Prime Minister Anker Jorgensen, resisting strong pressure from the Carter administration and opposition politicians here, is sticking to his refusal to increase Denmark's defense spending next year.
An acute economic crisis is forcing Denmark, which is one of the world's most affluent societies, to reduce its rich standard of living. Jorgensen's left-of-center Social Democratic government is expected to win parliamentary approval this month for an austerity budget for 1981 that will curb the growth of Denmark's generous welfare state while allowing defense spending to rise only enough to cover inflation.
This will leave Denmark last among the members of the North Atlantic Treaty Organization in its commitment to defense spending, as measured against the NATO target of a 3 percent increase above inflation each year and near the bottom in defense expenditure as a proportion of national income.
Danish officials argue that Jorgensen had little political choice but to hold down defense expenditure. His government must painfully squeeze both public and consumer spending to try to reduce huge deficits in the government budget and balance of payments that have put Denmark dangerously deep in debt to foreign creditors.
Denmark is slipping from the top of the world's per-capita-income chart, and its media are reporting that Danes are becoming depressed by the unaccustomed squeeze. Economic growth is stalled, consumer purchasing power is falling, unemployment is soaring and vacation homes are becoming a glut on the market.
"Of course, we are not a poor country," acknowledged a Danish diplomat in the severely modern Foreign Ministry building not far from Copenhagen's sprawling downtown pedestrian shopping precinct, where colorfully decorated stores were filled with luxury goods and well-dressed Christmas shoppers.
"But we have to cut down on everything," he said. "And even when you start from a high base that hurts. So it was not politically feasible to increase defense spending much above inflation just now. It is an economic problem."
But U.S. officials question whether it is also a problem of national will. They see Denmark as a symbol of high-income European allies under the protection of the U.S. defense umbrella who want to sidestep their NATO spending commitments in an economic pinch in order to keep as much as possible of their comfortable standard of living and welfare-state social benefits.
Belgium and Holland have committed themselves to only half the NATO target this year. West Germany appeared ready to settle for a similar shortfall until Chancellor Helmut Schmidt recently pledged the country would still work to meet its commitment.
Much less affluent Britain, suffering from the worst recession in Europe and trying to implement the most drastic cuts in government spending, will be unable to meet its commitment. But U.S. officials believe it is doing its best to get near the 3 percent target.
Danish officials disagree about whether Denmark might be more likely to increase defense spending if Soviet troops invaded nearby Poland. Denmark's Bornholm Island in the Baltic Sea is the closest allied territory to Poland.
Recent opinion polls in Denmark show a record 70 percent support for membership in the NATO alliance but only 20 to 50 percent support for higher defense spending, depending on the phrasing of the question.
"Defense spending leaves people totally cold," said a journalist who had just written a series of newspaper articles on the Danes' preoccupation with the economic threat to their lifestyle. "They feel they just can't do much about it."
U.S. officials and opposition Danish politicians who believe Denmark can and should try harder have seized on the term "Denmarkization," coined by the European press to describe an ally who wants to keep the protection of NATO but is not willing to contribute its share of the cost.
The term has angered Jorgensen and his ministers, who insist Denmark is doing well to hike next year's defense outlay by the more than 10 percent in Danish kroner to keep up with inflation. They note that Danish calculations of defense costs do not include military pensions, which are paid out of another part of the budget.
Defense Minister Poul Sogaard said in an interview that he would work for a compromise increase in defense spending for late 1981 or 1982 when stalled negotiations resume among Danish political parties of a new four-year defense act to replace the one that expires April 1.
The government's refusal so far to budge on defense spending in the 1981 budget has threatened the consensus on defense policy that has been the tradition among the major parties here since Denmark joined NATO in 1949. Arne Christiansen, defense spokesman for the Liberals, one of four right-of-center opposition parties seeking a significant increase in Danish defense spending, criticized the government for not even meeting the force and equipment goals of the present defense agreement.
Because defense costs have risen more rapidly than the inflation rate, he and U.S. officials said, Denmark is falling below its intended military strength by thousands of full-time soldiers and dozens of fighter planes. They and Sogaard added, however, that Denmark has modernized some of its equipment with American F16 fighters, German Leopard tanks and specially designed patrol boats for the coastlines of Denmark's Jutland Peninsula and numerous inlands.
It is difficult to keep force levels high "when equipment is so expensive and Denmark has to import 80 percent of it," Sogaard said. "We must cut down a little on troops in uniform in peactime," he added, while maintaining Denmark's unusually well-trained and educated reserve home guard, which can be mobilized quickly for war.
But Christiansen said he was worried that comparatively low defense spending "and an increasing isolationism on the left here" was causing Denmark's allies to "question whether Denmark still has the capability" to hold off an enemy until reinforced by other NATO troops.
Denmark is crucial to wartime control of the strategic straits between the Atlantic Ocean and the Baltic Sea. Warsaw Pact military exercises have veered increasingly close to Danish territory in recent years, significantly reducing the Danes' reaction time to a potential attack.
Sogaard and Christiansen also are concerned about a warning by U.S. Defense Secretary Harold Brown earlier this year. Brown said unless the Danes spend more to "be seen to be able" to carry out their defense responsibilities "I will find it extremely difficult to justify to Congress and the American public commitments to reinforce Denmark and pre-position equipment there" for a war emergency.