War in Ukraine and Trump in the White House: is Denmark still a frugal state?

In a New Year’s speech on January 1, Prime Minister Mette Frederiksen warned that Europe has entered a new era — a more turbulent and dangerous world — that will require a new security architecture and a more robust economic model.

Frederiksen has expressed his support for state aid, whether at national or European level.

• “They say that the United States innovates. China copies. And the Union regulates. We must change this. We must keep jobs in Europe. And to achieve this, much more investment is needed, both public and private, in the areas of energy, technology, defense, green transition and climate. The needs are so great that we need to look at the whole toolbox. State aid is necessary. We need to rethink the European economy. This also applies to Denmark » .
• This turnaround reflects the profound changes brought about by the 2022 full-scale Russian invasion of Ukraine and Donald Trump’s November 2024 victory.

Denmark is one of the “frugal countries”, a group of four or even five countries (Austria, Denmark, the Netherlands and Sweden, often joined by Finland) traditionally in favor of fiscal discipline, reduction public spending and opposed the increase in national contributions to the Union budget.

• The four have also positioned themselves as defenders of free trade and the opening of markets in the face of certain more interventionist voices in matters of industrial policy, like the position defended for example by France.

During the Covid-19 pandemic, they strongly opposed the recovery plan and the issuance of joint debt.

• The position of the Danish Prime Minister could be crucial for the implementation of the recommendations of the Draghi report (which notably recommended increasing the total investment rate in relation to GDP to reach around 5% per year), but also for the negotiations which will open in 2025 on the next multiannual financial framework.
• Moreover, the end of the post-Covid recovery plan in 2026 could open the door to new discussions on the use of unspent funds for common policies (such as defense) or for new debt in order to finance the necessary investments in the areas of climate and geopolitical transition.
• In February 2024, when she was Prime Minister of Estonia, the High Representative of the Union for Foreign Affairs, Kaja Kallas, proposed the issuance of 100 billion Eurobonds for defense.

Former Finnish President Sauli Niinistö also recommended in his report presented at the end of October the pooling of Member States’ defense resources through the creation of two structures: the European Defense Facility (DEF) and the Securing Europe Facility (SEF).

• Donald Trump’s transition team reportedly informed Europeans in December that the president-elect will, once invested, ask allies to devote 5% of their GDP to defense.

• For Denmark, this would represent an additional effort of 10.9 billion euros per year.