FISCAL CLIFFS (3)

Denmark's "fiscal cliff", in which the unemployed drop out of the unemployment benefit system in increasingly large numbers, simply won't go away. For the Social Democrats and Socialists in the coalition Government, it is the main reason why their poll numbers are falling through the floor; and with local elections due this November, anxious mayors and other local politicians are pressing the leadership in Copenhagen to "do something". To be fair, it is not the Government's fault that the two main changes to the system (the reduction in the number of years that one can qualify from 4 to 2, and the increase in the number of weeks you need to work in order to re-qualify from 26 to 52) were tabled by the previous Government, and that the Radicals demanded that the changes be passed as a condition for forming the coalition after the election in-between. Helping the unemployed is a classic task for a left-of-centre government, and it is currently not doing it. The very left-wing Enhedslisten are hoovering up support as a result.

But what to do if the economy remains weak (so no new jobs are being created), and the Radicals are vetoing any modification to the tighter rules? The answer came on Tuesday. Basically, the change from 4 years to 2 will be phased in gradually, so that the reduced period only applies fully to those dropping out of the system in the second half of 2016 or later (none of whom have yet to enter it). Those otherwise dropping out in the first half of this year can now get benefit for 3.75 years, those in the second half of this year 3.5 years, and so on. However, during the additional period which would otherwise not have been eligible, the unemployed will receive a new benefit, not called unemployment benefit; and the Dkr.2 billion annual cost will be financed by an extra levy on unemployment insurance payers (i.e. most people currently working) during this time. Finally, a commission will be set up, reporting in the spring of 2015, with a mandate to recommend long-term changes, if any, to the system.  

This is a clever proposal in many ways. First, it solves the immediate problem, at least for a while. Secondly, it keeps the Radicals on board by not changing the principles behind the recent tightening of the rules. Thirdly, the solution costs the Government nothing, since it is people in work who will pay for it ("social solidarity" is the Government's buzz phrase). Finally, it kicks any more fundamental discussion of the issue into the long grass, since the Government  can respond to any problems raised, especially in the run-up to the local elections, by saying "the commission is looking at the issue, we should wait until it reports".

Clever, but perhaps also a bit too clever. The right-wing opposition think that Dkr.2 billion could be better spent creating long-term jobs instead of transfering money to to those who don't have one. While on the other flank, Enhedslisten scent blood. They want to use the leverage they have in providing the Government's Parliamentary majority to make long-term changes now, in particular a reduction in the length of time required to be in work before you re-qualify for unemployment benefit (which is much lower in other Scandinavian countries, as low as 13 weeks).

The "dagpenge" issue has rumbled on for most of this Government's term. Prime Minister Helle Thorning-Schmidt is understandably anxious to bury it once and for all. A solution will undoubtedly come; but I suspect that there will have to be changes before a final solution is found before the summer holidays.

Walter Blotscher