Lars Løkke Rasmussen Passes the MacBeth Test
The Danish Prime Minister's televised New Year speech is usually a low-key affair. Often overshadowed by the Queen's speech the previous day, it usually showcases vague notions of values, with the emphasis on inclusivity, and experts generally need to read deeply between the lines of what is said (or not said) to predict what the policy consequences of the speech will be.
This year, though, the political commentators could focus not on extrapolating from Løkke's words but on the political effects of them. For the proposal was not ordinary one. Løkke proposed the abolition of efterløn - regarded as the biggest taboo in Danish politics. Indeed, so potentially explosive is efterløn that government advisers, in a similar fashion to actors referring to Macbeth as the Scottish play, refer to it simply as "the e word".
The Weight of History
Efterløn is a state run early retirement scheme, allowing workers to retire five years before the standard retirement age - traditionally 65, now rising to 67. The scheme was adopted in the late 1970s when the government, applying the supply side logic then in vogue, introduced it to control youth unemployment with older workers making way for younger ones. Although originally envisaged for those in physical and manual work, this limitation was quickly dropped and age rather than health is the main determinant factor for applicants.
For many longing for welfare reforms efterløn has long been a symbol of an overly generous state which will struggle to deal with demographic changes in the future. For proponents of the system, it is a sign that the famous Danish welfare state still works. The iconic status of the system was cemented in 1998, when then Prime Minister Poul Nyrup Rasmussen proposed changes to it. The outcry was massive, not least because Nyrup, in the election just held, had unequivocally confirmed that the system would remain. In the accepted political narrative Nyrup never recovered from the loss of credibility which (along with immigration concerns) led to the centre right's rise to power in 2001.
With that cautionary tale in the back of his mind, Anders Fogh Rasmussen, Prime Minister from 2001-2009, kept as far away from the explosive topic as possible. In his mind there was nothing to be gained from slaughtering this holy cow and, in any event, there was no practical need to. As global economic growth took off in the middle of the decade the state surplus boomed, meaning that controversial cost-cutting measures were not necessary. However, showing a sense of timing that Shakespeare himself would be proud of, Fogh left the domestic political scene to become Secretary General of NATO in 2009, just as the global recession started hitting public finances.
Løkke's Challenge
Taking over an eight year old government in the middle of a recession was hardly auspicious circumstances for Løkke. Even allowing for this, though, the government's performance has been underwhelming. In 2010 a string of bad stories broke as the government struggled to control the news agenda, culminating in its support party, the Danish People's Party, managing to present what was intended to be a loosening of immigration rules for qualified workers as Europe's most stringent points system. Throughout the year Løkke seemed passive, apparently powerless to stem the decline, as if simply waiting for his personal Birnam Wood to come to Dunsinane.
With an election to be held in 2011, extreme measures were called for, and in recent Danish political history there are few things more potent than efterløn. With a budget deficit of 5%, all spending needed to be analysed. Løkke argued in his New Year's speech that the DKK 18 billion (EUR 2.5 billion) paid each year on efterløn could be spent elsewhere. Presenting himself as the real protector of the Danish welfare state, Løkke stated that if cuts were not made on non-essential services then the heart of the welfare state - free health and education, support for those unable to work - would suffer.
At the same time there are structural arguments as well as cyclical ones. The numerically hefty Baby Boom generation is approaching retirement age and, at the same time, there are fewer taxpayers to pick up the slack. At the same time, pensioners are living longer and revenues from North Sea oil are slowly but surely drying up.
Løkke's proposal was simple - efterløn is to be phased out over the next 15 years. Those currently using the scheme can continue whereas the scheme would be fully closed for those under 45. Those physically unable to work would, in future, be brought under separate existing regimes. Løkke leads a minority government and its main support party is scpetical concerning the proposal. In reality, therefore, a bill changing the system is unlikely to be passed in this parliamentary term and will thereby automatically become one of the main electoral campaign issues.
Will The Risk Work?
Løkke's strategy is an enormous risk. Normally, few voters appreciate a popular scheme being dismantled. Løkke is hoping that in the wake of the financial downturn voters will take a more analytical approach to where they put their cross. He has positioned himself as the man who can control the public purse strings, willing to take tough, unpopular but necessary decisions in order to ensure long-term stability. Løkke contrasts his willingness to cut expenditure to the Social Democrats proposals to increase tax (they plan, for example, to introduce a new rate of tax for those earning an annual income of above DKK 1,000,000 (EUR 135,000) which he says will stifle innovation in the economy.
The Social Democrats point to the fact that efterløn is disproportionately used by those with manual jobs and high earners have benefitted disproportionately from recent tax cuts. They fear that those in traditional manual jobs will need to continue until it is physically impossible, thus ruining their chances of a healthy retirement.
And the risk is inherent in the symbolic nature of efterløn as well as the scheme itself. Whereas Løkke will use it as an example of the government's ability to take decisive action where necessary to secure the long term position of the company, the centre left will argue that this is just an example of a government looking to slowly but surely dismantle the welfare state.
Recent polls are not conclusive but suggest that Løkke's gamble has worked. After falling behind badly in the autumn, recent opinion polls show that the race is back in the balance, with some showing a majority for the centre right block. Additionally, polls looking individually at the issue of efterløn show a slight majority in favour of abolishing it. The speech has revitalised the feeling in the political classes, with Løkke now looking sharp and engaged in debates and the government believing once again that they can win re-election.
With the election back in the balance all the signs are that the campaign will be brutal. Even now the tension is simmering with personal attacks, usually presented in Denmark as a uniquely American political trait, common and both groups keen to portray themselves as the long-term protector of the welfare state. Having passed the Macbeth test, Lars Løkke will need to fight like Henry V at Agincourt to ensure re-election.