How Negative Rates and Millionaires Played a Role in Danish Vote
How Negative Rates and Millionaires Played a Role in Danish Vote
(Bloomberg) -- There may be a link between Denmark’s new left-wing government, a record spate of negative interest rates and the rise in the number of multi-millionaires in the country.
The chief economist at the Copenhagen office of Nordea, Helge Pedersen, says Denmark’s extreme monetary policy environment was highly effective in pumping up assets held by the wealthy. The development left many voters disgruntled, tipping the balance of power toward a left-leaning government.
Pedersen says that there’s “no doubt that growing inequality mattered [...] and that the many years of negative interest rates contributed strongly” in shaping the outcome of the June 5 election.
Denmark, which has had negative rates longer than any other country on Earth after first embarking on the policy in mid-2012, last month elected a government of Social Democrats promising more welfare and equality. The new prime minister, 41-year-old Mette Frederiksen, replaced Lars Lokke Rasmussen, who’d led a center-right coalition.
Widening Gap
Denmark remains one of the world’s most equal societies. But according to the OECD, the pay gap has grown 22% since 1995, which is among the highest increases in the rich world. Eurostat data show the development has picked up over the past seven years. By 2017, the wealthiest 10% of Danes owned roughly half the country’s net assets. That’s worrying, given the Paris-based OECD has also documented a link between rising income inequality and lost economic growth.
In an October report, research and consultancy firm Global Data predicted that the number of high net-worth individuals in Denmark will grow by almost a quarter by 2022. It pointed to low interest rates coinciding with positive inflows into mutual funds since 2012, for those with surplus assets to invest.
Obscene Perks
In recent years, Danish media have been full of reports of corporate executives taking home historically high pay packages, padded by stock options and bonuses. Danes questioned why business leaders were making so much more than their prime minister. In one case, an executive brought home over 300 times the pay that the head of Denmark’s government gets a year. Frederiksen, the new prime minister, has railed against the development, while Denmark’s biggest trade union, 3F, says levels of inequality in the country have become “obscene.”
Denmark’s central bank, which uses monetary policy to keep the krone pegged to the euro, is unlikely to raise its main rate above zero before 2022 at the earliest. “I’m not very optimistic that we will see positive rates any time soon,” Pedersen said.
To contact the reporter on this story: Nick Rigillo in Copenhagen at nrigillo@bloomberg.net
To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Tasneem Hanfi Brögger
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