the Forum to summarize their main proposals on how to take action to support growth. Later this month, the Forum will present a final strategy on how to prepare our economy for the future. The strategy will contain a number of recommendations with extensive reforms in education, the labor market and competition as well as proposals for substantial improvements in the framework conditions for growth and innovation in all areas of society.

We have made it through the economic crisis in a better shape than we could have feared when the crisis hit. I was reminded of this when I took part in the World Economic Forum in Davos a few months ago. The organizers had made the Nordic model a key theme and asked the Nordic leaders to share our experiences and views on how we have handled the crisis. I made the argument that a key feature of the Danish model was our willingness to adapt to changing circumstances.

There is confidence in the Danish economy. However, this has only been achieved through a willingness to make the hard choices and consolidate our public finances. And we need to continue to take on the necessary reforms.

There are no easy solutions or quick fixes. In my view, a sustainable growth policy for Denmark must build on these five basic elements: 1) sound public finances, 2) sufficient labor supply for our private companies, 3) a strong education system, 4) more competition and 5) an efficient public sector. This is the course we must take if we are to maintain the trust in our economy and create a long-term basis for growth, employment and prosperity.

The opposition in Denmark is taking a different approach and – in my view – has yet to provide concrete and specific answers to these fundamental challenges. We will no doubt continue to debate this intensely in the election to come.

2) The European Agenda
Denmark’s central economic challenges also have a strong international and European dimension.

Throughout the last year, we have witnessed a severe debt crisis in Europe. Several countries found themselves unable to access financial markets on normal terms because public debt and deficits had grown out of control.

The EU has tackled the crisis through determined and common action:

- Vulnerable countries have been helped through large-scale loan packages.

- We are in the process of establishing a permanent crisis mechanism that will kick in when the temporary mechanism expires in 2013.

- We have strengthened the EU’s Stability and Growth Pact to create better incentives for budget discipline.

- And last but not least: All governments have committed themselves to delivering the necessary fiscal consolidation and structural reforms.

Although Denmark is not a member of the Euro-zone, I strongly welcome all of these decisions. Financial stability is in the interests of all 27 member states. We need an effective European safety net that can help vulnerable countries in the future. And we need strong decisions at both the European and the national level to ensure that we do not need to activate this safety net in the first place.

The debt crisis is strongly linked to the other important challenge that Europe faces – speeding up growth and job-creation. Europe urgently needs to increase its competitiveness and growth potential in view of the increased competition from emerging markets and demographic challenges.

For this reason I strongly welcome the new initiative to strengthen coordination of our economic policies through a so-called “Competitiveness Pact”. And again: This challenge is shared by all 27 member states – not just the Euro-zone.
With its focus on labor market reforms, retirement age, competition and sustainable public finances, the initiative is clearly in line with my government’s domestic reform agenda.

At the same time, we must further develop the internal market and remove remaining barriers that hinder our consumers and businesses from reaping the full benefits. As a small and open economy, Denmark has a strong interest in free trade – in Europe as well as globally.

The aftermath of the debt crisis will no doubt set the frame in 2012 when Denmark takes over the EU Presidency. We intend to use the crisis to make the EU stronger. We will work to ensure that the EU achieves the long-term policy goals for 2020 – not least on jobs and growth, climate change and energy.

Our national priorities for the Presidency have not yet been decided. But there is a range of challenges with long-term implications which will need to be tackled on our watch. The negotiations on the multiannual financial frameworks will be a key task for our Presidency. We will do everything we can to move the negotiations forward. But there will of course also be other priorities, for example further developing the internal market.

On the Danish opt-outs, my government’s position is clear: we see them as harmful to our interests in the EU. The current discussion on the “Competitiveness Pact”, which is mainly taking place among euro-countries, clearly illustrates this.

3) The Situation in the Middle East and Northern Africa
The European Union can and should also be a key actor in supporting the current developments in the Middle East.

History is being written in the region right now. People have taken to the streets to express their legitimate demands for political and economic reform. The recent developments in Egypt and Tunisia fill us with a sense of hope that these countries have chosen a road towards change and democracy. This gives us grounds for cautious optimism.

In many places, the legitimate aspirations of the people have been met by brutal violence. The situation in Libya is extremely worrisome, and I condemn in the strongest terms the completely unacceptable display of violence that we have witnessed.

We must all continue to condemn this in the clearest possible manner and call for the violence to stop now. Denmark welcomes the speedy and historic reaction by the Security Council. The resolution adopted on Sunday sends a very strong message to Colonel Qaddafi and his associates. A message that the international community is unified and is prepared to take action and hold the leadership accountable. The referral of jurisdiction over crimes committed in Libya to the International Criminal Court is very important in this regard. We also welcome the Security Council’s underlining of the Libyan authorities’ responsibility to protect its population.

I am satisfied that the EU already yesterday (28. feb. 2011) decided to impose sanctions that go further than those adopted by the Security Council, including by imposing an embargo against equipment which might be used for internal repression.

It is up to the Libyan people to determine their future leadership. It seems clear that Qaddafi, through the actions that he has taken, has lost all legitimacy as the leader of Libya and it is hard to see that Libya’s future can continue to be tied to him.

The stability of the Middle East is vitally important to global peace and security. It also directly impacts the global economy as we are seeing now with the increasing oil prices. In Europe, we are directly affected due to our geographic proximity. But first and foremost, the people of the Middle East deserve a peaceful and prosperous region.

We have a clear, mutual interest and a shared responsibility to support the people’s aspirations for freedom and democracy and respect for their rights. The EU should do its utmost to assist: We are committed to a new partnership with more effective support to the countries that are pursuing political and economic reform.

On a bilateral level, Denmark will continue to foster dialogue and assist civil society through our Partnership for Dialogue and Reform. And we will find additional funds to strengthen civil society and support the people who are pursuing democracy and human rights in the region.

The Arab world and Europe share a long history. There is no denying that some chapters in this history have been dark; yet we have also learned immensely from each other and will continue to do so in the years to come. In these times of momentous changes in the region, there is an opportunity for us to work more closely together. Seizing these new opportunities for cooperation to achieve progress and economic development was a clear message from a dinner I attended at the World Economic Forum in Davos with Arab business leaders.

Let me conclude my remarks on the Middle East by touching on the Israeli-Palestinian conflict. This remains a source of tension and an obstacle to prosperity and progress. It is crucially important that we draw the right conclusions from the events unfolding in Egypt, Tunisia and other countries in the Middle East. Rather than pulling back from efforts to restart the peace process, we need to push even harder for an urgent return to negotiations. Time waits for no one.

The two parties have a long way to go. They must commit to a future to the benefit of all. In Europe, we insist on not letting opportunities for peace fade away. We cannot afford it; the Palestinians and the Israelis cannot afford it.

Afghanistan
I will end with Afghanistan which remains a key priority for us.

As you may all know, just last week we succeeded in reaching broad political agreement on a two-year plan for Denmark’s engagement for 2011-2012 with a view towards 2014. The so-called Helmand Plan 2011.

I am very satisfied that we have maintained the wide political support for our engagement. It shows that Denmark is a committed and engaged ally – and a responsible member of the international community. And I know for a fact that this is also very important to the Danish soldiers in Afghanistan.

The overall ambition of the plan is to create the foundations for a sustainable handover of responsibility for security to the Afghans in 2014. This requires progress not just in the area of security but also on governance and development. Our agreement addresses all three areas.

On security, the agreement entails a gradual adjustment of the Danish engagement in the Helmand Province over the coming two years towards training, support and education of the Afghan security forces.

The military adjustments and the gradual reductions will be initiated now. All in all, we will reduce our troop contribution from approximately 750 to approximately 650 over the next two years. According to the plan, Denmark will no longer have combat units in Afghanistan by 2014.

We are also increasing Danish support for training of the Afghan police. In fact, we will double Danish police training efforts in Helmand. The Danish police training effort has generated considerable praise internationally. This is something we are very proud of!

As for governance and development, Afghanistan remains one of the least developed countries in the world, and there is a great need for long-term assistance to the country. Denmark’s development assistance to Afghanistan will be increased by 100 million DKK over the next two years. Our overall assistance will thus reach approximately 500 million DKK, making Afghanistan the second largest recipient of Danish assistance.

Our assistance will remain focused on three areas: state building, improvement of livelihoods and education. In addition, we will do more within the areas of women’s rights and the rule of law. Both are key areas for the development of Afghanistan.

Let me end by stressing that Denmark is committed for the long term in Afghanistan. With our partners, we will remain engaged long after 2014 to assist Afghanistan on its path to development, stability, peace and reconciliation.

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Thank you for your attention. I look forward to our discussion.