Denmark's Economy: is the Krone in Trouble?

The Krone is issued by the central bank of Denmark (Danmarks Nationalbank) and this video explores whether or not is has done a good job.

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Narrated and produced by Dr. Joeri Schasfoort (University of Cape Town)

Extended description:
To answer the main question of this video, I explore the economy of Denmark through the lens of its exchange rate (and specifically it's peg to the Euro), inflation rate, GDP growth, and financial stability issues such as: housing bubbles, government and private debt levels, asset prices, and current account imbalances. I will compare its record to neighboring economies such as those of Norway, Sweden, Finland and Germany. Finally, I will review whether current monetary policy measures such as interest rate policy, quantitative easing and the exchange rate peg are sustainable.

[sdprz]

You may not be as flashy as Economics Explained but you’re a lot more detailed and understandable

[Runix]

As a Dane, I'm just happy that there are smarter people than me taking care of these things. No idea what they're doing, but life is nice.

[kasperholmj]

Dane here as well.
True that the household debt is high, but it's also important to notice the kind of debt.
By far the wast majority of loans is government bonds which foreign countries really love to buy since it's a safe place to put your money and the yeld is decent.

It's also worth mentioning that the housing market in Stockholm and Oslo is much worse than in Copenhagen, even though the debt factor of Sweden apparently is lower.

And actually there was a run on the Danish krone back in January 2015. There was a huge buy of Swiss Francs which was also tied to the Euro, in the end the Swiss gave up and cut the peg to the Euro. Then the attack was turned on the Danish Krone in hope the same thing would happen, but it was controlled by the Danish National Bank by massive buys, printing more money, and lowering the interest rate to make the Krone less attractive, and it worked...

[teroril]

As a Dane (and international political economist), I agree with pretty much everything you say. The housing market is completely almost completely unapproachable for younger people, unless you've been one of the lucky ones that has gotten a well-paying and stable job. Even then, it's more feasible to get a house in a smaller town, than in the city or suburbs.

The housing market in Denmark suffers exceptionally from gentrification (especially since the foray of Blackstone into the market). It's a crisis waiting to happen, unless something is done about it.

[frenger]

The clip of the Evergreen container ship didn’t age well.

[dschledermann]

The roof apartment in Nyhavn 45 (orange house to the right at 5:16) is where I lived until I was 5 years old and my parents got divorced. My father was well of, but not especially rich (certainly NOT top 1%). Such housing is completely out of the question now for people with ordinary income that has not inherited huge sums of money. I myself live some 25 km from Copenhagen centre, well outside the city. I'm fairly well of, I'm a computer programmer, I drive a Tesla, I have four children and a large house, but I would never ever be able to afford to buy my childhood home. The rise in housing prices is just insane.

[rickybuhl]

The bubble is very much in the cities - and we don't have many of them. Step outside the city and into the towns and country and the prices are low enough - paid 250k and 25k for a couple of cottages and looking at a 400sq.m farmhouse for 2m. It's mostly that we have few metro-city type places and a lot of young people wanting (not needing) to live in the city. Another element of the older buyers is that with free education and so many of us being paid to attend University - we don't start our working careers as young as most others. There's also much less 'moving house for work' - so we stay in the homes we buy longer too. It's much more than finance, Janteloven isn't lost to us, there's plenty of infrastructure to hold the system up - oil money helped, producing 3x the food our population needs helps - ultimately I don't think it'd be sustainable in Britain or France but it works just fine for us.

[roaramplification]

Great analysis. As a Dane I'd like to add a little history: In the 70's the social democrats spent like crazy, leaving DK with an ever increasing amount of debt: Unsustainable! At the same time as Reagan and Thatcher, we got a conservative government around 1980. A cpl of years later they decided to peg the KR to the Dmark. This was a painful transition period, but with a more long lasting goal. In DK that period is known as the "poor 80's". In the early 90's a massive negative export/import rate was turned postive, which it has been ever since.
I like that you also describe the benefits of NOT adopting the euro. Before the financial crisis, the politician couldn't stop talking about another referundum to join the euro. After the financial crisis, they've been dead silent on that topic. Wonder why, ha ha. Different currencies allow different countries to adjust to the international market. Poor Greece lost that option, and southern europe is suffering in general, while northern europe is thriving lige ever before. Also steeling their best young talents, which is so unfair it's unbearable to imagine the future of southern europe with such a low birth

[wildewille]

I believe that another factor offsetting danish household debt are the huge pensionsavings that most danes also own. Most people save between 10 and 20 percent of their income for pension. It has been like that for years and years. I wonder how total pension savings in Denmark, pr, capita, compares to fx. the low countries.

[PHILPAF]

Thanks for a great video. Dane here. I cannot agree more. I am as we speak trying to change my 5 year reevaluation period on mortgage into a 30 year. I am nervous for possible increasing interest rates!

[stoissdk]

I'm not an economist, but another additional factor I would consider, pushing real estate prices up, is the (limited) investment options. The is an area where the Swedes are doing better - at least when it comes to encouraging investment in the stock market and especially start ups, with favorable taxation. If you want return on your money in Denmark, the best option is still real estate - assuming you have enough money to get in and a "bubble" doesn't pop on you.

[sanshuma]

This channel is a great new addition to my watch list! Pure thorough information without any unnecessary bling...

[togethereasy]

I came to Denmark and after 5 years of very hard work, I was able to buy a house. However, I bought it 45 minutes drive from Copenhagen, because the prices here are 1/4th of the ones in the capital city. While I still don't speak the language, I managed to build a company that makes 41.200 dollars per month in revenue, and growing. Despite all these, I do believe that one has to work very hard for the money everywhere, even in Denmark.

[Storgaaard]

Seriously this blew my mind. I have had an almost conspitorial worry about why inflation was not rising. But youre right - of course its the housing market

[tobiastrier]

Dane here. If you want to solve the housing price boom in especially the greater Copenhagen area and Aarhus and a few other places you have to build more affordable housing (which the new social democratic government is doing and planning to do). Also decentralizing and moving public institutions away from the capital area making it more attractive to live in other areas. So the housing price problem is more structural and social than it is monetary.

I think your suggestion to drop the peg for a while would be suitable for some sort of sudden crisis or emergency situation. Otherwise staying on the current course or entirely switching to the euro would be the right thing for us monetarily

[PhilfreezeCH]

Switzerland also did this for some time.
The main thing it did was to make our national bank one of the largest holder of Euro (for a time?).
According to them they had serious problems spending enough Swiss Franks and buying enough Euros and assets with it to keep up and it didn't even really cause any inflation.
Modern monetary systems are weird...

[noahnoscope]

This is absolutely true, in 2004 My parents bought a new house for about 1 million dkk, now it is valued at 2, 4 million and despite this, modern houses that are tiny, under half the size and no gardens only a block away cost 3 million dkk.

[maxfriis]

Love this video as a fan of changing the peg to inflation management. The fundamental problem about changing it is that the only time it becomes part of the agenda is exactly the moment you want to reduce uncertainty and _not_ change it.

[rottafi]

The housing prices in Copenhagen are still more affordable than e.g. in Stockholm or Helsinki if you take salary level into account.

[shanicedougan]

Yes, the house prices in Copenhagen are crazy - but look outside of the capital! We've been looking at houses on Funen, where I've settled with my boyfriend (also from Funen), and I'm consistently surprised and impressed by the house prices - that is how much you get for what you pay! You can get a gorgeous, refurbished, 4 bed house at about 150m² for 2-2.5m kr. That's about £250k. The same thing in the UK would cost 400k easy.