Larsen: That’s exactly it. We are freezing the economy. Because otherwise the government is afraid of the long-term damage that this will do to the entire system. The hope is that this will be over in three or four months, and then we can start up society again.
Thompson: What else is Denmark’s government proposing?
Larsen: There are a few things. To prevent the financial sector from shutting down, the state will guarantee 70 percent of new bank loans to companies. This will encourage more lending even in the case of more bankruptcies.
Also, people on unemployment benefits are put on pause. Typically, people have to go to meetings at job centers and make a certain number of job applications to receive jobless benefits. There are a lot of rules. But those rules are suspended for now. There are no requirements. The other part of the pause is that, while you can only be on unemployment benefits for two years in Denmark, people who pass that threshold will still receive benefits. Again, we are freezing everything.
Also, the state agreed to compensate companies for their fixed expenses, like rent and contract obligations, depending on their level of income loss. If they typically sell $1 million in a period, but now they can only sell $100,000, they lose 90 percent of their income. That will qualify them to receive large government help to cover fixed expenses.
Also, the spring payment of taxes for companies have been postponed until autumn, and all public employees will keep their salaries when sent home.
Thompson: This sounds incredibly bold and incredibly expensive. How much does the government expect this is going to cost?
Larsen: The cost is 287 billon DKK. [Over email, we worked out that this is the equivalent of approximately 13 percent of the country’s GDP. In the U.S., that would be about $2.5 trillion.]
Thompson: How does this response compare with what Denmark did during the global financial crisis in 2008?
Larsen: Back then, there was nothing at all at this scale. There was no huge amount of spending. The government was worried about public debt. There was a huge, long debate about whether Denmark should spend a lot of money at all. And Denmark had one of the highest increases in unemployment during the last crisis.
But today, the Danish economy is extremely strong. We have a huge surplus. We have a negative interest rate. There is a lot of public savings. So there is a lot of room to do this now. Also, the political environment has changed. We’ve tried to make higher investments in welfare spending in the last few years.
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Thompson: It sounds like 10 years ago, there was a debate about stimulus. But today, everybody agrees that you just have to save the economy.
Larsen: Yes. They just want to save the economy. The philosophy is, if we don’t do it now, it will be more expensive to save the economy later. We’ve seen what the virus can do in Italy, in Spain. So I think people are very concerned. We are facing a huge, huge crisis.