# EUR-Lex - 52014DC0407 - EN

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# 52014DC0407

**Recommendation for a COUNCIL RECOMMENDATION on Estonia’s 2014 national reform programme and delivering a Council opinion on Estonia’s 2014 stability programme /* COM/2014/0407 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Estonia’s 2014 national reform
programme
and delivering a Council opinion on Estonia’s 2014 stability programme

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148(4)
thereof,

Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular
Article 5(2) thereof,

Having regard to the recommendation of the
European Commission[2],

Having regard to the resolutions of the
European Parliament[3],

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

Having regard to the opinion of the
Economic and Financial Committee,

Having regard to the opinion of the Social
Protection Committee,

Having regard to the opinion of the
Economic Policy Committee,

Whereas:

(1) 
On 26 March 2010, the European Council agreed to
the Commission’s proposal to launch a new strategy for growth and jobs, Europe
2020, based on enhanced coordination of economic policies, which will focus on
the key areas where action is needed to boost Europe’s potential for
sustainable growth and competitiveness.

(2) 
On 13 July 2010, the Council, on the basis of
the Commission's proposals, adopted a recommendation on the broad guidelines
for the economic policies of the Member States and the Union (2010 to 2014)
and, on 21 October 2010, adopted a decision on guidelines for the employment
policies of the Member States, which together form the ‘integrated guidelines’.
Member States were invited to take the integrated guidelines into account in
their national economic and employment policies.

(3) 
On 29 June 2012, the Heads of State or
Government decided on a Compact for Growth and Jobs, providing a coherent
framework for action at national, EU and euro area levels using all possible
levers, instruments and policies. They decided on action to be taken at the
level of the Member States, in particular expressing full commitment to achieving
the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.

(4) 
On 9 July 2013, the Council adopted a
recommendation on Estonia’s national reform programme for 2013 and delivered
its opinion on Estonia's updated stability programme for 2012-2017. On 15 November 2013, in line with Regulation (EU) No 473/2013[4],
the Commission presented its opinion on Estonia's draft
budgetary plan for 2014[5].

(5) 
On 13 November 2013, the Commission adopted the
Annual Growth Survey[6],
marking the start of the 2014 European Semester of economic policy
coordination. On the same day on the basis of Regulation (EU) No 1176/2011, the
Commission adopted the Alert Mechanism Report[7],
in which it did not identify Estonia as one of the Member States for which
an in-depth review would be carried out.

(6) 
On 20 December 2013, the European Council
endorsed the priorities for ensuring financial stability, fiscal consolidation
and action to foster growth. It underscored the need to pursue differentiated,
growth-friendly fiscal consolidation, to restore normal lending conditions to
the economy, to promote growth and competitiveness, to tackle unemployment and
the social consequences of the crisis, and to modernise public administration.

(7) 
On 8 May 2014, Estonia submitted its 2014 national
reform programme and on 29 April 2014 its 2014 stability programme. In order to
take account of their interlinkages, the two programmes have been assessed at
the same time.

(8) 
The objective of the budgetary strategy outlined
in the 2014 Stability Programme is to be at the medium-term objective and to
build sufficient fiscal buffers for difficult economic times. The programme
confirms the previous medium-term objective of a structural surplus, which is
more stringent than what the Stability and Growth Pact requires. Estonia’s
recalculated structural balance is expected to worsen by 0.1 pp. of GDP in
2014, thereby deviating from the required adjustment path, before improving by
0.4 pp. of GDP in 2015, and remaining close to balance in 2016-2017.
Furthermore, the programme points to a risk of deviation from the expenditure
benchmark in 2014 and to a risk of a significant deviation in 2015. Overall, the
planned adjustment path towards the medium-term objective presents risks with
respect to compliance with the requirements of the Stability and Growth Pact.
The macroeconomic scenario underpinning the fiscal projections in the
programme, which has not been endorsed by an independent entity, is plausible
and broadly in line with the Commission 2014 Spring Forecast. According to the
Commission Forecast, the structural deficit is projected to deteriorate by 0.1%
of GDP in 2014, leading to a 0.3% of GDP gap compared to the required
adjustment and a significant deviation when assessed over two years. In 2015
the Commission foresees another 0.2% of GDP  deterioration in the structural
balance pointing to significant deviation from the required adjustment toward
the medium-term objective. A significant deviation is expected also with
respect to the expenditure benchmark over 2014-2015. Based on the assessment of
the 2014 Stability Programme and the Commission Forecast, pursuant to
Regulation (EC) No 1466/97, the Council is of the opinion that there is a risk
of significant deviation from the medium-term objective in 2014 and 2015. The
structural balance rule to comply with the Treaty on Stability, Coordination
and Governance entered into force through Estonia's new State Budget Act on 23 March
2014, but the rule is still to be complemented by a strengthening of the
binding nature of the multiannual expenditure targets.

(9) 
As regards the labour market, substantial
progress has been made in reducing youth and long-term unemployment. Particular
attention needs to be paid to measures that provide incentives to work for
low-wage earners. Further efforts are necessary to address growing work-force
shortages, including those caused by ageing and health-and disability related
exits from the labour market. The timely adoption and implementation of the
Work Capacity Reform, while ensuring the availability of enabling services, is
therefore highly relevant. The cost-effectiveness of the family policy
expenditure could be further improved, including by reallocating financing from
parental benefit to measures such as childcare services. This is expected to
foster an early return of women to the labour market and to reduce the
persistently high gender pay gap. Efforts to promote entrepreneurship and job
creation in regions outside Tallinn and Tartu need to be stepped up to prevent
economic development differentials from widening and to reduce unemployment,
especially among the low-skilled.

(10) 
In the field of education and training reforms to
align education to the requirements of the labour market have recently been
adopted. Further efforts will be necessary to facilitate the transition from
education to employment. Systematic efforts will be needed, in particular
involving social partners, to increase participation in vocational education
and training, and in work-based learning, especially apprenticeships. The
implementation of the Lifelong Learning Strategy will require serious efforts
to provide the much-needed up-skilling, re-skilling and qualification levels,
especially for people in a weak position vis-à-vis the labour market. There is
a smart specialisation framework that comprises the Entrepreneurship and Growth
Strategy and the Research, Development and Innovation Strategy with a focus on
shared priorities while further specialising the thematic areas. Efforts should
continue towards the internationalisation and prioritisation of the research
and development and innovation system, given the small size of the economy.

(11) 
Estonia's resource intensity continues to be
very high. There has been progress in addressing the energy efficiency of
public buildings, but efforts need to be sustained and increased, notably in the
residential and industrial sectors. Substantial progress has been made with
respect to waste management and landfilling, while the economic viability of
recycling needs to be ensured. Measures in the Transport Development Plan need
to be implemented to notably enable Estonia to contain CO2 emissions in the
non-ETS sector. The energy efficiency of freight transport can be improved by
deploying more sustainable modes of transport. The use of public transport can
be further increased through enhancing the complementarity of regional networks
and interconnections between coach and passenger rail transport. The use of
private cars increases, while the average age of the passenger car fleet is
almost double the EU average and new passenger cars are among the most
pollutant in the EU. Substantial strengthening of environmental incentives,
including taxation, is necessary. While promising steps have been taken in
cross-border energy connections, full linking up of Estonia's energy market to
the EU will require time and investment.

(12) 
Widening regional differences combined with negative
demographic trends, inefficiencies and lack of cooperation among local
governments hamper Estonia's development potential. . This partly reflects the persistent mismatch between fiscal
capacity and devolved responsibilities in small
municipalities as well as limited economies of scale. A more efficient and
accessible delivery of quality public services at local level, based on service
areas and minimum service standards, especially in transport, long-term care,
early childhood education and social services, is a prerequisite for activation
and labour market measures to be effective.

(13) 
In the context of the European Semester, the
Commission has carried out a comprehensive analysis of Estonia’s economic
policy. It has assessed the stability programme and the national reform
programme. It has taken into account not only their relevance for sustainable
fiscal and socio-economic policy in Estonia but also their compliance with EU
rules and guidance, given the need to reinforce the overall economic governance
of the European Union by providing EU-level input into future national
decisions. Its recommendations under the European Semester are
reflected in recommendations (1) to (5) below.

(14) 
In the light of this assessment, the Council has
examined Estonia’s stability programme, and its opinion[8] is reflected in
particular in recommendation (1) below.

(15) 
In the context of the European Semester the
Commission has also carried out an analysis of the economic policy of the euro
area as a whole. On the basis of this analysis, the Council has issued specific
recommendations for the Member States whose currency is the euro. Estonia should
also ensure the full and timely implementation of these recommendations.

HEREBY RECOMMENDS that Estonia take
action within the period 2014-2015 to:

1. 
Reinforce the budgetary measures for 2014 in the
light of the emerging gap of 0.3% of GDP based on the
Commission 2014 spring forecast, pointing to a risk of significant
deviation relative to the Stability and Growth Pact requirements. In 2015, significantly
strengthen the budgetary strategy to ensure reaching the medium-term objective and
remain at it thereafter. Complement the budget rule with more binding
multi-annual expenditure rules within the medium-term budgetary framework and
continue to enhance the efficiency of public spending.

2. 
Improve incentives to work through measures
targeted at low income earners. Target activation efforts at those most distant
from the labour market, in particular by ensuring the timely adoption and
implementation of the work capacity reform. Increase the efficiency and
cost-effectiveness of family policy while improving the availability and
accessibility of childcare. Deploy coordinated measures for fostering economic
development and entrepreneurship in regions faced with high unemployment.

3. 
To ensure the labour-market relevance of
education and training systems, improve skills' and qualification levels by
expanding life-long learning measures and systematically increasing
participation in vocational education and training, including in
apprenticeships. Further intensify prioritisation and specialisation in the
research and innovation systems and enhance cooperation between businesses,
higher education and research institutions to contribute to international competitiveness.

4. 
Step up efforts to improve energy efficiency, in
particular in residential and industrial buildings. Substantially strengthen
environmental incentives for the transport sector to contribute to less
resource-intensive mobility. Continue the development of cross-border connections
to neighbouring Member States to diversify energy sources and promote
competition through improved integration of the Baltic energy markets.

5. 
Better balance local government revenue against
devolved responsibilities. Improve the efficiency of local governments and
ensure the provision of quality public services at local level, especially social
services complementing activation measures.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 2.8.1997, p. 1.

[2]               COM(2014) 407 final.

[3]               P7_TA(2014)0128 and P7_TA(2014)0129.

[4]               OJ L 140, 27.5.2013, p.11.

[5]               C(2013) 8002 final

[6]               COM(2013) 800 final.

[7]               COM(2013) 790 final.

[8]               Under Article 5(2) of Council Regulation (EC) No
1466/97.