The Danish Debt Ceiling Legislation

This month marks 28 years since the Danish Parliament first adopted its debt ceiling legislation, Act on Authorization to Take Out State Loans (Lov om bemyndigelse til optagelse af statslån (LOV nr 1079 af 22/12/1993).

On December 17, 1993, Parliament voted to empower the government to take out state loans, without first asking for permission from Parliament, provided the new loans did not cause the total state debt to exceed a set monetary debt ceiling that applied to all loans. The amount was set at 950 billion Danish kronor (DKK) (then about US$140 billion). Earlier the same year, Parliament had passed legislation specifically allowing the government to take on DKK 50 billion in additional foreign debt, adding to the already DKK 700 billion of debt. Parliament had also passed a piece of legislation allowing for the accrual of new domestic debt. These pieces of legislation had to be passed by Parliament each time the government wanted to take out new loans.

The purpose of the debt ceiling legislation was to do allow the government to take out and accrue debt without asking Parliament each time and was prepared together with the Danish National Bank. The national bank had assumed the responsibility for the administrative duties surrounding the debt two years prior, in 1991, through an agreement with the Ministry of Finance. The final proposal was presented to Parliament on December 1, 1993.

The proposal was then reviewed by the Finance Committee, which issued a report (betaenkning) recommending the approval of the bill. One member of the committee opposed the legislation, as he had done with the previous legislation on foreign debt. Kim Behnke, representing Fremskrittspartiet (Progress Party), argued that Parliament should have more, not less, power over the debt the state accrued. Once passed, the total Danish state debt amounted to about 70 percent of the debt ceiling.

The final adoption of the bill, which took place on December 17, 1993, was a straight-forward process:

The record of the plenary process, as officially published in the Folketingstidende, provides:

Item 27 – third reading of bill number L111:
Proposal of law on authorization to take out of state loans.
By Finance Minister (Lykketoft).
(Presented 12/1-1993. First reading 12/7-93.
Committee Report 12/8-1993. Second reading 12/15-93.
No amendments to the proposal have been presented.
The law proposal was submitted for debate.
No one requested the word.
Vote
The law proposal is adopted with 114 votes (S, KF, V, SF, CD, RV and KRF) against 7 (FP).

The law was signed by Queen Margrethe II on December 22, 1993.

Since its first adoption in 1993, the legislation has been amended several times, most recently in 2010, following the recession of 2008, when the debt ceiling was doubled and raised to DKK 2 000 billion (then about US$372 billion). At that time, the current debt again amounted to about 70% of the debt ceiling – before the raise of the debt ceiling. The Act thus currently allows for accumulation of up to 2,000 billion in debt.

As a result of the adoption of legislation in 2012, the state budget must be balanced. However, this was not always the case. In fact, Denmark did not balance its budget for many years, in particular during the 1970s .

At the conclusion of 2020, Denmark’s total central debt amounted to DKK 536 billion or 23 percent of GDP, as calculated by the Danish National Bank. The combined Danish state and municipal debt amounts to about DKK 900 billion (about US$137 billion). The debt reportedly increased in 2020 as a result of the government’s COVID-19 response.

As part of its obligations as a European Union member (note that Denmark opted out of the Euro), Denmark has undertaken (through the Maastricht Treaty) to keep its debt under 60% of GDP. Using EU figures, which also includes municipal debts, the Danish debt was estimated to be 45% of GDP, among the lowest in the EU, in 2020. After the monetary debt ceiling was raised in 2010 it was about 43% of GDP.

Denmark reportedly remains the only country in the European Union to keep a law on the books that specifies a given monetary value for the cap of its total debts, and not just a percentage of GDP. In fact, Denmark and the United States are the only countries in the world to set a specific monetary limit on the debt.

Denmark’s current debt ceiling policy can be found on the National Bank website. The Danish state debt is projected to increase, to about US$180 billion, however, with the debt ceiling currently set at the equivalent of US$304 billion, the debt ceiling is unlikely to be reached. The debt to GDP ratio is expected to remain at around 40%.

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