Danish Premier Rebuilds Cabinet After Goldman Deal Dispute

Feb 03, 2014 7:59 am ET

(Updates with comment from premier in third paragraph.)

Feb. 3 (Bloomberg) -- Danish Prime Minister Helle Thorning- Schmidt is rebuilding her Cabinet after a coalition partner quit in protest over allowing Goldman Sachs Group Inc. to buy a stake in the state-owned energy company.

Thorning-Schmidt is replacing the six ministers in the Socialist People’s Party that left last week, including the foreign minister. Polls show the dispute over Goldman Sachs has dented her popularity, adding to difficulties including a weak economy ahead of elections next year.

“There are signs the economy is improving,” she said at press briefing today in Copenhagen. “We’re very particular about not calling the end of the crisis as there are still things that needs to be done.”

The 48-year-old Social Democrat watched her coalition collapse after pushing a $1.5 billion sale of an 18 percent stake in Dong Energy A/S to Goldman. The deal, opposed by 68 percent of voters in a Megafon poll for TV2, became the target of criticism after it emerged Goldman would get some veto powers in how the company is run. Goldman has said it views the stake as a long-term holding and will support the strategy of the current management.

Martin Lidegaard will be named foreign minister and Morten Oestergaard of the Social Liberals will take over as tax minister, the prime minister’s office said in a statement. Rasmus Helveg Petersen becomes climate and energy minister, Magnus Heunicke will be transport minister and Nick Haekkerup health minister.

Completely Against

The Cabinet changes and the government split underpin Thorning-Schmidt’s plight as she alienates members of the political wing on which her government bases its survival.

“We’re completely against Goldman having any say on the development of Dong,” Frank Aaen, a member of the Red-Green Alliance that provides the votes to keep Thorning-Schmidt in office, said in parliament on Jan. 30. “If there’s anything we can do to block the sale, we will do it.”

Dong is selling shares as part of a restructuring announced in February last year to cut costs, reduce debt and bolster investments in oil and gas exploration, as well as in wind farms. The plan included cutting expenses by 20 percent and selling assets to raise 10 billion kroner ($1.8 billion).

No Election

Goldman will buy the stake through its European merchant banking unit in a company named New Energy Investment S.a.r.l. Goldman will partner with Denmark’s two largest pension funds, ATP and PFA, which will own 4.9 percent and 1.8 percent, respectively.

Thorning-Schmidt has been battered in the polls since taking power in 2011. To ward off a recession and deficits, she enacted measures that alienated many core voters.

The government, which now comprises Thorning-Schmidt’s Social Democrats and the Social Liberal Party, has started to means test services including study grants and childcare benefits. It also requires Danes to work longer before retiring. Meanwhile, Danes bear the world’s highest tax burden relative to gross domestic product.

In a Jan. 26 poll published by newspaper Berlingske, 55.1 percent of Danes said they’d vote for the opposition bloc led by Lars Loekke Rasmussen’s Liberal Party. That compares with 49.7 percent in the Sept. 15, 2011 general elections.

With her coalition in tatters, Thorning-Schmidt says she doesn’t need to call an election because the Socialist People’s Party will continue to support her government.

According to a web poll published by Berlingske on Friday, 54 percent of Danes say Thorning-Schmidt has been weakened by the Socialists’ exit. Some 25 percent say her position is unchanged and 12 percent say it has strengthened her. The poll, conducted by Gallup in Denmark, included 1,194 web-based interviews.

‘Uphill Battle’

Denmark became Scandinavia’s weakest economy after a housing bubble that burst in 2008 triggered a community banking crisis. The country’s biggest lender, Danske Bank A/S, has lost 135,000 clients in the past 16 months and customer satisfaction is the lowest in at least six years, according to pollster Voxmeter.

The central bank estimates consumer indebtedness is hurting household demand, and Denmark’s economic growth is lagging behind rates in neighboring Sweden and Norway. Danish GDP will expand 1.6 percent this year, versus 2.3 percent in Sweden. The mainland economy of Norway will expand 3 percent, the Organization for Economic Cooperation and Development estimated in November.

“It’ll be a long, hard uphill battle,” Jens Hoff, a professor of political science at the University of Copenhagen, said by phone.

--With assistance from Frances Schwartzkopff in Copenhagen. Editors: Jonas Bergman, Tasneem Brogger