# EUR-Lex - 52012DC0327 - EN

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# 52012DC0327

**Recommendation for a COUNCIL RECOMMENDATION on Slovenia’s 2012 national reform programme __and delivering a Council opinion on Slovenia’s stability programme for 2012-2015 /* COM/2012/0327 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Slovenia’s 2012 national reform
programme
and delivering a Council opinion on Slovenia’s stability programme for
2012-2015

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 Regulation (EU) No
1176/2011 of the European Parliament and of the Council of 16 November 2011 on
the prevention and correction of macroeconomic imbalances[2],
and in particular Article 6(1) thereof,

Having regard to the recommendation of the
European Commission[3],

Having regard to the resolutions of the
European Parliament[4],

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, adopted a decision on guidelines for the employment policies of the
Member States[5], 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 July 2011, the
Council adopted a recommendation on Slovenia’s national reform programme for 2011
and delivered its opinion on Slovenia’s updated stability programme for
2011-2014.

(4)       On 23 November 2011, the
Commission adopted the second Annual Growth Survey, marking the start of the second
European Semester of ex-ante and integrated policy coordination, which is
anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on
the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report[6],
in which it identified Slovenia as one of the Member States for which an
in-depth review would be carried out.

(5)       On 2 March 2012, 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.

(6)       On
2 March 2012, the European Council also invited the Member States participating
in the Euro Plus Pact to present their commitments in time for inclusion in
their stability or convergence programmes and their national reform programmes.

(7)       On 26 April 2012, Slovenia
submitted its stability programme covering the period 2012-2015 and, on 13
April 2012, its national reform programme for 2012. In order to take account of
their interlinkages, the two programmes have been assessed at the same time.
The Commission has also assessed, in an in-depth review under Article 5 of
Regulation (EU) No 1176/2011, whether Slovenia is affected by macroeconomic
imbalances. The Commission concluded in its in-depth review[7] that Slovenia
is experiencing internal imbalances which impact notably on corporate sector
deleveraging and banking stability. These internal imbalances and any potential
external imbalances should be closely monitored and feature in economic policy
considerations so as to reduce the risk of adverse effects on the functioning
of the economy. The recapitalisation and sale of the biggest bank and the firm
commitment to correcting the excessive deficit by the 2013 deadline are two
important and relevant elements of the currently envisaged response. The risk
of excessive imbalances can be minimised by prompt and thorough implementation
in these areas.

(8)       Based
on the assessment of the 2012 stability programme pursuant to Council
Regulation (EC) No 1466/97, the Council is of the opinion that the
macroeconomic scenario underpinning the budgetary projections in the programme
is optimistic when compared with the Commission’s 2012
spring forecast. The objective of the budgetary strategy outlined in the
programme is to bring the general government deficit below 3% of GDP in 2013,
the deadline set by the Council, and to pursue further deficit reduction
thereafter so as to broadly achieve Slovenia’s medium-term budgetary objective
(MTO) by 2015. The MTO is defined as a balanced position in structural terms,
unchanged from the previous programme, but cannot be regarded as appropriate
under the provisions of the Stability and Growth Pact because, based on current
policies and projections, it does not ensure sufficiently rapid progress
towards long-term sustainability. There are risks that the deficit outcomes
could be worse than targeted, due to (i) a lack of specification of the
measures foreseen for the period 2013-15; (ii) a track record of primary
current expenditure overruns; (iii) lower revenue given the relatively
optimistic macroeconomic scenario and uncertainty about the impact of the
recently decided tax measures; and (iv) possible additional capital support
operations and calling of guarantees. Based on the (recalculated) structural
balance[8], the average annual
fiscal effort over the period 2010-2013, is planned to be almost 1% of GDP,
slighty above the one recommended by the Council. However, the Commission's
2012 spring forecast implies that an additional effort will have to be made in
2013 to respect the recommendation over the entire correction period. After the planned correction of the excessive deficit, the annual pace of progress towards the MTO according to the
programme is in line with the 0.5% benchmark set in the Stability and Growth
Pact in 2015 but below it in 2014, while the rate of growth of government
expenditure, taking into account discretionary revenue measures, is in line with
the expenditure benchmark of the Stability and Growth Pact in both years, so
overall the programme plans a broadly appropriate
adjustment path towards the MTO. Taking account of the
risks mentioned above, the progress towards the MTO could be slower than
appropriate in both years. From around 48% of GDP in 2011, general government
gross debt is projected in the programme to peak by 2013 at 53% (thus remaining
below the 60% of GDP reference value) before falling slightly by the end of the
programme period. The debt
projections are subject to upward risks from the possibility of higher deficits
mentioned above and higher stock-flow adjustments. Slovenia’s
medium-term budgetary framework and expenditure rule remain insufficiently
binding and insufficiently focussed on achieving the MTO and securing long-term
sustainability.

(9)       The
Slovenian government was until now not in a position to make any systemic
changes to the pension system, given the 12-month moratorium on legislation
after the June 2011 negative referendum on a previous pension reform. However,
short-term cost containment measures were prolonged and strengthened in
December 2011 and May 2012. While relevant and beneficial in the short run, these
stop-gap measures are clearly insufficient to address the long-term challenge. The government envisages a new pension reform to be implemented by
the end of 2013, which would be based on a multi-pillar system and a rise in
the effective retirement age. While no further details are provided, the degree
of ambition of these plans seems modest. Given the size of the challenge, a
comprehensive reform tackling the following issues is warranted: a low
statutory retirement age, differences in the statutory retirement age for men
and women, wide early retirement possibilities and generous indexation arrangements
for pensions. So far, no specific measures have been
implemented to increase the employment rate of older workers, although the guidelines
for the implementation of the active labour market policy measures 2012-2015
and the 2012 plan for the implementation of active employment policy measures
address the older unemployed as a specific target group.

(10)     The
situation in the Slovenian banking sector now appears even more challenging
than at the time of the 2011 assessment. The full-year losses of the sector in
2011 were substantial and, looking ahead, the slowing economy will bring
further loan losses as more companies struggle with debt service. The measures
that have been introduced or announced so far lack ambition given the size of
the challenge. The urgent second recapitalisation of the biggest bank (NLB) has
not progressed. The new government has indicated its intention to reduce its
shareholdings in major banks to a blocking minority. There is a need to articulate
the relationship between this longer-term aspiration and the immediate and
pressing need for fresh capital, where the state as majority owner
unambiguously carries the burden of responsibility in the final analysis. A
clear privatisation strategy underpinned by timely injections of capital to
cover losses, a guarantee of good governance and professional, de-politicised
management would make this policy and the eventual sale of these banks more
credible.

(11)     No
concrete proposals were presented in the past year to reduce asymmetries
between the protection accorded to workers on permanent and temporary contracts
respectively. Negotiations with social partners on the Labour Relationship Act
started in 2011 but no agreement has been reached or amendments adopted. The NRP indicates some measures to increase flexicurity and address
segmentation, but provides no timetable for their adoption. The recently
adopted Act on Balancing Public Finances introduces significantly higher charges
(concession fees) for ‘student work’ to reduce the attractiveness of this
labour market status but no additional measures are currently envisaged.

(12)     The
responsiveness of the education and training system to labour-market needs
remains insufficient, although career-guidance services are currently being
introduced in the whole cycle of education and efforts are being made to
provide information on future careers. No concrete steps have been taken to set
up a system to forecast labour-market demand. Some projects co-financed with
the European Social Fund were launched to promote occupations in high demand in
the labour market. These measures are relevant but altogether represent an
inadequate response to the challenge. The external expert evaluation of the
overall effectiveness of the public employment service in Slovenia is not available
for assessment.

(13)     Despite
legislative changes in April 2011 to transform the Competition Protection
Office (CPO) into an independent agency as of 1 January 2012, the CPO is not
yet independent, given that several procedural conditions have to be fulfilled
first. Moreover, in 2011 the CPO's resources were reduced. These developments
affect its ability to expand its enforcement actions and to lend institutional
weight to competition-boosting reform efforts. A study
has just been completed on the deregulation of professions, but concrete policy
action in this area remains vague. More generally, some
aspects of the legal framework for the establishment of service providers may
raise questions of compatibility with the Services
Directive. The overall business environment is
characterised by weaknesses that hold back domestic and foreign investors and
hamper the swift cleaning of bank balance sheets, such as direct and indirect
involvement of the state in the economy and debtor-friendly and sometimes
problematic insolvency proceedings. Finally, due to
its growing importance as a transit country for electricity flows, the national
transmission grid is starting to become a bottleneck.

(14)     Following a strong
discretionary increase in March 2010, the minimum wage as a percentage of the
average wage was the highest in the EU in 2011,
although the minimum wage is still below the poverty threshold. Indexation in the following two years has resulted in a further 4%
nominal increase. These developments reduce the competitiveness of
labour-intensive industries and exacerbate structural unemployment.

(15)     Slovenia
has made a number of commitments under the Euro Plus Pact. These commitments, and
the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness, enhancing
sustainability of public finances and reinforcing financial stability. The Commission has assessed the implementation of the Euro Plus
Pact commitments. The results of this assessment have been taken into account
in the recommendations.

(16)     In the context of the
European Semester, the Commission has carried out a comprehensive analysis of Slovenia’s
economic policy. It has assessed the stability programme and national reform programme,
and it presented an in-depth review. It has taken into account not only their
relevance for sustainable fiscal and socio-economic policy in Slovenia 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 (7) below.

(17)     In the light of this assessment,
the Council has examined Slovenia’s stability programme, and its opinion[9]
is reflected in particular in recommendation (1) below.

(18)     In the light of the
Commission’s in-depth review and this assessment, the Council has examined
Slovenia’s 2012 national reform programme and the stability programme for
Slovenia. Its recommendations under Article 6 of Regulation (EU) No 1176/2011
are reflected in particular in recommendations (3), (6) and (7) below.

HEREBY RECOMMENDS that Slovenia
should take action within the period 2012-2013 to:

1.           Implement the 2012 budget,
and reinforce the budgetary strategy for 2013 with sufficiently specified
structural measures, standing ready to take additional measures so as to ensure
a timely correction of the excessive deficit in a sustainable manner and the
achievement of the structural adjustment effort specified in the Council
recommendations under the Excessive Deficit Procedure. Thereafter, ensure an
adequate structural adjustment effort to make sufficient progress towards an
appropriate medium-term objective for the budgetary position, including meeting
the expenditure benchmark. Strengthen the medium-term budgetary framework,
including the expenditure rule, by making it more binding and transparent.

2.           Take urgent steps to
ensure the long-term sustainability of the pension system, while preserving the
adequacy of pensions, by (i) equalising the statutory retirement age for men
and women; (ii) raising the statutory retirement age in line with increasing
life expectancy; (iii) reducing early retirement possibilities; and (iv) reviewing
the indexation system for pensions. Increase the employment rate of older
workers also by further developing active labour market policies and lifelong
learning measures.

3.           Take the required steps to
build sufficient capital buffers in the banking sector and strongly promote the
cleaning of balance sheets so that appropriate lending to productive activities
can resume. Obtain fully-fledged third party verification of systemically
important banks' stress loan-loss estimates.

4.           Adjust employment
protection legislation as regards permanent contracts in order to reduce labour
market segmentation, in consultation with social partners and in accordance
with national practices. Further tackle the parallel labour market caused by
student work.

5.           Improve the matching of
skills with labour market demand, particularly of low-skilled workers and
tertiary graduates, and continue reforms of vocational education and training.

6.           Take further steps to strengthen
market opening and speed up the reorganisation of professional services.
Improve the business environment through (i) implementing the reform of the Competition
Protection Office, (ii) establishing a framework for state-owned enterprises
guaranteeing arms-length management and high standards of corporate governance
and (iii) improving bankruptcy procedures, in particular in terms of timeliness
and efficiency.

7.           Following consultation
with social partners and in accordance with national practice, ensure that wage
growth, including minimum wage adaptation, supports competitiveness and job
creation.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 02.08.1997, p. 1

[2]               OJ L 306,
23.11.2011, p. 25

[3]               COM(2012)327 final

[4]               P7_TA(2012)0048 and P7_TA(2012)0047

[5]               Council Decision 2012/238/EU of 26 April 2012

[6]               COM(2012) 68 final

[7]               SWD(2012)158 final

[8]               Cyclically adjusted balance net of one-off and
temporary measures, recalculated by the Commission services on the basis of the information provided in the programme, using
the commonly agreed methodology.

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