This week ends the first and longest experiment with negative interest rates. Bank of Denmark prepares to raise interest rates following ECB. It usually follows the actions of the ECB to protect the exchange rate of the Danish krone against the euro. The ECB is expected to raise interest rates by 75 basis points today, and most economists surveyed by Bloomberg expect the Danish Nationalbanken to raise its key interest rate to positive today from -0.1% where it is now.

The Scandinavian nation now has to deal with the fallout from a decade of super-cheap money. Among them is an asset price bubble that could undermine the stability of the financial system. “The economy will face challenges,” forecasts Karen Frossig, CEO of Sydbank A/S, Denmark’s third largest bank. As he emphasizes in an interview with Bloomberg, “Negative interest rates have had serious side effects, such as bubbles, and this can be true for all asset classes, from real estate to the stock market to business-to-business transactions.” After all, he believes that Denmark’s move away from negative interest rates should be a “holiday”. As he points out, negative interest rates have hit banks that have long protected depositors. The then-unprecedented move by the Bank of Denmark to adopt negative interest rates in 2012 was intended to discourage investors from making extensive purchases of the Danish krone. Her move gave ideas to central banks looking for new ways to support the economy. Thus, neighboring countries, Sweden, as well as the eurozone, resorted to solving the issue of negative interest rates, as did Switzerland and Japan. On the other hand, the superpower took a different stance as the Federal Reserve resisted pressure from then-President Donald Trump to do the same in 2019 and 2020. The change in his policy coincides with the arrival of a new leader and the replacement of Lars Rodi, who announced his departure and retirement in January after serving as central bank governor for 10 years.

The Scandinavian nation now has to deal with the fallout from a decade of super-cheap money.

During his tenure, the Danish market experienced what former Fed Chairman Alan Greenspan called “unwarranted over-optimism.” House prices rose by 56% over the decade, compared to a 41% rise in the euro area over the same period. During the same period, the Copenhagen Stock Exchange index rose by a total of 207%, while the Stoxx Europe 600 index added 54%.

Speaking to Bloomberg, Nordea’s Jan Storrup Nielsen made it clear that “this overheating of the economy is caused by low interest rates, and there is a price to pay for this mistake.” When banks began charging small depositors negative interest rates, that is, deducting a percentage of negative interest from deposits, wealthy Danes rushed to buy vaults to keep their savings in their homes.