# EUR-Lex - 52011SC0816 - EN

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# 52011SC0816

**Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Sloveniaand delivering a Council opinionon the updated Stability Programme of Slovenia 2011-2014 /* SEC/2011/0816 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on the National Reform Programme 2011 of
Slovenia
and delivering a Council opinion
on the updated Stability Programme of Slovenia 2011-2014

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(3) thereof,

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

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

After consulting the Economic and Financial
Committee,

Whereas:

(1) 
On 26 March 2010, the European Council agreed to
the European Commission’s proposal to launch a new strategy for jobs and
growth, 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 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 the Council adopted
a decision on guidelines for the employment policies of the Member States[3],
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 12 January 2011, the Commission adopted the
first Annual Growth Survey, marking the start of a new cycle of economic
governance in the EU and the first ‘European semester’ of ex-ante and integrated
policy coordination, which is anchored in the Europe 2020 strategy.

(4) 
On 25 March 2011, the European Council endorsed
the priorities for fiscal consolidation and structural reform (in line with the
Council’s conclusions of 15 February and 7 March 2011 and further to the
Commission’s Annual Growth Survey). It underscored the need to give priority to
restoring sound budgets and fiscal sustainability, reducing unemployment
through labour market reforms and making new efforts to enhance growth. It requested
Member States to translate these priorities into concrete measures to be
included in their Stability or Convergence Programmes and National Reform
Programmes.

(5) 
On 25 March 2011, the European Council also
invited the Member States participating in the Euro Plus Pact to present their
commitments in time to be included in their Stability or Convergence Programmes
and their National Reform Programmes.

(6) 
On 18 and 19 April 2011,
Slovenia submitted its 2011 updated Stability Programme
covering the period 2010-2014 and its 2011 National Reform Programme. In order
to take the interlinkages into account, the two programmes have been assessed
at the same time.

(7) 
In the years preceding the crisis, Slovenia
enjoyed fast economic growth, driven by buoyant exports and investment. However,
Slovenia was heavily impacted by the crisis, losing nearly 10% of its GDP over
2008-2010, which reversed a portion of the previous catch-up process. The
interaction of automatic stabilisers, recovery measures and strong in-built
expenditure dynamics combined to push the general government deficit from 1.8%
of GDP in 2008 up to 6.0% of GDP in 2009 (with gross debt levels of 21.9% of
GDP and 35.2% respectively). The labour market reacted with a considerable lag
and employment continues its downwards trend. While the unemployment rate
remains below the EU average, it increased sharply from its pre-crisis levels of
4.4% to 7.3% in 2010. Economic recovery so far has been rather slow and is
expected to rally only in 2012 with an estimated growth of 2.5% GDP.

(8) 
Based on an assessment of the updated Stability
Programme pursuant to Regulation Council Regulation (EC) No 1466/97, the
Council is of the opinion that the macroeconomic
scenario underpinning the budgetary projections of the programme is plausible in
the near term, and too favourable towards the end of the programme period. Starting
from 5.6% of GDP in 2010, the programme plans to bring the general government deficit
below the 3% of GDP reference value by 2013, through a broad-based containment
of primary expenditure. After correcting the excessive deficit, the programme
envisages modest progress towards, but not achievement of, the medium-term
objective (MTO) of a balanced budgetary position in structural terms. Although the
MTO is set at a more ambitious level than in the previous programme, it cannot
be regarded as appropriate at this stage as it is not
clear whether it ensures sufficiently rapid progress towards long-term
sustainability of public finances. The average annual fiscal effort over the
period 2011-13, as calculated by the Commission services based on the
information in the programme following the commonly agreed methodology, is
planned to be around 0.5 percentage points of GDP, below the level recommended
by the Council. Moreover, deficit and debt outcomes could fall short of the
targets. Additional measures are expected to be adopted as part of a supplementary
budget to achieve the 2011 deficit target. After 2011, the programme does not
specify measures to contain expenditure and the possibility of
additional financial rescue operations affecting deficit and debt cannot be
excluded.

(9) 
While the general government deficit has
narrowed since its peak in 2009, further consolidation to correct the excessive
deficit by 2013 and achieve the MTO thereafter is a key challenge for Slovenia.
In line with the consolidation strategy pursued in recent years, the further
expenditure savings envisaged in the Stability Programme for the period 2011-2014
mainly affect the public sector wage bill, social transfers (including pensions)
and public investment. However, the Stability Programme offers no detailed information
on the planned measures beyond 2011. Further corrective action appears necessary
to achieve the 2011 deficit. The credibility of the medium-term consolidation
strategy would be enhanced by adopting more structural expenditure-containing
measures — as opposed to the temporary interventions that have characterised
recent consolidation efforts — and by a more binding medium-term budgetary framework.
The Stability Programme confirms the introduction of an expenditure rule but
key provisions, for instance on the definition of non-compliance, remain to be
worked out. Finally, comparatively low spending efficiency, for example in
healthcare and education, implies that Slovenia may have additional scope for
expenditure-based consolidation without compromising the quality of public
services. The Stability Programme announces initiatives to rationalise public
services, transfers and subsidies and introduce a unified public procurement
system, but the detail of some of these is lacking.

(10) 
The long-term budgetary impact of ageing in
Slovenia is significantly higher than the EU average. Moreover, the participation
and employment rates for older workers are very low (36.5% and 35% compared to
the EU averages of 49.7% and 46.3% respectively), mainly due to the low
retirement age and insufficient incentives for active ageing. The parliament
recently adopted a pension reform, with the aim of increasing the retirement
age, while preserving the adequacy of pensions. According to the Stability
Programme, this would stabilise age-related spending until 2030 and would
therefore be an important first step in tackling the sustainability of the
pension system. It was submitted to a referendum on 5 June 2011 and rejected.
The problem of sustainability of the pension system remains and other ways of
resolving it will need to be found.

(11) 
The labour market is relatively segmented
between forms of contract: employment protection for workers on permanent
contracts is strict compared to that accorded to workers with fixed-term
contracts. The share of young workers aged 15-24 years on temporary contracts
is the highest in the EU (67% in 2009) and transition from temporary to permanent
contracts appears to be relatively difficult. Previous attempts to address this
issue proved insufficient. The government plans to negotiate with the social
partners a revision of the Employment Relationship Act, with a view to aligning
rights and obligations under different types of employment contracts.
Furthermore, ‘student work’ constitutes a sizeable, largely unregulated,
tax-advantageous, parallel labour market. This important issue is absent from
the National Reform Programme.

(12) 
Apart from segmentation, the structural problems
on the Slovenian labour market are also caused by the mismatch between labour
market needs and skills, which is recognised in the National Reform Programme.
The NRP envisages intensive investment in training to
improve skills and employability. It outlines plans to further improve the
transition from education to the labour market, with a focus on providing
career guidance services throughout the education system. It plans to modernise
the employment service with the objective of better matching the supply of
skills to labour market needs. Successful implementation of these reforms
would, however, require improving the system to identify in a timely way
current and projected labour market needs.

(13) 
The downturn is impacting on loan portfolios
with a lag and the growing share of non-performing loans has been raising
banks' impairment and provisioning costs. The two main state-owned banks have
been recapitalised, which was crucial. The government has also proposed
measures to accelerate recovery of claims and incentivise lending for
productive activities, which may not be fully sufficient to restore the flow of
credit to the real economy, so further action may be needed.

(14) 
Certain segments of the services sector are
sheltered from competitive pressures and are characterised by high mark-ups and
high concentration, raising costs throughout the economy. Together with the
high degree of state involvement in the economy, this keeps potentially
beneficial foreign direct investment (FDI) relatively low. Slovenia plans to
speed up the implementation of the Services Directive, where considerable
delays were accumulated. It also plans to give the Competition Protection
Office full independence and identify state capital investments suitable for sale.
These plans are not specified in detail and there are risks related to
implementation.

(15) 
Slovenia has signed up to the Euro Plus Pact
While the Slovenian National Reform Programme indicates potential commitments
and targets in the four areas of the Euro Plus Pact of fostering
competitiveness and employment, contributing to the sustainability of the
public finances and reinforcing financial stability, no firm commitments had
been notified to the Commission by 7 June.

(16) 
The Commission has assessed the Stability
Programme and National Reform Programme. [4] It has taken
into account their relevance for sustainable fiscal and socio-economic policy
in Slovenia and 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. In this light, the Commission considers that achieving the 2011 deficit target set in the
Stability Programme requires the adoption of additional measures. Beyond 2011,
there are significant risks to the deficit and debt targets
as the Stability Programme does not specify sustainable
measures to contain expenditure. The National Reform
Programme contains measures to repair the financial sector, but they may not be
sufficiently ambitious. The assessment also indicates that domestic sources of
growth need to be boosted, in particular by increasing labour market
participation of young and older workers through reducing labour market
segmentation and removing skill mismatches. Finally, there is a need to
strengthen competition and open up opportunities for investment and growth in
the service sector and network industries.

(17) 
In light of this assessment, also taking into
account the Council Recommendation of 2 December 2009 under Article 126(7) of
the Treaty on the Functioning of the European Union, the Council has examined
the 2011 update of the Stability Programme of Slovenia and its opinion[5]
is reflected in particular in its recommendations under (1) and (2) below.
Taking into account the European Council conclusions of 25 March 2011, the
Council has examined the National Reform Programme of Slovenia,

HEREBY RECOMMENDS that Slovenia
should take action within the period 2011-2012 to:

(1) 
Achieve the 2011 deficit target, underpin the
2012 deficit target with concrete measures and implement the necessary
consolidation rigorously, standing ready to adopt additional measures to
prevent possible slippages. Underpin this required adjustment process over the
programme period to achieve an appropriate medium-term objective with
structural measures to contain expenditure and address identified
inefficiencies with a more binding medium-term budgetary framework.

(2) 
Take steps to ensure the long-term
sustainability of the pension system, while preserving the adequacy of
pensions. Increase the employment rate of older workers by introducing
incentives to retire later, and by further developing active labour market
policies and lifelong learning measures.

(3) 
Take further measures to ensure sufficient loan
loss recognition and cleaning of balance sheets across the banking sector.

(4) 
Take steps, in consultation with the social
partners and in accordance with national practices, to reduce asymmetries in rights
and obligations guaranteed under permanent and temporary contracts. Renew
efforts to tackle the parallel labour market resulting from ‘student work’.

(5) 
Set up a system to forecast skills and
competencies needed to achieve a responsive labour market. Evaluate the
effectiveness of the public employment service, notably on career guidance and counselling services, to improve the
matching of skills with labour market needs.

(6) 
Streamline regulated professions and improve the
administrative capacity of the Competition Protection Office, in order to
enhance the business environment and attract investment.

Done at Brussels,

For
the Council

The
President

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

[2]               OJ C , , p. .

[3]               Maintained for 2011 by Council Decision 2011/308/EU
of 19 May 2011.

[4]               SEC(2011) 732.

[5]               Foreseen in Article 5(3) of Regulation (EC) No
1466/97.