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March 24, 2020

Denmark offers Rs6,521 bn economic package for its 5.7m people

National

March 24, 2020

COPENHAGEN: While the White House and lawmakers haggle over the terms of an emergency economic-stabilization package, Denmark has gone big — very, very big — Rs6,521 billion (287 billon DKK, 13pc GDP) to defeat the unprecedented challenge of the coronavirus its 5.7 million population is facing.

This week, the Danish government told private companies hit by the effects of the pandemic that it would pay 75 percent of their employees’ salaries to avoid mass layoffs. The plan could require the government to spend as much as 13 percent of the national economy in three months. Denmark has nearly entirely closed down universities, schools, public institutions, restaurants, museums and cinemas. No assembly of more than 10 persons is allowed; even the borders have been shut down. To find out more, The Atlantic's Derek Thompson corresponded with Flemming Larsen, a professor at the Center for Labor Market Research at Denmark’s Aalborg University. The Denmark’s government agreed to cover the cost of employees’ salaries at private companies as long as those companies do not fire people. If a company makes a notice saying that it has to either lay off 30 percent of their workers or fire at least 50 people, the state has agreed to take on 75 percent of workers’ salaries, up to $3,288 per month. (This would preserve the income for all employees earning up to $52,400 per year.)

In order to do that, Denmark is actually putting the economy into the freezer for three months. Because otherwise the government is afraid of the long-term damage that this will do to the entire system. The hope is that this crisis will be over in three or four months, and then they can start up society again. 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. 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. Also, the state has agreed to compensate companies for their fixed expenses, like rent and contract obligations, depending on their level of income loss. Also, the spring payment of taxes for companies have been postponed until autumn, and all public employees will keep their salaries when sent home.