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
Date: 2012-05-30
Institutions: European Commission
Subjects: Slovenia, banking system, budgetary equilibrium, economic reform, free competition, labour market, minimum pay, pension scheme, retirement conditions, temporary employment, work contract

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 327 final 

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 

{SWD(2012) 327 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 
policies1, 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 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission3, 

Having regard to the resolutions of the European Parliament4, 

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) 

1 
2 
3 
4 

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,  adopted  a  decision  on  guidelines  for  the  employment  policies  of  the 

OJ L 209, 02.08.1997, p. 1 
OJ L 306, 23.11.2011, p. 25 
COM(2012)327 final 
P7_TA(2012)0048 and P7_TA(2012)0047 

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(3) 

(4) 

(5) 

(6) 

(7) 

Member States5, which together form the ‘integrated guidelines’. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

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. 

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 Report6, in which it identified Slovenia as one of the Member States for 
which an in-depth review would be carried out. 

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. 

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. 

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  review7  that  Slovenia  is 
experiencing 
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. 

imbalances  which 

internal 

(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 

5 
6 
7 

Council Decision 2012/238/EU of 26 April 2012 
COM(2012) 68 final 
SWD(2012)158 final 

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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 
balance8, 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.  

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 

(9) 

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. 

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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 

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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 
structural 
unemployment. 

labour-intensive 

exacerbate 

industries 

and 

of 

(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) 

(17) 

(18) 

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.  

In  the  light  of  this  assessment,  the  Council  has  examined  Slovenia’s  stability 
programme, and its opinion9 is reflected in particular in recommendation (1) below. 

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. 

2. 

9 

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. 

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 

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

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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. 

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. 

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.  

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.  

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. 

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

that  wage  growth, 

3. 

4. 

5. 

6. 

7. 

Done at Brussels, 

For the Council 
The President 

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