EN    EN  
 EUROPEAN COMMISSION 
Brussels, 7.6.2011 
SEC(2011) 804 final 
  
Recommendation for a 
COUNCIL RECOMMENDATION 
on the National Reform Programme 2011 of Estonia 
 
 
and delivering a Council opinion 
 
on the Stability Programme of Estonia, 2011-2015 
{SEC(2011) 715 final}  
 
EN 2   EN Recommendation for a 
COUNCIL RECOMMENDATION 
on the National Reform Programme 2011 of Estonia 
  
and delivering a Council opinion 
 
on the Stability Prog ramme of Estonia, 2011-2015 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty on the Functioning of the European Union, and in particular 
Article 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 pos itions and the surveillance and coordination of economic 
policies
1, and in particular Article 5(3) thereof, 
Having regard to the recommendation of the European Commission2, 
Having regard to the conclusi ons 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 ag reed 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 reco mmendation 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 Guidelin es for the employment policies of the 
Member States,
3 which together form the “integrate d guidelines”. Member States were 
invited to take the integrat ed guidelines into account in their national economic and 
employment policies. 
                                                 
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. 
 
EN 3   EN (3) On 12 January 2011, the Commission adopted the first Annual Growth Survey, 
marking the start of a new cycle of econom ic governance in the EU and the first 
European semester of ex-ante and integrated  policy coordination, wh ich 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 lin e 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 prior ity to restoring so und budgets and fiscal 
sustainability, reducing unemployment th rough 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 i nvited the Member States participating 
in the Euro Plus Pact to present their co mmitments on time for their inclusion in their 
Stability or Convergence Programmes a nd their National Reform Programmes. 
(6) On 29 April 2011, Estonia submitted its 2011 St ability Programme covering the period 
2011-2015 and its 2011 National Reform Programme . In order to take account of the 
interlinkages, the two programmes have  been assessed at the same time.  
(7) Estonia was particularly hard -hit by the global financial crisis, which amplified the 
reversal of the domestic re al estate and consumption boom. The cumulative loss of 
GDP reached 19% in 2008-09 and the unemployment rate increase almost four fold to 16.8% by 2010. However, the economy has bounced back quickly and the real GDP growth is expected to accelerate in the co ming years. The recovery has been driven 
mainly by exports, but domestic demand is gaining ground mostly through strong investment. The improved growth outlook has provided a positive impetus to the 
labour market. Employment rate has risen markedly recently, although long-term 
unemployment remains high. While inflation accel erated compared to last year, it is 
expected to moderate in line with devel opments in the global commodity prices.  
(8) Based on the assessment of the Stability Programme pursuant to Council Regulation 
(EC) No 1466/97, the Council is of the opinion that th e macroeconomic scenario 
underpinning the budgetary projections is  plausible. The medium-term budgetary 
strategy of the programme is to achieve  the medium-term objective, defined as 
structural balance, by 2013, a nd to maintain it throughout the rest of the programme 
period, by aiming at structural surpluses in 2013 and beyond. The headline general government budgetary position is projected to reach surplus by 2013, while in the 
short term the headline deficit is expected to deteriorate somewhat due to the one-off 
impact of environmental investments on ca rbon credits. The budgetary adjustment of 
the programme relies on holding back growth in government consumption expenditure. The programme provides some information regarding measures to reach the targeted position and the previous track record of meeting the fiscal targets 
mitigates the risk of missing them in the coming years. In particular, the envisaged reforms seek efficiency gains in several areas, such as education and active labour market policies. Risks to th e budgetary targets thus appear  to be broadly balanced. 
Nevertheless, it will be important for the upcoming budgets to provide the key details 
of measures to further enha nce the efficiency of public  spending, thus underpinning 
the implementation of the Stability Programme.  
 
EN 4   EN (9) Long-term unemployment remains high and unemployment rates across regions have 
been rather diverging and persistent. Despite considerable increases since 2009, 
financing of active labour market policies remains one of the lowest in the EU, and 
results in a low share of the unemployed r eceiving active support. The Estonian labour 
market is relatively flexible, reinforced by the decision to post pone increases in the 
unemployment insurance benefit coverage  in the Labour Law package to 2013. 
Despite this flexibility, Estonia has a re latively high labour tax wedge, which could 
have negative consequences for labour supply and demand. This problem is 
particularly acute in view  of the high unemployment ra te of the young and the low-
skilled, who are exposed to a risk of pove rty. Reforms envisaged to reduce social 
insurance contributions address the right  issues, but need to take place while 
strengthening the budgetary posit ion. There is potential for efficiency gains through a 
stricter means testing to be tter target other benefits. 
(10) Estonia’s resource intensity is among the highest in the EU. This is partly the result of 
a production structure concentrated on en ergy-intensive sectors and industries. 
Another determinant is the low energy efficien cy performance at sectoral level. In its 
NRP, Estonia indicates a national energy sa vings target of 9% in 2016 compared to 
projections (16% by 2020 in the NRP). However, this  does not cover major sectors 
and areas of savings potential, such as buildings and transpor t. Besides, there is little 
information on how and when measures wi ll be implemented and their expected 
results. Hence, improving energy efficiency  has further potential. Increasing energy 
efficiency is likely to have a positive imp act on the environment and on the security of 
energy supply, but also to reduce inflationary pressures and improve cost competitiveness. 
(11) Notwithstanding the overall hi gh share of people with te rtiary education, further 
reform of the education system at all leve ls could help addre ss skill gaps, a large 
number of schools and tertiary educatio n institutions, and a lack of focus in 
professional education resulting in the high share of people with no professional 
qualification (32% in 2009). Given current demographic trends, improving the quality 
of human capital is important for raising potential growth in the medium term. In 
particular, ensuring that tertiary education is  aimed at fields of key importance to the 
economy (e.g. engineering) could support th e ongoing rebalancing towards tradable 
sectors. Implementing the education reform  would also contribute to improving public 
sector efficiency, as the curre nt system of managing educatio n is too fragmented at the 
local level, leading to both ineffici ent subsidies and lo w-quality services.  
(12) Estonia has made a number of commitments under the Euro Plus Pact
4. These contain 
measures to address public finance sustainability, employment, and competitiveness. On the fiscal side, the Pact commits to achieve budget balance by 2013 and a surplus in 2014; to include a public sector budget balance requirement in the state budget base law; as well as first steps to reform special pension schemes. In order to promote employment, some tax incentives are envisaged. For competitiveness, measures focus on innovation, higher education, and public service reform. The Pact commitments reflect the agenda presented in the National Reform Progra mme. The objectives set out 
in the Pact would benefit from further meas ures to strengthen la bour market policies, 
                                                
 
4 More details on the commitments made under the Euro Plus Pact can be found in SEC(2011) 715. 
 
EN 5   EN as well as addressing resource efficiency and the energy market. The Euro Plus Pact 
commitments have been assessed and take n into account in the recommendations. 
(13) The Commission has assessed the Stabi lity Programme and National Reform 
Programme, and the Euro Plus Pact commitments5. It has taken into account not only 
their relevance for sustainable fiscal and socio-economic policy in Estonia but also 
their conformity 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. It considers that while measures to reach the targeted budgetary 
position would have to be specified in fo rthcoming budgets, the track record of the 
Estonian authorities mitigates the risk of missing the fiscal targets. Further steps 
should be taken to strengthen labour market  policies and provide better incentives to 
work, to enhance human capital through a la rge scale education reform as well as 
addressing resource efficiency and the energy market.  
(14) In light of this assessment, the Council ha s examined the 2011 Stability Programme of 
Estonia and its opinion
6 is reflected in particular in its recommendation under (1) set 
out below. Taking into account the Europ ean Council conclusions of 25 March 2011, 
the Council has examined the National Reform Programme of Estonia, 
HEREBY RECOMMENDS that Estonia should ta ke action within the 2011-2012 period to: 
(1) Achieve structural surplus by 2013 at the latest, while lim iting deficit in 2012 to at 
most 2.1% of GDP in 2012, keeping tight co ntrol over expenditure and enhancing the 
efficiency of public spending. 
(2) Take steps to support labour demand, by reduc ing the tax and soci al security burden 
in a budgetary neutral way, especially fo r low and medium-income earners. Improve 
the effectiveness of active labour mark et policies by targeting measures on young 
people and the long-term unemployed, especially in areas of high unemployment, in order to reduce the risk of poverty. 
(3) Ensure implementation of planned incentives to reduce energy intensity and improve 
the energy efficiency of the economy, targ eted on the buildings and transportation 
sectors, including by ensuring better market functioning.  
(4) While implementing the education system reform, give priority to measures 
improving the quality and avai lability of pre-school and professional e ducation, and 
strengthen the system of professional quali fications. Focus education outcomes more 
on labour market needs, and provide opportun ities for low-skilled workers to take 
part in life-long learning.  
Done at Brussels, 
 For the Council 
 The President 
                                                
 
5 SEC(2011) 715. 
6 Foreseen in Article 5(3) of Council Regulation (EC) No 1466/97.