Who would have thought that Denmark would become a safe harbour for scared investors? This country that has one of the highest tax in the world is now viewed as a safe place to store money. With an inflation rate of just 2,7%, which is significantly under the EU and US average of around 3,3% it would seem that the financial situation here is much better. So why is Denmark such a good place to keep your money safe?
In Denmark the tax on business is 25% and on average personal tax is around 48% ranging from 36% to around 60%. For decades the Danish tax, have been under attack from just about everyone because it was thought that it was a burden on growth, innovation and entrepreneurship. But while these things in theory might be true it would seem that hard-core capitalists now think that Denmark is one of the best places to put money.
In a resent auction of Danish state bonds an all time record of 1,36% for a one-year convertible loan in real estate while a 5-year loan was only slightly higher. (For a 1-year loan you need to renegotiate every year while for a 5-year loan you get a lightly higher rate but only need to negotiate every 5 years). For homeowners this is truly good news as the economy is tight and the job situation is somewhat shaky the extra money will be handy. All this is something we can thank investors in Danish real-estate bonds for who apparently regard 1,36% as a good investment even though inflation will properly eat up any profits that they might make in the process.
So why is Danish bonds suddenly becoming so attractive? It would seem that big-government is on the offensive (big as in influence not necessary in size). That all the things we learned in business school about large scale privatisation, low tax and minimum government intervention in markets, were not as true as they seemed at the time.
Now we see that the Danish government that have “robed” the taxpayers and businesses for decades are the only ones that have the capability to save the economy. Several times big-government have been the only buffer between large-scale bankruptcy in the financial sector and massive runs on banks. Only the Danish government have forced bankers to sit together made them solve the problems that they have caused the problems in the first place. With a resent Keynesian undertaking the big-government have proclaimed massive spending on education, infrastructure and social services in order to boost the economy and mind you doing so within a reasonable balanced budget. Something that the governments in the UK and US would only dream of.
Now it seems that only big-government is able to ride of the storm on the financial markets by providing a safe harbour for investors who have capsized in the troubled waters of European economy. I would not make the claim that our financial theory is wrong and should be rewritten but it seems that new stories of how to achieve sustainable economics is being written as we speak.