Danish household debt worrying the EU and they will warn tomorrow in a memo
Well, the Danish economy is no the best place for more bad news to emerge from at the moment but one cannot help it if it keeps coming. Danish citizens owe more than almost all other European citizens and this is worrying to the EU officials.
That, combined with the Danes having their debts grace loans with adjustable interest rates, can be a threat to the entire financial sector of Denmark. This is the EU Commission's verdict on the Danish economy in a draft memo, which the commission is expected to publish tomorrow.
“The Commission is quite pessimistic about the Danish economy. It is hard to find something to be positive about in the memo,” said Professor Jesper Rangvid from Copenhagen Business School.
In the memorandum, the European Commission acknowledges the Danish government’s 2020 plan but that is not enough, according to the Commission, which recommends further reforms of the Danish economy.
“The Commission estimates that the fiscal deficit is too large and that there must be additional tightening of the fiscal agenda. There simply needs to be tightened up more now, "said Jesper Rangvid.
The Commission points out that Danish serious debt problem are partly due to a combination of the tax freeze and grace loan. “The combination led to explosion in house prices, which meant that the Danish economy was overheated and the Danes have indebted themselves very much, "said Jesper Rangvid.
And there is good reason to just make more economic reforms now, says the EU. For debt problems could become even worse if interest rates rise.
“If interest rates rise, it will be expensive for homeowners to stay with their loans. This could force them out of their houses, which will lead to repossession,” elaborates Jesper Rangvid. If the homes are repossessed, the question becomes that who will buy them if every body lack the money? Or they would be sold at very lower prices as such the debt keeps on circulating.
Editor’s notes – Lesson for Sweden?
This is a very good lesson for Sweden whose house prices are leading this way though they don’t have low interest loans as the Danes. But if the house prices as they are now in Sweden continue in that way, such that salaries and interest rates makes home owners hard press to pay back their mortgages, then we should be seeing something of this sort in Sweden if adjustment are not made now.