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
Date: 2011-06-07
Institutions: European Commission
Subjects: EU programme, Slovenia, budget policy, economic growth, employment policy

EUROPEAN COMMISSION 

Brussels, 7.6.2011 
SEC(2011) 816 final 

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 

{SEC(2011) 732 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 
policies1, and in particular Article 5(3) thereof, 

Having regard to the recommendation of the European Commission2, 

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) 

(2) 

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 
to  boost  Europe’s  potential  for  sustainable  growth  and 
competitiveness. 

is  needed 

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  States3,  which  together  form  the  ‘integrated  guidelines’. 
Member  States  were  invited  to  take  the  integrated  guidelines  into  account  in  their 
national economic and employment policies. 

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OJ L 209, 2.8.1997, p. 1. 
OJ C , , p. . 
Maintained for 2011 by Council Decision 2011/308/EU of 19 May 2011. 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

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.  

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. 

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. 

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. 

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.  

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. 

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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 

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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 

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SEC(2011) 732. 

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Union,  the  Council  has  examined  the  2011  update  of  the  Stability  Programme  of 
Slovenia  and  its  opinion5  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) 

(2) 

(3) 

(4) 

(5) 

(6) 

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.  

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.  

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

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’.  

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.  

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 

5 

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

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