COMMISSION STAFF WORKING DOCUMENT Assessment of the 2012 national reform programme and stability programme for ESTONIA Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Estonia’s 2012 national reform programme and delivering a Council Opinion on Estonia’s updated stability programme for 2012-2015
Date: 2012-05-30
Institutions: European Commission
Subjects: Estonia, administrative reform, budgetary equilibrium, continuing vocational training, economic reform, energy saving, job access, job creation, local government, motor vehicle pollution, social-security benefit, tax reform, underground economy

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
SWD(2012) 311 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2012 national reform programme and stability programme for  
ESTONIA 

Accompanying the document 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Estonia’s 2012 national reform programme and delivering a Council Opinion on 
Estonia’s updated stability programme for 2012-2015 

{COM(2012) 311 final} 

EN 

   EN 

 
 
 
 
  
 
 
CONTENTS 

EXECUTIVE SUMMARY ................................................................................................. 3 

1. INTRODUCTION........................................................................................................... 4 

2. ECONOMIC DEVELOPMENTS AND CHALLENGES .............................................. 5 

2.1. Recent economic developments and outlook ....................................................... 5 

2.2. Challenges ............................................................................................................ 6 

3. ASSESSMENT OF POLICY AGENDA ........................................................................ 7 

3.1. Fiscal policy and taxation..................................................................................... 7 

3.2. Financial sector................................................................................................... 11 

3.3. Labour market, education and social policy....................................................... 11 

3.4. Structural measures promoting growth and competitiveness............................. 11 

3.5. Modernisation of public administration ............................................................. 11 

4.   OVERVIEW TABLE................................................................................................ 11 

5.   ANNEX ..................................................................................................................... 11 

2

 
 
 
 
 
EXECUTIVE SUMMARY 

After a strong rebound in 2011, Estonia's GDP growth is expected to slow down in 2012 
to  1.6%.  The  rate  of  unemployment  dropped  substantially  in  2011  and  is  expected  to 
decrease further in 2012 to 11.6%.  

The  robust  economic  growth  in  2011  led  to  a  better-than-expected  outcome  in  public 
finances  with  a  general  government  surplus  of  1.0%  of  GDP.  In  2012,  the  general 
government  is  expected  to  record  a  deficit  of  2.4%  of  GDP,  mainly  due  to  one-off 
projects  and  already  planned  pension  increases.  The  government  managed  to  engage 
resolutely  in  the  higher  education  reform  and  invest  significantly  in  energy-efficiency 
policies.  Notwithstanding  these  major  achievements,  reform  efforts  appear  insufficient, 
in  particular  given  the  scale  of  the  challenges  on  the  labour  market,  in  certain  areas  of 
education and in the energy sector.  

Estonia  faces  important  challenges:  in  view  of  the  moderate  growth  outlook,  continued 
fiscal effort will be required to achieve the medium-term objective. In particular, both the 
2012 and 2013 deficits are likely to be higher than envisaged a year ago and implied by 
the  budget.  The  efficiency  of  public  spending  could  be  improved,  in  particular  through 
better targeting of public spending on social security. A lack of effectiveness at the level 
of  local  governments  is  having  a  negative  effect  on  the  delivery  of  public  services. 
Estonia’s energy and resource intensity is amongst the highest in the EU and there is a 
need to develop more efficient energy sources. A better functioning and better targeted 
education system could be instrumental in ensuring an adequate supply of human capital. 
With  an  Estonian  innovation  framework  still  detached  from  the  real  economy,  a  low 
number of companies are innovating, which could hamper productivity growth and thus 
affect the country’s medium- and long-run competitiveness.  

3

 
 
 
 
 
1. INTRODUCTION 

The 2012 national reform and stability programmes were adopted by Estonia’s Council 
of Ministers on 26 April 2012. They give an integrated outline of the fiscal consolidation 
efforts,  the  key  structural  reforms  and  the  reforms  that  underpin  macroeconomic 
stabilisation.  The  national  reform  programme  evaluates  the  progress  made  towards 
meeting  the  national  targets  for  employment,  R&D,  education,  energy  and  climate 
change,  and  poverty  reduction  for  2020.  These  targets  map  out  the  longer-term 
development  trajectory  to  modernise  the  Estonian  economy  and  put  imminent  reform 
priorities  in  a  broader  context.  The  national  reform  programme  also  describes  the 
measures Estonia has adopted to fulfil its obligations under the Euro Plus Pact. 

Estonia’s  stability  programme  has  been  prepared  in  parallel  with  the  national  reform 
programme  and  the  multi-annual  state  budget  strategy.  The  stability  programme  is 
largely consistent with the code of conduct for the Stability and Growth Pact, while the 
national reform programme is consistent with the guidance provided by the Secretariat-
General  of  the  Commission.  Annual  progress  reports  and  updates  of  the  programmes 
were  discussed  with  the  main  socio-economic  partners,  the  Sustainable  Development 
Commission and  the Parliamentary  committee for  European Affairs in April 2012. The 
updating took place in accordance with the government’s Action Plan. 

Overall assessment 

In June 2011 the Commission proposed four country specific recommendations (CSRs) 
for economic and structural reform policies for Estonia. In July 2011 the Council of the 
European  Union  adopted  these  recommendations  which  concerned  public  finances,  the 
labour market, education and energy. In November 2011 the Annual Growth Survey for 
2012 (AGS 2012) presented the basis for building the necessary common understanding 
about the priorities for action at national and EU levels in 2012. Against this background, 
Estonia presented its 2012 national reform programme and 2012 stability programme in 
April 2012. These programmes give details of the progress made since July 2011 and of 
the  plans  going  forward.  This  Staff  Working  Document  assesses  the  state  of 
implementation of the 2011 CSRs in Estonia, identifies current policy challenges and, in 
this light, examines the country’s latest policy plans. 

On the positive side, the country has managed to achieve a sizeable budget surplus and 
nearly  halve  its  high  unemployment  level,  thanks  also  to  the  robust  economic  growth, 
and  to  engage  resolutely  in  the  higher  education  reform  and  invest  significantly  in 
energy-efficiency  policies.  Notwithstanding  these  major  achievements,  reform  efforts 
appear insufficient, in particular given the scale of the challenges on the labour market, in 
certain areas of education and in the energy sector. Unemployment is still high and, given 
the subdued global outlook, may stabilise at this level for some time. Competitiveness is 
still  hampered  by  skills  mismatches,  a  lack  of  qualified  professionals  (both  blue  and 
white  collar)  and  relatively  weak  innovation:  Estonia  needs  to  move  towards  more 
technology-intensive  sources  of  growth.  Finally,  in  the  light  of  the  exceptionally  high 
energy  intensity  of  the  Estonian  economy,  further  efforts  will  be  needed  to  reduce  the 
energy bill. Therefore, in these areas, but also in fiscal policy, the challenges identified in 
June 2011 and reiterated in the AGS for 2012 still apply.  

The policy plans submitted by Estonia are generally relevant. Beyond measures already 
scheduled in the 2011 Action Plan for 2011-2015, the new Action Plan proposes quite a 
large number of new measures, mostly focusing on the quality of the education system 
and  labour  market  needs,  the  efficiency  and  sustainability  of  labour  market  policies, 
energy efficiency and the efficiency of public spending. However, the programme could 

4

 
 
 
 
have been more comprehensive in the energy sector and local government reforms. Also, 
given that some of the existing and the new measures are quite ambitious in scope and 
scale,  their  implementation  is  spread  over  several  years.  For  some  measures,  the 
estimated budgetary impact is only indicative, as details of the planned reforms are still 
being discussed.  

2. ECONOMIC DEVELOPMENTS AND CHALLENGES 

2.1. Recent economic developments and outlook 

Recent economic developments 

After  a  deep  contraction  of  foreign  trade  and  GDP  in  2008  and  2009,  the  Estonian 
economy has rebounded promptly, with growth reaching 2.3 % in 2010 and 7.6 % in 2011 
and  exports  the  driving  force  behind  the  recovery.  In  2011,  private  consumption  and 
investment  were  also  on  a  solid  footing.  In  the  last  months  of  2011,  Estonia  was  not 
immune to the deteriorating confidence seen in many Member States. As a result, GDP 
shrank in the last quarter. The contraction was, however, limited to specific segments of 
the exporting sectors. More recently, manufacturing production seems to have stabilised 
somewhat below its recent peak level. 

The external balance showed large surpluses in 2009, 2010 and 2011, reducing the stock 
of external liabilities. In 2010 and 2011, the negative net foreign assets position fell by 9 
and  15  pps  respectively  (from  82.0 %  of  GDP  in  2009).  The  ratio  of  gross  and  net 
external  debt  to  GDP  improved  similarly,  with  short-term  liabilities  fully  covered  by 
short-term assets. 

After negative values in the first half of 2010, average annual HICP (harmonised index 
of consumer prices) inflation rose rapidly to 5.1 % in 2011, spurred by high international 
food  and  oil  prices.  However,  the  contribution  made  by  non-energy  industrial  goods 
remained  low,  alleviating  the  risk  of  loss  of  competitiveness.  Looking  forward,  lower 
commodity prices since mid-2011 should contribute to moderating inflation in 2012 and 
2013.  Unemployment  was  still  high  at  12.8 %,  but  adjusting  quickly  downwards, 
reflecting  high  labour  market  flexibility.  Unemployment  is  expected  to  contract  further 
from spring 2012, but at a much slower pace amid more moderate GDP growth. 

At slightly less than  160 % of GDP  in 2011 (consolidated  figures), the stock of private 
debt still reflects the rapid accumulation in the boom years. However, credit deleveraging 
is continuing, even though the pace is slowing down, while large domestic deposits and 
prudent supervisory policies are helping to maintain the stability of the banking sector. 

Public-sector finances remain among the strongest in the EU, with the lowest debt level, 
at  around  6 %  of  GDP,  and  a  budgetary  surplus  in  2011  due  to  better-than-expected 
growth and one-off factors. 

Outlook 

Reflecting  the  economy’s  catching-up  potential,  real  GDP  is  expected  to  continue 
growing  above  the  EU  average  over  the  long  term  thanks  to  continuing  capital 
accumulation  and  productivity  gains.  Economic  growth  is  projected  at  1.6 %  in  2012, 
reflecting  lower  confidence  and  weaker  external  demand  around  the  turn  of  the  year. 
However,  in  2013  growth  should  be  back  to  around  3.8 %,  driven  by  exports  and 
increasingly  also  by  domestic  demand  mostly  through  stronger  private  investment.  The 

5

 
 
 
 
 
 
export-led recovery may resume soon as global demand is recovering. This could allow 
the country to continue deleveraging smoothly. However, as domestic demand increases, 
maintaining  external  balances  may  still  require  improvements  in  competitiveness  to 
foster  exports,  while  further  internal  adjustment  appears  necessary  to  reduce  risks  to 
macrofinancial  stability.  The  government  balance  is  expected  to  deteriorate  in  2012 
before improving in 2013 and staying within the 3 % of GDP limit during the period. 

Both the national reform programme and the stability programme share the same short-
term  economic  outlook,  but  neither  of  them  gives  any  figures  on  the  impact  of  the 
planned  structural  reforms  on  growth.  For  2012  the  outlook  is  broadly  in  line  with  the 
most recent Commission forecasts. However, for 2013 the Estonian authorities are more 
pessimistic and forecast real GDP growth of 3 %. 

Overall, the level of potential growth in Estonia in the years ahead is likely to stay below 
its  pre-crisis  rate,  when  rapid  capital  accumulation  reflected  EU  accession  and  swift 
financial  convergence.  Moreover,  the  population  is  ageing,  with  the  working-age 
population  declining.  Post-crisis  structural  unemployment  will  also  be  durably  higher, 
weighing  on  the  potential  growth.  However,  steady  foreign  direct  investment  inflows 
should  still  bring  a  sizeable  contribution  by  total  factor  productivity  to  growth,  while 
continuing  structural  reforms  could  boost  potential  growth.  In  parallel,  a  number  of 
factors are likely to support a strong contribution by capital to potential growth, such as 
the  existence  of  a  business  and  policy  climate  that  favours  private  investment,  public 
infrastructure  investment  supported  by  EU  cohesion  funds,  and  the  need  for  further 
improvements  to  the  housing  stock  when  real  wage  growth  resumes.  These  factors 
combined could pose a risk of re-emerging inflationary pressures once domestic demand 
has recovered. 

2.2. Challenges 

Overall, the main policy challenges facing the country have not changed since the 2011 
assessment exercise, though some adjustments are needed as the government progresses 
with its reform agenda. 

First,  a  continued  fiscal  effort  will  be  required  in  order  to  achieve  the  medium-term 
objective in view of the moderate growth outlook. In particular, both the 2012 and 2013 
deficits  are  likely  to  be  higher  than  envisaged  a  year  ago  and  implied  by  the  budget. 
Given  the  need  to  maintain  a  prudent  fiscal  stance,  the  efficiency  of  public  spending 
could  be  improved,  in  particular  through  better  targeting  of  public  spending  on  social 
security.  In  parallel,  at  this  stage  the  fiscal  framework  does  not  fully  incorporate  the 
necessary  formal  elements  that  could  support  Estonia’s  longer-term  commitment  to 
overall sound fiscal policies. 

Second,  although  the  banking  sector  weathered  the  economic  and  financial  crisis 
relatively  well,  private-sector  indebtedness  remains  relatively  high.  Moreover,  in  the 
present  context  of  high  inflation,  wage  pressures  are  reappearing  and  could  feed  into 
excessive credit growth relatively soon. This risk is compounded by fiscal provisions that 
still encourage borrowing, including the underdeveloped property taxation and the quasi-
abolition of land tax from 2013. 

Third, while unemployment, which soared during the crisis, has declined rapidly, long-
term and youth unemployment are still high. Moreover, they could become persistent due 
to  skills  mismatches  and  the  low  coverage  of  active  labour  market  policies.  This  could 
put  additional  pressure  on  both  labour  market  policies  and  social  protection,  with  the 
poverty  risk  affecting  children  in  jobless  households  and  single  parents  most.  If  active 

6

 
 
 
labour market policies are not effective enough, structural unemployment could weigh on 
labour supply and lead to premature upward pressures on wages in growing sectors. 

Fourth,  although  export  performance  and  fundamentals  (wage-setting  parameters  and 
labour market regulations) are strong, competitiveness issues remain a cause for concern. 
As  economic  restructuring  is  taking  place,  shortages  of  qualified  labour  are  exerting 
upward  pressure  on  wages,  leading  to  higher  costs  for  companies1  and  affecting 
investment  and  growth  potential.  In  this  light,  a  better  functioning  and  better  targeted 
education system could be instrumental in ensuring an adequate supply of human capital. 
Also, better functioning markets, including for services, along with further reduction of 
the administrative burden for enterprises could help contain domestic price pressures and 
ensure competitiveness. In particular, the low stock of infrastructure investments at both 
domestic  and  cross-border  levels  restrains  the  mobility  of  goods  and  factors  of 
production. Finally, with the Estonian innovation framework still detached from the real 
economy, a low number of companies are innovating, which could hamper productivity 
growth and thus affect the country’s medium- and long-run competitiveness. 

Fifth, Estonia’s energy and resource intensity are amongst the highest in the EU, while 
the  importance  of  oil  shale  as  an  energy  source  emphasises  the  need  to  develop  more 
efficient  and  less  polluting  energy  sources  and  adequately  address  the  pressing  waste 
issue. 

Finally,  a  lack  of  effectiveness  at  the  level  of  local  governments  is  having  a  negative 
effect on the delivery of public services in the areas of education, social assistance, health 
and transport. Also, given the significant impact of EU cohesion funds on the economy, 
it will be important to create the conditions for effective support and to tighten strategic 
programming of funds for 2014-2020 in order to deliver on the Europe 2020 priorities. 

3. ASSESSMENT OF POLICY AGENDA 

3.1. Fiscal policy and taxation 

Budgetary developments and debt dynamics2 

The  main  goal  of  the  Estonian  budgetary  strategy,  as  expressed  in  the  2012  Stability 
Programme,  is  to  ensure  sustainable  fiscal  policy  that  supports  balanced  economic 
growth.  The  medium-term  objective  (MTO),  unchanged  compared  to  the  previous 
programme, is a structural surplus. The MTO adequately reflects the requirements of the 
Stability and Growth Pact. According to the programme, the MTO will be achieved as of 
2013. Other fiscal  objectives include ensuring sufficient fiscal buffers and reducing the 
tax burden to the pre-crisis level by lowering labour taxes. 

In  2011,  the  general  government  budget  position  was  a  surplus  of  1 %  of  GDP,  which 
was  considerably  better  than  the  deficit  of  0.4 %  projected  in  the  2011  stability 
programme. This was primarily a result of significantly stronger-than-expected economic 
and employment growth. In addition, the outcome was positively affected by the sizeable 
sales  of  the  Kyoto  units,3  which  amounted  to  1.2 %  of  GDP  in  2011,  combined  with 

1   The  situation  seems  especially  intense  in  the  services  sector:  Estonia  showed  the  sixth  highest  average  annual 
growth  in  unit  labour  costs  in  services  between  2000  and  2010  out  of  the  26  Member  States  for  which  data  are 
available. 

3   An Assigned Amount (or Kyoto) Unit (AAU) represents an allowance to emit greenhouse gases. In 2010-12, the 
one-off revenue related to the AAU sales is expected to total EUR 373 million, which will be invested in 2011-13. 

7

 
 
 
 
 
 
 
                                                 
 
delays  in  implementation  of  the  related  investment  projects.  The  2012  programme 
forecasts a deficit of 2.6 % of GDP in 2012, which is bigger than projected both in the 
2011 stability programme and in the Commission spring forecast. The deterioration is a 
result of weaker revenue related to the worsened growth outlook, but also of higher-than-
expected  expenditure  on  the  one-off  investment  projects  back-loaded  from  2011  (1.7 % 
of  GDP  according  to  the  national  projections).  Risks  to  the  fiscal  target  for  2012  seem 
balanced overall, with the authorities’ macroeconomic projections being realistic. 

For  2013,  the  programme  targets  a  nominal  budget  deficit  of  0.7 %  of  GDP.  The 
improvement  on  2012  primarily  stems  from  an  improving  macroeconomic  outlook  and 
gradual  completion  of  the  Kyoto  investment  projects.  The  new  target  is  significantly 
different from the surplus of 0.1 % targeted in the 2011 stability programme, mainly due 
to  the  negative  base  effect  from  2012.  The  authorities  intend  to  hold  back  growth  in 
government  consumption  expenditure,  which  is  set  to  increase  at  a  slower  rate  than 
nominal  GDP  over  the  whole  programme  period,  in  line  with  the  Commission  spring 
forecast. Compared with 2012, expenditure as a share of GDP is expected to decline in 
all areas with the exception of health care. The projected consolidation is also supported 
by the planned revenue-increasing discretionary measures (see Box 1). 

Box 1. Main budgetary measures 

Expenditure

  Revenue 

2012 

  Abolishing  reduced  excise  duty  rates  for 
special-purpose  diesel  fuel  (net  effect 
0.4 % of GDP*) 

Increasing  tobacco  excise  duty  rate  by 

n.a. 

10 % (0.1 % of GDP) 

Increasing alcohol excise duty rate by 5 % 

(0.1 % of GDP) 

2013 

  Lowering 

unemployment 

insurance 
contributions from 4.2 % to 3 % (-0.3 % 
of GDP) 

n.a. 

Increasing  tobacco  excise  duty  rate  by 

10 % (0.06 % of GDP) 

Note:  The  budgetary  impact  in  this  table  is  the  impact  reported  in  the  programme,  i.e.  by  the  national 
authorities. A plus sign means that revenue/expenditure increases/decreases, as a consequence of the measure. 
* As estimated by the Commission 

For  2014-16,  the  programme  targets  a  continuous  improvement  in  the  nominal  balance 
through a gradual build-up of headline surpluses to 0.9 % of GDP in 2016. Revenue as a 
share  of  GDP  is  set  to  remain  higher  than  expenditure  in  the  outer  years  of  the 
programme,  declining  by  3.5  pps  of  GDP  between  2011  and  2015  as  a  result  of  the 
phasing-out of the EU structural funds, the reversal of temporary consolidation measures 
and the planned cut of personal income tax in 2015. While this strategy is subject to risks 
— related to both macroeconomic developments and implementation of the strategy — 
these risks can be assessed as broadly neutral, in particular given the solid track record of 
the authorities in meeting the previous targets. 

8

 
 
 
  
 
 
 
 
 
 
 
 
 
The  structural  balance4  is  expected  to  improve  by  0.3 %  of  GDP  in  2013  reaching  a 
balanced position according to the programme.5 In 2014 and 2015, the programme targets 
a continuous improvement in the structural balance, reaching a surplus of 0.8 % of GDP 
in  2015.  The  programme  forecasts  continuous  attainment  of  the  MTO  over  the  whole 
programme  period  with  the  exception  of  2012.  The  improvement  in  the  (recalculated) 
structural  balance  corresponding  to  these  targets  complies  with  the  requirement  for  an 
annual  improvement  of  0.5 %  of  GDP  in  2013  in  accordance  with  the  national 
projections,  while  it  falls  slightly  short  of  the  requirement  in  the  Commission  spring 
forecast.  Nevertheless,  both  estimates  show  a  significant  improvement  in  the  structural 
balance compared with the deterioration in 2012. Moreover, the estimates should be seen 
against the uncertainties related to determination of the cyclical position in real time for 
countries  undergoing  significant  structural  adjustments,  the  ambitious  MTO  set  by  the 
Estonian  authorities  and  the  relative  closeness  of  the  structural  balance  to  the  MTO. 
Based on the information provided in the programme, the expenditure benchmark will be 
met  in  every  year,  except  in  2013  when  the  MTO  is  to  be  reached  according  to  the 
(recalculated) structural balance estimates and for a minor deviation from the benchmark 
in  2014.  Using  the  Commission’s  estimate  of  the  discretionary  impact,  the  deviation 
would be above the expenditure benchmark in 2012 and below it in 2013. 

According  to  the  programme,  the  general  government  debt,  which  is  the  lowest  in  the 
EU, is projected to increase somewhat, peaking at 11 % of GDP in 2013, before gradually 
declining to 9.5 % in 2016. This profile reflects an accumulation of financial assets due to 
nominal surpluses after 2013. 

Long-term sustainability 

Estonia has a very low level of government debt. Under a no-policy change assumption, 
debt  would  increase  to  14.6 %  of  GDP  by  2020.6  The  long-term  increase  in  age-related 
expenditure  is  below  the  EU  average..  Although  recent  reform  measures  undertaken  in 
the field of pensions would reduce sustainability risks, the projected decline in the benefit 
ratio  could  pose  a  risk  to  the  adequacy  of  pension  entitlements.  Ensuring  sufficient 
primary  surpluses  over  the  medium  term  would  improve  the  sustainability  of  public 
finances. 

Fiscal framework 

The strength of the current fiscal framework lies in the long-standing commitment to the 
‘soft’ budget balance rule applying to the general government balance. Although the rule 
has  not  been  formalised  in  law,  all  Estonian  governments  have  adhered  to  it,  except  in 
2008-09.  As  the  rule  was  adapted  only  recently  to  take  account  of  cyclical  elements, 
there  are  no  mechanisms  in  place  that  would  limit  expenditure  growth  when  economic 
growth  is  above  potential.  In  2011,  the  government  committed  itself  to  formalising  the 
budget balance (or surplus) rule in the State Budget Law before summer 2012 (Euro Plus 
Pact commitment). No real progress has been achieved to date, given the intentions of the 
government to take full account of the new governance rules adopted at EU level. 

4   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.  

5   Compared  with  the  recalculated  structural  balance,  the  programme  forecasts  higher  structural  budgetary 
improvement by 0.6 % of GDP in 2013 and by 0.3 % of GDP on average in 2014-16. The discrepancy is mainly 
due to a different assessment of the starting cyclical position of the economy between the common methodology 
and the approach taken in the programme. Subsequently, the programme attributes a higher share of the targeted 
nominal improvement to the structural component than in the recalculated information. 

6   Although  the  initial  budgetary  position  adds  to  the  long-term  costs  due  to  conservative  assumptions  regarding 

potential growth embedded in the common methodology. 

9

 
 
 
                                                 
The balanced-budget rule is complemented by a debt rule applicable at the level of local 
government.  A  new  Law  on  financial  management  of  local  governments  in  force  as  of 
2012  provides  a  basis  for  a  medium-  to  long-term  financing  framework.  It  modernises 
and  increases  the  transparency  of  financial  governance  and  includes  provisions  on 
enforcement  of  fiscal  discipline.  It  also  sets  a  net  debt  ceiling  of  60 %  to  100 %  of 
revenue  from  the  main  activities  in  the  current  fiscal  year7  on  borrowing  by  local 
governments and dependent units, with no escape clauses. Responsibility for monitoring 
and enforcing the rule lies with the Ministry of Finance. 

Finally,  the  medium-term  budgetary  framework  in  place  provides  a  basis  for  planning 
beyond the next year’s budget. However, the expenditure limits set in the framework are 
indicative  and  can  be  revised  in  the  following  year’s  update.  In  order  to  prevent  pro-
cyclical  fiscal  loosening  in  years  of  high  economic  growth,  the  expenditure  ceilings 
could  be  made  more  binding  and  augmented  by  multi-annual  expenditure  rules.  The 
same  applies  to  the  system  for  monitoring  and  reporting  on  the  strategic  targets, 
including elements of public accountability. 

Tax system 

Estonia’s  tax-to-GDP  ratio,  which  stood  at  34.2 %  in  2010,  is  below  the  EU  average, 
based on low nominal tax rates, and is relatively skewed towards taxes on consumption. 
The taxation policy is framed in terms of a simple tax system and a broad tax base. The 
tax  burden  on  consumption,  as  measured  by  its  implicit  tax  rate,  was  25.6 %  in  2010, 
among the highest in the EU. The 37 % implicit tax rate on labour is somewhat above the 
EU average. By contrast, taxes on businesses, on corporate income and on capital stocks 
are well below the EU averages. Overall, the implicit tax rate of 9.1 % on capital is lower 
than 28.8 % in the EU-25. 

In 2011, Estonia adopted a package of legislative proposals that move in the direction of 
implementing the Council recommendations to reduce the tax burden on labour, provide 
incentives to increase participation in lifelong learning and reduce incentives to borrow. 
They include reducing personal and corporate income tax rates by one percentage point 
(to 20 %) as of 2015, abolishing the fringe-benefit tax on work–related studies as of 2012 
and  lowering  the  ceiling  for  total  income  tax  deductibility  (related  in  particular  to 
mortgage interest payments) by about 40 % as of 2012 (see section 3.2.). These reforms 
were among Estonia’s Euro Plus Pact commitments and have been fully implemented. 

On  the  other  hand,  Estonia  has  also  abolished  the  land  tax  on  small  and  medium-sized 
residential  plots  from  2013,  if  the  primary  residence  of  the  taxpayer  is  located  on  that 
land (see section 3.2.). While the fiscal effect of this measure is rather small (-0.09 %), it 
weakens  the  counter-cyclical  effects  in  the  housing  sector.  It  also  reduces  the  policy 
potential to strengthen and diversify budgetary revenue without harming growth.8 

Environmental  taxes  are  dominated  by  motor  fuel  taxation  and  pollution  and  resource 
taxes,  but  have  been  ineffective  so  far  (see  section  3.4.).  Introducing  or  tightening 
taxation measures on other sources of energy and also on transport and waste (e.g. road 
tax, annual tax on motor vehicle use, energy consumption-linked taxes on ownership or 
registration of motor vehicles or landfill taxes) could help to achieve environmental goals 
while providing room for a further tax shift away from labour. In 2011, Estonia enacted 

7   Revenue including transfers but excluding net revenue from sales of fixed assets, financial revenue and earmarked 

grants for acquisition of fixed assets. 

8   See, for example, European Commission (2011), Tax reforms in EU Member States 2011, European Economy No 
5. See also OECD (2011), Economic Survey of Estonia, plus the earlier analysis by the Commission (Commission 
Staff Working Paper SEC(2011) 715/final). 

10

 
 
 
                                                 
the  first  stage  of  a  comprehensive  reform  of  the  preferential  excise  taxation  system  for 
motor  fuels,  narrowing  the  applicability  of  the  preferential  excise  rate.  This  measure  is 
expected to reduce market distortions, minimise fraud  and create incentives to improve 
energy efficiency. 

Most  policy  indicators  show  that,  due  to  the  simple  tax  administration  and  widespread 
use of e-government, Estonia has relatively low costs of tax compliance. There is a broad 
consensus  that  the  relative  share  of  informal  work  is  about  10 %  of  the  labour  force, 
which is below the EU average. However, available estimates of the potential size of the 
shadow  economy  vary  greatly  from  4 %  (National  Statistical  Office)  to  around  30 %  of 
GDP,9 providing contradictory messages about the importance of this issue for Estonia. It 
should be added that some features of the Estonian tax system could induce tax evasion, 
such as the fact that social contributions are paid by the employers or the differences in 
the tax treatment of employees and self-employed. Estonia intends to extend the powers 
of the Tax Office to fight tax evasion, with its stability programme mentioning electronic 
receipts,  mandatory  registration  of  employees  and  taxing  individuals  importing  goods 
from  outside  the  EU  which  are  liable  to  excise  as  areas  where  tax  collection  can  be 
improved. 

3.2. Financial sector 

Financial stability 

Estonia’s  banking  sector  is  sound,  with  strong  capital  buffers  (capital  adequacy  ratio 
approximately 16.9 %), high provision coverage and a decreasing non-performing loans 
level (5.1 %). However, credit growth is recovering and may accelerate since real interest 
rates  are  negative  and  the  reserve  requirement  for  banks  is  low,  while  there  is  no 
regulation  on  the  maximum  loan-to-value  ratio  for  mortgages.  This  could  reverse  the 
decline  in  private-sector  indebtedness  relatively  soon.  Also,  Estonia’s  economy  is 
inherently  volatile.  Therefore,  promoting  savings  as  a  means  to  support  the  on-going 
deleveraging  of  private  operators  and  prevent  recurring  imbalances  on  the  housing  and 
mortgage markets remains desirable, and the tax system can have effects in this respect. 
In  June  2011,  the  Estonian  authorities  fully  implemented  their  national  reform 
programme and Euro Plus Pact commitment to lower the ceiling for the total income 
tax  exemption  (see  section  3.1.),10  including  the  tax  deductibility  of  mortgage  interest 
payments,  thereby  reducing  the  fiscal  incentives  to  borrow  and  limiting  the  risk  of 
recurring real estate-related overheating and overall instability. However, in parallel, the 
Estonian authorities reduced the base of the land tax (see section 3.1.), which could have 
a  limited,  but  opposite,  effect.  Moreover,  there  is  no  further  talk  at  this  stage  of  a 
revaluation of the theoretical land prices used as a basis for the existing land tax which 
date  back  to  2001.  Nevertheless,  as  reflected  in  the  national  reform  programme, 
depending on the impact of the measures that will enter into force in 2012, the Estonian 
authorities  are  expected  to  continue  withdrawing  the  remaining  incentives  to  borrow: 
partial  deductibility  of  mortgage  interest  payments  and  loan  guarantees.11  Given  the 
remaining challenge with respect to medium-term macrofinancial stability, further 
formal commitments in this area will be welcome. 

9   Schneider et al. (2010) ‘Shadow economies all over the world: new estimates for 162 countries from 1999-2007’, 

World Bank policy research working paper No 5356. 

10   From EUR 3 196 to EUR 1 920. 
11   Housing loan guarantees provided by the Credit and Export Guarantee Fund (Kredex). 

11

 
 
 
 
 
                                                 
Households’  limited  level  of  financial  education  and  the  predominantly  adjustable-rate 
mortgages  remain  causes  for  concern,  as  they  expose  households  to  risks  of  excessive 
leverage and  over-indebtedness. These can also generate systemic risks related to more 
volatile house prices, excessive house price levels and overall instability. 

Access to finance 

The  access  of  small  and  medium-sized  enterprises  to  financing  could  remain 
problematic, especially as market failures were identified in this area in the past. While 
credit  remains  tight,  banks  complain  that  strong  industrial/business  projects  to  be 
financed are scarce. This is partly due to the lack of innovation, as a result of relatively 
poor  cooperation  between  universities  and  enterprises  and  also  to  a  persistent  lack  of 
highly  qualified  engineers  and  of  information  and  communication  technology  (ICT) 
specialists.  Moreover,  a  substantial  number  of  companies  are  likely  to  be  currently 
involved  in  the  informal  economy  and  tax  evasion  and,  consequently,  are  unable  to 
secure traditional financing.12 At the same time, small companies and start-ups complain 
that banks are becoming stricter about the collateral required,13 hence the need to design 
real  support  for  microenterprises,  which  in  general  have  a  much  harder  time  gaining 
access to financial support schemes. 

Nevertheless, Estonia has made some progress to improve credit financing and access to 
venture  capital  through  programmes  receiving  structural  funding  and  state  support.  In 
particular,  Enterprise  Estonia  has  been  offering  start-up  and  development  grants  and  is 
launching a new ‘Start-up Estonia’ scheme (Euro Plus Pact) with the aim of training fast-
growing  start-ups  on  how  to  secure  funding  from  the  market.  In  addition,  Kredex  has 
been  providing  business  and  start-up  loan  guarantees  and  export  guarantees  and  is 
launching a new technology loan. In terms of venture capital, the Estonian Development 
Fund is specialised in early-stage venture capital investments. Furthermore, a totally new 
venture  capital  fund14  targeting  seed  and  start-up  financing  is  being  set  up,  with  the 
support of the governments of the three Baltic countries (Euro Plus Pact). Finally, a 2012 
Pact commitment aims to simplify and target existing assistance schemes better as well 
as to switch from grants to loans to reach a larger number of enterprises.  

Overall,  given  the  problems  with  gaining  access  to  both  credit  financing  and  equity 
capital  and  the  need  to  increase  knowledge  transfer  and  limit  debt-exposure,  there  is 
room for further improvement in promoting Estonian small and medium-sized enterprises 
among potential foreign investors. In particular, contacts with foreign ‘business angels’ 
associations could be developed and their activities within Estonia coordinated. 

3.3. Labour market, education and social policy 

Labour market and social policy 

In  response  to  the  recommendation  on  taking  steps  to  support  labour  demand  and  to 
reduce the risk of poverty and to the Euro Plus Pact commitments, the government has 
undertaken  reforms  that  are  relevant  and  effective  in  the  Estonian  context  and  that  can 
have  both  short-  and  medium-term  effects.  Measures  have  already  been  approved  by 
Parliament or by the government and are therefore highly credible in terms of expected 
follow-up.  In  particular,  as  indicated  in  section  3.1,  Estonia  has  decided  to  lower  the 
personal  income  tax  rate  from  2015  and  has  abolished  the  fringe-benefit  tax  on  work–

12   As banks rightly refuse any candidate with ‘double accounting sheets’. 
13   The loan rejection rate is approximately 30 %, in part due to the bad quality of business plans. 
14   The Baltic Investment Fund. 

12

 
 
 
 
                                                 
related  studies  as  of  2012.  It  is  also  progressing  on  guaranteeing  the  sustainability  and 
adequacy  of  pensions:  in  2011,  it  took  the  first  decisions  on  the  reform  of  special  and 
old-age pensions under favourable conditions, during the first half of 2012 it will work 
out  the  principles  and  timetable  for  further  reforms  and  from  2012  it  has  fully  restored 
payments  to  the  compulsory  funded  pension  scheme.  In  a  new  Euro  Plus  Pact 
commitment, the government has committed itself to lowering unemployment insurance 
contribution  rates  from  2013,  which  will  reduce  the  tax  burden  on  both  employers  and 
employees.  On  this  basis,  and  in  anticipation  of  the  lowering  of  the  unemployment 
insurance  contribution  rates,  the  part  of  the  recommendation  related  to  ‘tax 
reduction’ is considered as partly implemented.  

In  parallel,  the  government  is  making  efforts  to  reduce  the  high  unemployment, 
especially  youth  and  long-term  unemployment,  by  regularly  assessing  the  situation  and 
updating measures accordingly, e.g. adopting a new Employment Programme for 2012-
2013 supported by new national reform programme commitments. Active labour market 
policy  measures  have  worked 
for  general  unemployment,  especially  youth 
unemployment,  which  has  almost  halved  from  its  peak  in  2010,  while  the  employment 
rate  for  those  aged  20-64  already  exceeds  70 %,  showing  good  progress  towards  the 
headline  target  of  76 %  by  2020.  However,  the  measures  have  not  been  particularly 
effective  for  the  long-term  unemployed,  nor  has  the  up-skilling  in  regions  with  high 
unemployment.  Further  attention  is  needed  in  order  to  lower  youth,  low-skilled  and/or 
long-term unemployment further and to improve cooperation between local governments 
and  unemployment  service  providers.  Developing  regional  career  centres  to  provide 
stronger  career  counselling  and  career  information  could  also  improve  the  situation. 
Therefore,  the  part  of  the  recommendation  on  labour  market  policies  is  also 
considered as only partly implemented, even though new national reform programme 
and Euro Plus Pact commitments in 2012 are expected to bring positive developments in 
this respect. 

Given  the  persistently  high  long-term  unemployment,  the  poverty  risk  of  children  in 
jobless  households  is  starting  to  increase,  while  the  number  of  children  needing  social 
assistance has more than doubled over the last five years.15 The Children’s and Families’ 
Development Plan for 2012–2020, together with implementing measures, has the general 
purpose of improving the welfare and living standards of children and families. However, 
the  existing  additional  basic  income  tax  exemption  for  families,  starting  from  second 
child is largely inefficient in reducing child poverty, as it depends on taxable income and, 
therefore,  it  is  less  available  for  families  with  low  revenue.  Moreover,  the  fragmented 
local  governments  are  inefficient  in  providing  access  to  social  services  to  contain  the 
spread  of  poverty.  In  all,  emphasis  could  be  put  on  extending  access  to  services  for 
households and children, particularly those with low work-intensity. 

Regarding  the  national  Europe  2020  targets,  two  areas  require  further  attention: 
employment and reduction of poverty/social exclusion. Estonia’s target for employment 
of those aged 20-64 is set at 76 %, which means bringing some 38 000 more people onto 
the  labour  market  in  comparison  with  2009.  This  could  be  achieved  with  well-targeted 
measures  for  the  young  unemployed,  the  low-skilled,  the  long-term  unemployed  and 
elderly  workers,  combined  with  measures  addressing  regions  with  high  unemployment 
and others aimed at improving childcare provision for children aged under three (see also 
under ‘Education policies’). Considering the recent developments and the new measures 
envisaged in the 2012-2013 Programme for Employment, the target remains ambitious, 

15   From 858 children in 2005 to 2 000 in 2011. 

13

 
 
 
                                                 
but achievable. The targets set for reduction of poverty and social exclusion will pose a 
serious challenge, but are also achievable if social services, including family services, are 
made more efficient and targeted and if the plans for raising education and skills levels 
are implemented in full. 

As for the Annual Growth Survey 2012 priorities, since the economy is emerging from a 
deep recession with high long-term unemployment, the efficiency and coverage of labour 
market  policies  require  particular  attention.  Skills  mismatches  pose  a  risk  that  the 
currently high long-term unemployment could become structural. Also, there is scope for 
reducing  the  unemployment  and  inactivity  traps,  which  are  especially  dangerous  for 
the  low-skilled  and  persons  on  low  wages,  but  also  for  families  with  children.  Social 
benefits targeted on the unemployed (unemployment insurance benefits, unemployment 
allowances  and  subsistence  benefits)  lack  the  flexibility  necessary  to  promote  labour 
supply  from  those  currently  unemployed  and  facilitate  their  return  to  working  life. 
Furthermore, the parental benefit system in Estonia is relatively costly (1.1 % of GDP 
in  2011),  being  one  of  the  most  generous  in  Europe  in  terms  of  both  duration  and 
amounts. This puts disproportionally high emphasis on the first 18 months of age,16 while 
the  supply  of  childcare  services  for  children  under  three  is  insufficient  (see  above).  In 
particular,  the  high  benefit  level17  creates  distortionary  labour  market  effects.  Less 
generous  and  redesigned  parental  benefits  could  contribute  to  increasing  labour  supply 
without  having  a  negative  impact  on  birth  rates,  while  improving  the  quality  of  public 
spending.  Finally,  there  is  scope  for  bringing  disabled  people  back  onto  the  labour 
market,  and  keeping  them  there,  in  order  to  contain  the  rising  take-up  of  disability 
benefits and incapacity-for-work pensions. Indeed, the labour market exits for long-term 
health-related absences in Estonia are 10 pps higher than the EU average and the number 
of  people  receiving  incapacity-for-work  pensions  has  almost  doubled  within  ten  years. 
This, over and above well-being aspects, puts pressure on public finances. New national 
reform programme measures and a Euro Plus Pact commitment in 2012 aim to reform the 
insurance  scheme  for  incapacity  for  work  and  to  establish  an  occupational  and 
professional  health  insurance  scheme,  while  a  ‘Green  Paper  on  family  benefits  and 
services’ has been announced. 

Education policies 

As regards the recommendation on the reform of the education system, participation 
in  early  education  has  increased  over  the  last  decade  and  Estonia  is  performing  better 
than the EU average, but a gap exists in early childcare (for 1.5- to 3-year olds), with an 
adverse effect on the employability of young parents and a negative impact on an already 
high gender pay gap. However, as reflected in the 2012 national reform programme, a 
recent  draft  reform  of  the  Pre-School  Act  presented  by  the  Ministry  of  Education  and 
Research  proposes  to  establish  day-care  facilities  at  public  primary  schools  throughout 
the  country  and  make  them  more  accessible  for  families.  Local  authorities  would  be 
given  financial  support  for  creating  new  places  and  new  facilities.  The  government’s 
plans appear relevant and ambitious, but the necessary changes to the Law on Pre-School 
Child  Institutions  are  not  expected  to  be  adopted  before  mid-2012  to  2013.  Therefore, 
the part of the recommendation on pre-school education is only partly fulfilled. 

As  for  the  part  of  the  recommendation  calling  for  enhancing  the  quality  and 
availability  of  vocational  education,  Estonia  has  a  dual  objective:  increase  the  adult 

16   Parental benefit expenditure accounts for 63 % of the total family benefit expenditure. 
17   For  example,  duration  of  18  months,  ceilings  equal  to  three times  the  average wage  and  100 %  replacement  rate 
based on previous wage. Disincentives to work are aggravated by the high effective tax rates on additional labour 
income for recipients of parental benefit. 

14

 
 
 
                                                 
participation rate in lifelong learning (25-64 year group) to 20 % and reduce the share of 
adults without professional education or vocational training to below 30 % by 2020. Both 
of these objectives are in line with the recommendation.18 Moreover, the ongoing revision 
of  the  Adult  Training  Act  could  improve  the  system  in  general  and  give  adults  greater 
access to lifelong learning, which is a major challenge for Estonia. The lifelong learning 
objective  is  far  from  being  attained.  However,  there  has  been  a  continuous  increase  in 
participation rates over the years, with the adult participation rate above the EU average 
in  2011.  Nevertheless,  participation  by  low-skilled  persons  in  education  and  training 
remains low (3.5 % in 2011). 

Around 32 % of the labour force has no professional education. Reaching the 30 % target 
by 2020 appears ambitious but attainable. In 2011, the opportunities for participating in 
vocational  education  and  training  were  extended 
to  persons  with  no  prior 
qualifications and to older workers. Also, the government has decided to plan the number 
of available study places in both general and vocational tuition. Other measures include 
the  adoption  and  implementation  of  the  revised  Vocational  Education  Institutions  Act 
(VET  Act),  raising  the  quality  of  vocational  education  through  further  teacher  training 
and  more  relevant  vocational  curricula,  with  further  attention  to  more  work-based 
schemes.  Another  high  priority  is  the  increase  already  planned  in  the  financing  of 
vocational  education.  However,  the  revision  of  the  VET  Act  will  not  come  into  force 
until June 2013, supported by commitments in the 2012 national reform programme and 
the  Euro  Plus  Pact.  Further  new  commitments  aim  to  improve  the  quality  of  the 
education system, notably through reorganising the upper-secondary schools network as 
required by demographic trends in Estonia, thereby ensuring higher efficiency in public 
spending.  Nevertheless,  given  the  mixed  progress  on  lifelong  learning  and  on  the 
vocational education and training reform so far, this part of the recommendation is 
considered as partly fulfilled. 

At  tertiary  education  level,  which  is  covered  by  the  last  part  of  the  recommendation, 
performance agreements to be signed with higher education institutions under the latest 
reform could help steer study outcomes towards fields required by the economy. Further 
stress will be laid on turning out more graduates in mathematics, science and technology, 
in  particular  in  information  and  communication  technologies,  where  there  is  strong 
labour market demand. Measures planned by the authorities are expected to be effective, 
showing  a  certain  degree  of  ambition,  and  supported  by  a  specific  commitment  in  the 
2012 national reform programme. Pilot projects have already started and their continuity 
may  be  supported  under  the  next  European  Social  Fund  programme.  However,  at  this 
stage, specific target groups, such as low-skilled workers, do not seem to be a priority. 
Therefore,  the  part  of  the  recommendation  on  bringing  the  education  outcomes 
closer to labour market needs can be considered as partly fulfilled. 

In  relation  to  the  2011  Euro  Plus  Pact  commitments,  the  fringe-benefit  tax  on  work-
related  studies  has  been  abolished  (see  section  3.1.)  and,  in  early  2012,  the  Estonian 
Parliament  adopted  a  comprehensive  reform  of  higher  education  (Euro  Plus  Pact)  (see 
above).19-20  The  reform  is,  however,  pending,  subject  to  scrutiny  on  constitutional 
grounds. 

18   The number of people with no vocational education or training is highest in the youngest age group, among those 

aged 25-34 (35 % in 2010). 

19   Under the law due to enter into force in January 2013, higher education institutions will be allocated support from 
the  state  budget,  which,  as  a  rule,  will  not  be  tied  to  specific  student  slots  or  the  number  of  graduates.  Students 
must collect 30 credit points per semester in order to be entitled to free tuition (see above for the assessment). 
15

 
 
 
                                                 
Regarding the national Europe 2020 targets, early school leaving is perceived as one of 
the  major  challenges  in  education,21  even  though  the  rate  is  slightly  lower  than  the  EU 
average. Therefore, the government recently updated its general education development 
plan  (2007-2013)  with  a  view  to  improving  the  quality  and  efficiency  of  the  education 
system and reducing the number of school drop-outs. It has also started implementing the 
national  early  school  leaving  tracking  mechanism  and  is  preparing  further  measures, 
including  adaptation  of  the  VET  Act  (see  above  and  new  national  reform  programme 
commitments). Finally, the tertiary education target (40 %) was reached in 2010 already, 
but further efforts will be needed to maintain the level attained. 

3.4. Structural measures promoting growth and competitiveness 

Energy, transport, infrastructure and the environment 

To  implement  the  recommendation  on  energy,  Estonia  has  taken  several  measures  to 
reduce  energy  intensity  and  increase  energy  efficiency,  including  investments  in  the 
building and transport sectors, and has started a reform of the legislation governing the 
energy  market.22  However,  because  of  the  ongoing  shift  of  passenger  transport  from 
public  transport  to  private  cars  and  of  freight  transport  from  rail  to  road,  the  energy 
intensity of the transport sector and the ensuing greenhouse gas emissions are expected to 
grow.  Consequently,  the  measures  proposed  by  the  National  Energy  Efficiency  Action 
Plan,23 although fully relevant, are insufficient.24 Moreover, in 2010, the fleet of new cars 
in Estonia was one of the most energy-intensive in the EU. Finally, the fuel excise duties, 
which are considered the primary instrument for influencing energy use in the transport 
sector, have been ineffective in shifting consumer patterns. At the same time, Estonia has 
no  energy  consumption-linked  taxes  on  ownership  or  registration  of  motor  vehicles 
(except  for  heavy  goods  vehicles).  As  a  result,  the  implementation  of  the 
recommendation  can  be  considered  as  only  partial,  even  though  a  number  of  new 
measures  in  the  2012  national  reform  programme  and  two  new  Euro  Plus  Pact 
commitments,  one  on  buildings  and  another  one  on  transport,  reflect  solid  political 
determination.  In  particular,  the  country  still  lacks  an  ambitious  transport  and  spatial 
planning  strategy,  with  a  particular  focus  on  effective  enhancement  of  public  transport 
and  an  upgrade  of  rail  infrastructure.  Energy  consumption-based  taxation  of  vehicles 
could  also  be  considered.  As  a  result,  the  challenges  identified  by  the  2011 
recommendation still apply. 

Estonia still suffers from the relative isolation of its energy networks, notably from those 
of the EU (gas) and/or Finland (electricity). In this respect, Estonia’s energy supply could 
be diversified by participation in a regional liquefied natural gas terminal, completion of 
an  electricity  interconnection  with  Finland  and  a  stronger  connection  with  Latvia.  The 
electricity  infrastructure  within  Estonia  could  also  be  upgraded  to  integrate  increasing 
amounts  of  wind  energy.  Finally,  transposition  of  several  energy-related  EU  directives 

20   Future reforms in higher education may need to respond to the challenge of making the tertiary education sector 
more cost-effective. This would require a reduction in the number of tertiary education institutions and a clearer 
division of labour between the different institutions, coupled with a clearer definition of their competences. 

21   Dropping-out  of  school  usually  concerns  boys  and  is  most  common  among  students  in  the  final  year  of  basic 
school (9th year) and the first year of secondary school. The drop-out rate among men (15 %) is twice as high as 
among women and is higher in vocational education with a yearly rate of over 20 %. 

22   Estonia’s  recent  investment  efforts  to  increase  energy  efficiency  and  reduce  GHG  emissions  total  about 
EUR 300 m. In the road transport sector, 150 new trams and buses with higher energy efficiency will be purchased. 
Also, electric cars are being purchased and nationwide charging infrastructure is being developed. 

23   Stricter public procurement criteria, support schemes for electric cars and public awareness. 
24   Although the Transport Development Plan for 2005-2013 set a target of increasing the number of trips made by 

public transport, in reality the volume has decreased by more than 10 %. 

16

 
 
 
                                                                                                                                                 
has not yet been completed nor has the necessary specific legislation25 been adopted and 
implemented, while the powers of the national energy regulator(s) could be strengthened. 
Maintaining  a  coherent,  stable  and  predictable  renewable  energy  support  framework  is 
also important. In particular, avoiding possible retroactive changes to the existing support 
schemes  prevents  a  negative  effect  on  overall  investor  confidence.  Finally,  the  benefits 
arising  from  Estonia’s  energy  efficiency  investments  could  be  increased  by  additional 
enabling measures to improve the legal and fiscal framework for the provision of energy 
services and energy performance contracting and to introduce market-based instruments 
(e.g. an energy-saving obligation scheme). 

As  regards  climate  policy,  Estonia  is  expected  to  over-achieve  its  emission  target  by 
2020.26  However,  as  long  as  the  trends  in  modal  split  remain  unfavourable,  there  is  no 
assurance  that  the  energy  intensity  of  the  transport  sector  has  actually  improved. 
Therefore,  while  the  Estonian  authorities  have  to  be  commended  for  the  efforts 
made  so  far  in  the  energy  area,  close  monitoring  of  the  emissions  trend  is  still 
required, in particular — given their weight in national emissions and the current 
trend — in the road transport and agriculture sectors. 

One of the main environmental challenges is waste management, with more than 70 % of 
the  total  waste  generated  by  the  oil  shale  and  energy  industries.  The  importance  of  oil 
shale  as  an  energy  source  adds  to  the  need  to  reduce  the  waste  which  it  generates  and 
develop an economic incentive to use the waste accumulated from the oil shale already 
mined. Here, the introduction of a royalty on the production of oil shale from 2013 (see 
2012 national reform programme) can be noted. In parallel, Estonia is unlikely to meet 
the  2020  recycling  targets  for  municipal  waste  without  creating  the  infrastructure 
required for waste management. Finally, the producer responsibility in place is not able 
to  cover  the  full  costs  of  separate  collection,  sorting  and  recycling  of  the  main  waste 
streams, while the pay-as-you-throw scheme covers only a limited part of the country. 

Given  Estonia’s  geographical  position,  transport  and  transit  are  key  factors  in  the 
country’s  economy.  Although  the  coverage  of  infrastructure  networks  is  generally 
adequate,  their  quality  is  often  not  satisfactory.27  While  infrastructure  investments  have 
been  a  priority  for  Estonia,  as  reflected  in  a  number  of  new  commitments  in  the  2012 
national reform programme, the availability of intermodal connection points (especially 
linking  ports  and 
systems  and 
infrastructure/logistics  hubs  remain  concerns.  At  a  time  of  scarce  public  funds,  careful 
planning  and  prioritisation  of  projects  is  crucial  to  maximise  their  economic  outcome. 
Public transport in regions and small cities faces several problems such as the fragmented 
market/approach, inadequate quality of service and ineffective subsidisation system. 

interoperability  of 

railways), 

transport 

the 

Research and innovation 

The  R&D  intensity  target  (3 %  with  a  milestone  of  2 %  in  2015)  is  ambitious  and 
achievable, but only if business R&D grows significantly and Estonia is able to attract 
more  R&D-intensive  foreign  direct  investment.  The  next  multi-annual  budget  and, 
especially,  cohesion  funds,  are  expected  to  play  an  important  role  as  well.  The 
government  should  aim  to  sustain  the  long-term  benefits  of  the  investment.  In  general, 
the  R&I  system  is  too  fragmented  and  its  governance28  could  be  improved.  Moreover, 

25   On renewable energy, electricity and gas. 
26   In its 2011 report the European Environment Agency concluded that Estonia might be one of the 11 Member States 

on track to achieve its individual target for 2020. 

27  The  World  Bank  Global  Logistics  Performance  Index  ranks  Estonia  43rd,  with  its  weakest  point  being 

infrastructure. Finland, for example, is ranked 12th. 

28   Notably, the role of the Research and Development Council. 

17

 
 
 
                                                 
Estonia  lacks  a  comprehensive  research  and  innovation  strategy  that  would  identify 
knowledge-intensive  sectors  that  could  push  the  country  up  on  the  international  value 
chain  and  give  access  to  wider  markets.  A  research  and  innovation  strategy  for  smart 
specialisation could concentrate public resources on a more limited number of fields of 
science  and  technology  that  reflect  Estonia’s  strengths,  as  identified  by  international 
benchmarking. This could ensure that the EU cohesion funds are used more efficiently, 
creating synergies between public and private investments and EU, national and regional 
policies.29  Such  a  strategy  for  smart  specialisation  could  address  the  following  major 
weaknesses  for  business  R&I:  first,  as  the  knowledge-intensive  private  sector  is 
underdeveloped,  additional  measures  appear  necessary  to  support  the  creation  and 
development of fast-growing innovative firms.30 Second, cooperation between businesses 
and academia continues to be weak: enterprises could be encouraged to take up research 
output,  particularly  for  boosting  the  productivity  of  existing  industries,  and  universities 
could  be  given  incentives  to  promote  an  efficient  knowledge  transfer  to  the  market. 
Third,  as  there  is  an  insufficient  supply  of  highly  skilled  human  capital  (e.g.  engineers 
and ICT professionals), there is a pressing need to create the right incentives and training 
schemes and to develop an academic culture that nurtures innovation and skills. 

Internal market and competition 

As  regards  the  business  environment,  the  administrative  burden  for  enterprises, 
especially  permits  and  licences,  but  also  costs  to  start  up  a  company,  could  be  further 
reduced. Also, municipalities have no clear rules for issuing construction permits and/or 
protecting  the  public  interest  when  needed.  The  e-bookkeeping  platform,  when 
operational, will put Estonia at the forefront of e-government use. Companies, especially 
smaller  ones,  still  encounter  difficulties  in  dealing  with  insolvency  processes.  Finally, 
Estonia would benefit from extending transposition of the late payments directive to all 
transactions involving public authorities, businesses, banks and individuals.  

As regards public procurement, the tendering procedure is relatively slow and not fully 
transparent. To address this, the Law on Public Procurement has been amended to make 
e-procurement  mandatory  as  from  2013,  including  submission  of  documents  online. 
However, participation by companies in public procurement continues to be low, due to 
the fact that even slightly indebted companies are rejected under the tendering procedure, 
while the frequent changes to the procedure have not encouraged companies to build up 
procurement capability.  

The overall efficiency of state aid enforcement in Estonia shows two weaknesses: there 
is no external vetting of domestic State aid, while the country also lacks a central State 
aid  registry.  Stronger  internal  scrutiny  and  compliance  mechanisms  would  therefore  be 
needed to prevent a weakening of the public expenditure monitoring and to avoid lengthy 
State aid cases and also incompatible aid cases.    

3.5. Modernisation of public administration 

The provision and use of e-government services in Estonia is more advanced than in the 
EU  on  average:  public  services  are  available  online  for  90 %  of  the  citizens,  while  the 
figure for businesses is 100 %. More importantly, the Estonian public administration has 
demonstrated its capacity to respond rapidly and successfully to the global financial and 
economic  crisis  by  proceeding  with  the  necessary  budget  consolidation  and  fostering 

29   In  particular,  there  is  a  need  for  better  coordination  within  the  country  and  with  neighbouring  Member  States, 

especially in the context of the EU Strategy for the Baltic Sea Region. 

30   Improvements in the existing competence centres, knowledge transfer offices, incubators and cluster programmes, 
innovation vouchers and support offered by Enterprise Estonia, Kredex and the Estonian Development Fund. 
18

 
 
 
                                                 
structural reforms. In order to maintain and improve this capacity in the changing socio-
economic context, further reforms are, however, necessary.31 

The  new  Civil  Service  Law  modernising  public  administration  was  approved  by  the 
government on 1 March 2012 and is expected to be adopted by Parliament by June. The 
new  law  will  decrease  the  number  of  civil  servants,  make  the  salary  system  more 
comprehensible and transparent and launch the rotation system in public administration. 
Independent of the reform, the  salary funds for  civil  servants  are frozen  up to 2014. In 
parallel, new national reform programme and Euro Plus Pact commitments in 2012 aim 
to  increase  the  quality  of  the  financial  reporting  by  the  state,  while  another  aims  to 
improve the systems for managing EU structural funds. To fight fraud and corruption, a 
new  Anti-corruption  Act  is  currently  before  Parliament.  A  Public  Service  Code  of 
Ethics is in the making as well. 

There  is  also  a  longer-term  need  to  pursue  the  reform  of  local  government  to  ensure 
better  provision  of  public  services  and  make  optimum  use  of  the  relatively  fragmented 
resources.  Currently,  assessments  conclude  that  most  of  the  local  governments  are 
finding  it  difficult  to  deliver  to  everyone  the  social,  health  and  education  services  they 
need.32-33  Local  governments  appear  to  be  too  small  to  meet  the  obligations  placed  on 
them by law. However, there is no political support in Estonia for an overall reform that 
would  reduce  the  number  of  local  governments,  but  which  could  allow  more  efficient 
provision of services.34 Nevertheless, as recommended by the OECD in 2010, Estonia is 
planning to look at reforms in different sectors (education, social services, health, waste 
management and public transport) and to consider the best measures to take in order to 
provide these services more efficiently at local level. 

31   Well-performing  institutions  have  a  strong  long-term  effect  on  economic  outcomes  and  the  behaviour  of 
businesses,  whereas  a  large  informal  economy  is  considered  to  be  an  indicator  of  poor  public  institutions  (see 
section 2.2.). 

32   The  local  governments  bear  primary  responsibility  for  education  up  to  secondary  level  (excluding  vocational 

education), for organising transport and social services and for cultural events. 

33   In  particular,  the  system  of  ownership  of  upper-secondary  schools  (local  governments)  does  not  guarantee 
universal  access  to  quality  education  throughout  the  country  and,  thereby,  creates  inequalities  between  students 
from cities and the regions with regard to access to higher education. 
34   Currently there are 226 municipalities for a population of 1.3 million. 

19

 
 
 
 
                                                 
4.   OVERVIEW TABLE 

2011 commitments 

Summary assessment 

Country-specific recommendations (CSRs) 

CSR 1: Achieve structural surplus by 2013 at the latest, while 
limiting  the  deficit  in  2012  to  at  most  2.1 %  of  GDP,  keeping 
tight control  over  expenditure  and  enhancing the  efficiency  of 
public spending. 

Estonia  has  partly  implemented  the  CSR:  the  2012 
programme forecasts a deficit of 2.6 % of GDP  in 2012, 
which is bigger than projected both in the 2011 stability 
programme  and  in  the  Commission  spring  forecast. 
However, the deterioration is a result of weaker revenue 
related  to  the  worsened  growth  outlook,  but  also  of 
higher-than-expected 
the  one-off 
investment  projects  back-loaded  from  2011  (1.7 %  of 
the  national  projections).  The 
GDP  according 
structural  balance  is  expected  to  improve  by  0.3 %  of 
GDP  in  2013  reaching  a  balanced  position  according  to 
the programme. 

expenditure  on 

to 

CSR 2: Take steps to support labour demand and to reduce the 
risk of poverty, by reducing the tax and social security burden 
in  a  budgetary  neutral  way,  as  well  as  through  improving  the 
effectiveness  of  active  labour  market  policies,  including  by 
targeting  measures  on  young  people  and  the  long-term 
unemployed, especially in areas of high unemployment. 

CSR  3:  Ensure  implementation  of  planned  incentives  to 
reduce  energy  intensity  and  improve  the  energy  efficiency  of 
the  economy,  targeted  on  the  buildings  and  transport  sectors, 
including by ensuring better market functioning. 

CSR  4:  While  implementing  the  education  system  reform, 
give  priority  to  measures  improving  the  availability  of  pre-
school  education,  and  enhance  the  quality  and  availability  of 
professional  education.  Focus  education  outcomes  more  on 
labour market needs, and provide opportunities for low-skilled 
workers to take part in lifelong learning. 

Estonia  has  partly  implemented  the  CSR:  a  number  of 
steps  have  been  taken  in  the  area  of  labour  taxation. 
However, the rising take-up of disability and incapacity-
for-work benefits has not been addressed. There is a need 
to  put  more  disabled  people  back  on  the  labour  market. 
Efforts are being made to reduce the high unemployment, 
but long-term and youth unemployment are still high and 
skills  levels  are  expected  to  become  a  bottleneck  to 
growth.  The  CSR  needs  to  be  repeated  and  the  part  on 
poverty  risk  needs  to  focus  on  groups  particularly 
exposed. 

Estonia has partly implemented the CSR: the measures in 
the  National  Energy  Efficiency  Action  Plan  are  fully 
relevant,  but  are  insufficient  given  the  modal  shift  away 
from public transport. Also, the new cars fleet is the most 
energy-intensive in the EU. Finally, fuel excise duties are 
insufficient  to  shift  consumer  patterns.  Therefore,  the 
challenge still applies and the CSR needs to be repeated. 

Estonia has partly implemented the CSR: the quality and 
availability  of  vocational  education  have  improved  and 
more  measures  are  planned.  Participation  in  lifelong 
learning is picking up, but with insufficient focus on low-
skilled  workers.  Problems  with  matching  education 
outcomes to labour market needs are continuing. There is 
the  upper-secondary 
reform 
an  urgent  need 
education/school  system.  Further  attention  needs  to  be 
paid  to  provision  of  public  services  by  local  authorities. 
Overall, the CSR needs to be repeated and adjusted. 

to 

Euro Plus Pact (national commitments and progress) 

Commitments related to public finance: lower the annual upper 
limit  for  income  tax  exemptions  to  EUR  1 920;  first  phase  of 
the  reform  of  special  pension  schemes;  achieve  a  budget 
balance in 2013 and a budget surplus in 2014; include a public-
sector budget balance requirement in the basic state budget law. 

Commitments to foster employment: adopt the law to reduce the 
personal  income  tax  rate  from  21 %  to  20 %  (from  2015); 
abolish the fringe-benefits tax on work-related studies. 

20

The  new  annual  upper  limit  for  income  tax  exemptions 
was approved by Parliament in mid-2011. The other three 
commitments  are  still  pending:  the  first  phase  of  the 
reform  of  special  pension  schemes  is  expected  to  be 
adopted  by  Parliament  by  summer  2012.  The  planned 
budget  balance  in  2013  and  surplus  in  2014  have  been 
introduced  into  the  State  Budgetary  Strategy.  However, 
this  strategy  is  revised  annually,  while  an  actual  budget 
balance  and  surplus  can  be  achieved  only  in  2013  and 
2014. 

For these two Euro Plus Pact commitments, the necessary 
legislative amendments were adopted in mid-2011. 

 
 
 
 
 
Commitments  to  foster  competitiveness:  reform  civil  service 
benefits  and  increase  the  transparency  of  the  wage  system; 
implement  the  higher  education  reform;  launch  a  start-up 
programme for innovative enterprises. 

The  first  two  Euro  Plus  Pact  commitments  aimed  to 
foster  competitiveness  are  expected 
fully 
implemented  soon,  with 
legislation 
expected  to  be  adopted  by  Parliament  by  summer  2012. 
The third commitment has been fully implemented, with 
the  new  start-up  programmes  for  innovative  enterprises 
already approved by the government, and is operational. 

the  necessary 

to  be 

Europe 2020 (national targets and progress) 

Employment  rate  target  set  in  the  2011  national  reform 
programme: 76 % 

R&D target set in the 2011 national reform programme: 3.0 % 

Greenhouse gas emissions target:  
 -11 %35 

Renewable  energy  sources  (RES)  target  set  in  the  2011 
national reform programme: 25 % 

Energy  efficiency  —  Reduction 
consumption by 2020: medium-term objective 0.71 Mtoe 

[primary]  energy 

in 

Early school leaving (ESL) target: 9.5 % 

Tertiary education target: 40 % 

Target  on  the  reduction  of  population  at  risk  of  poverty  or 
social  exclusion  in  number  of  persons:  reduce  the  at-risk-of-
poverty  rate  (after  social  transfers)  to  15 %  (from  17.5 %  in 
2010) 

66.4 %  in  2010  and  70.1 %  in  2011.  Challenging  but 
achievable  with  well-targeted  measures  for  the  young 
unemployed,  the  low-skilled,  the  long-term  unemployed 
and  elderly  workers  combined  with  addressing  regions 
with  high  unemployment  and  childcare  provision  for 
children under three. 

1.42 %  of  GDP  in  2009  and  1.63 %  in  2010  (0.81 % 
public,  0.82 %  private).  Ambitious,  but  achievable,  but 
only if business R&D grows significantly and Estonia is 
to  attract  more  R&D-intensive  foreign  direct 
able 
investment. 

-4 %  greenhouse  gas  emissions,  base  year  1990. 
Overachievement  possible,  but  close  monitoring  still 
required, in particular in road transport and agriculture. 

23 %  in  2009  (EUROSTAT  2009)  and  24 %  in  2010 
(national  RES  progress  report).  Well  on  track  towards 
the  overall  RES  target:  Estonia  has  already  achieved  its 
2011/2012  interim  target,  but  is  lagging  behind  on  the 
10 % binding RES target for transport. 

The  energy  efficiency  objectives  are  based  on  national 
circumstances  and  national  formulations.  As  the  method 
to  express  the  impact  of  these  objectives  on  energy 
consumption in 2020 in the same format was agreed only 
recently,  the  Commission  is  not  yet  able  to  present  this 
overview. 

13.9 %  (2009)  and  11.6 %  (2010).  This  is  one  of  the 
biggest  challenges  in  education  and  is  being  addressed 
through  several  initiatives  (ESL  tracking  mechanism, 
etc.). Ambitious, but achievable. 

35.9 % (2009) and 40.0 % (2010). National target already 
reached, but may reflect a relative lack of ambition. 

the  adopted 

58 000  (2009).  Reaching 
targets  will 
constitute  a  serious  challenge,  but  seems  achievable  if 
social services, including family services, are made more 
efficient  and  targeted,  and  if  the  plans  on  raising  the 
education and skill levels are implemented in full. 

35   The national emissions target set in Decision 2009/406/EC (the ‘Effort-Sharing Decision’) concerns the emissions 
not covered by the EU emissions trading system. It is expressed as the minimum relative decrease (if negative) or 
the maximum relative increase (if positive) compared with 2005 levels. 

21

 
 
 
 
                                                 
5.   ANNEX 

Table I. Macroeconomic indicators 

Core indicators
GDP growth rate
Output gap 1
HICP (annual % change)
Domestic demand (annual % change) 2
Unemployment rate (% of labour force) 3
Gross fixed capital formation (% of GDP)
Gross national saving (% of GDP)
General government (%  of GDP)
Net lending (+) or net borrowing (-)
Gross debt
Net financial assets 
Total revenue 
Total expenditure
  of which: Interest
Corporations (%  of GDP)
Net lending (+) or net borrowing (-)

1995-
1999

2000-
2004

2005-
2008

2009

2010

2011

2012

2013

5.7
-8.4
10.2
6.4
10.0
27.3
20.9

-0.2
7.1
34.3
39.2
39.5
0.4

7.3
3.0
3.5
9.7
11.2
28.8
22.3

0.7
5.3
29.7
35.8
35.1
0.2

5.7
9.1
6.5
6.4
6.0
33.3
22.8

0.9
4.3
29.7
36.0
35.2
0.2

-14.3
-9.8
0.2
-22.3
13.8
21.5
23.2

-2.0
7.2
29.4
43.2
45.2
0.2

2.3
-7.7
2.7
0.3
16.9
18.8
23.9

0.2
6.7
36.5
40.9
40.6
0.1

7.6
-1.5
5.1
11.0
12.5
21.5
25.3

1.0
6.0
n.a
39.2
38.2
0.1

1.6
-1.9
3.9
2.5
11.6
23.1
24.9

-2.4
10.4
n.a
38.9
41.2
0.1

3.8
-0.8
3.4
4.0
10.5
23.9
25.6

-1.3
11.7
n.a
38.1
39.3
0.1

-7.6

-5.6

-4.5

6.9

4.7

3.4

6.3

5.1

n.a
n.a
16.1
30.7

n.a
n.a
14.9
30.7

0.9
n.a
36.0
2.0
15.4
3.6

-187.7
5.1
11.9
29.0

-184.3
7.4
8.9
23.9

-165.1
-3.8
23.2
31.1

-122.9
-16.5
22.5
30.6

-105.2
-7.7
20.6
23.4

2.6
73.6
36.6
3.0
17.3
5.6

-3.3
49.2
34.2
2.3
15.6
0.2

3.0
67.3
39.3
1.4
18.4
7.0

-7.6
61.4
36.5
1.7
13.0
-1.1

0.5
51.1
37.5
1.0
18.2
3.9

Net financial assets, non-financial corporations
Net financial assets, financial corporations
Gross capital formation
Gross operating surplus
Households and NPISH (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Gross wages and salaries
Net property income
Current transfers received
Gross saving
Rest of the world (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Net exports of goods and services
Net primary income from the rest of the world
Net capital transactions 
Tradable sector
Non-tradable sector
  of which: Building and construction sector
Real effective exchange rate (index, 2000=100)
Terms of trade in goods and services (index, 2000=100)
Market performance of exports (index, 2000=100)
Notes:
1 The output gap constitutes the gap between actual and potential gross domestic product at 2000 market prices.
2 The indicator for domestic demand includes stocks.
3  Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within two 
weeks. The labour force is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.

8.1
80.7
5.8
-2.9
3.5
42.3
44.0
6.0
162.9
112.2
102.4

-11.4
77.8
-7.6
-5.3
1.3
46.0
42.3
8.6
140.7
113.8
107.5

-8.2
60.5
-5.6
-4.3
0.5
49.7
39.4
5.6
107.9
104.7
100.2

5.1
n.a
4.9
-5.1
4.5
47.0
40.1
5.5
151.0
107.9
132.7

3.4
n.a
3.7
-4.5
3.6
n.a
n.a
n.a
150.8
107.4
130.7

7.4
73.0
6.9
-5.0
3.6
45.9
41.4
5.0
151.5
110.0
113.2

-7.9
27.5
-8.9
-0.9
0.5
49.9
38.5
5.6
96.8
95.9
84.8

-0.4
n.a
35.9
2.3
15.2
2.6

n.a
n.a
16.4
31.0

-1.2
n.a
35.8
1.9
14.7
2.0

2.5
n.a
3.6
-4.5
2.8
n.a
n.a
n.a
153.1
107.5
131.5

Source :
Commission spring 2012 forecast

22

 
 
 
 
 
Table II. Comparison of macroeconomic developments and forecasts 

Real GDP (% change)
Private consumption (% change)
Gross fixed capital formation (% change)
Exports of goods and services (% change)
Imports of goods and services (% change)
Contributions to real GDP growth:
- Final domestic demand
- Change in inventories
- Net exports
Output gap1
Employment (% change)
Unemployment rate (%)
Labour productivity (% change)
HICP inflation (%)
GDP deflator (% change)
Comp. of employees (per head, % change)
Net lending/borrowing vis-à-vis the rest of 
the world (% of GDP)

2011
COM SP
7.6
4.4
26.8
24.9
27.0

7.6
4.2
26.8
24.9
27.0

2012
COM SP
1.7
2.2
14.8
1.0
3.2

1.6
2.8
8.3
1.4
2.3

2013
COM SP
3.0
3.5
4.0
5.4
6.1

3.8
3.0
8.2
5.6
5.9

7.6
2.6
0.1
-1.5

7.0
12.5
0.6
5.1
3.7
1.4
5.1

7.6
2.6
0.1
-1.4

6.7
12.5
0.9
5.1
3.7
1.5
7.0

3.4
-1.1
-0.7
-1.9

0.6
11.6
1.0
3.9
2.9
4.0
3.4

4.5
-0.9
-1.9
-1.7

0.7
11.5
1.0
3.4
2.6
3.9
5.6

3.8
0.1
0.0
-0.8

1.2
10.5
2.6
3.4
2.9
5.4
2.5

2.9
0.5
-0.5
-1.4

1.0
9.6
1.9
3.0
3.1
5.0
3.1

2014
SP
3.4
3.8
8.0
6.3
6.8

3.9
-0.3
-0.3
-0.7

0.6
8.7
2.8
2.7
2.7
5.6
0.9

2015
SP
3.5
4.7
8.2
6.7
7.7

2016
SP
3.5
4.2
8.3
6.7
7.7

4.5
-0.3
-0.7
0.0

0.4
8.3
3.1
2.7
2.7
5.9
-0.8

4.4
-0.1
-0.9
0.6

0.4
8.2
3.1
2.7
2.7
6.2
-2.5

Note:
1In percent of potential GDP, with potential GDP growth according to the programme as recalculated by the Commission.

Source :
Commission spring 2012 forecasts (COM); Stability programme (SP).

23

 
 
 
 
 
Table III. Composition of the budgetary adjustment 

(% of GDP)

2011

2012

2013

2014

2015

2016

Change: 
2011-2016

Revenue
of which:
- Taxes on production and imports
- Current taxes on income, wealth, etc.
- Social contributions
- Other (residual)
Expenditure
of which:
- Primary expenditure

of which:

Compensation of employees and
intermediate consumption
Social payments
Subsidies
Gross fixed capital formation
Other (residual)
- Interest expenditure
General government balance (GGB)
Primary balance
One-off and other temporary measures
GGB excl. one-offs
Output gap2
Cyclically adjusted balance2
Structural balance
Change in structural balance

3

3

Structural primary balance
Change in structural primary balance
Expenditure benchmark
Public expenditure growth4 (real)
Reference rate5,6
Lower reference rate5,7
Deviation in % of GDP 
     from applicable reference rate
Two-year average deviation in % of GDP 
     from applicable reference rate

COM COM SP
40.1
38.9
39.2

COM SP
38.4
38.1

13.8
6.6
12.3
6.6
38.2

13.9
6.6
12.0
6.4
41.2

14.0
6.8
11.9
7.4
42.7

13.9
6.6
11.7
5.9
39.3

14.1
6.8
11.7
5.8
39.1

SP
36.9

14.1
6.9
11.3
4.6
36.8

SP
35.7

14.2
6.7
11.3
3.5
35.3

SP
35.2

14.1
6.8
11.2
3.1
34.3

38.1

41.1

42.6

39.2

38.9

36.6

35.1

34.0

18.2

18.2

18.2

18.0

17.7

17.0

16.4

15.8

13.4
1.0
4.2
1.3
0.1
1.0
1.1
1.7
-0.6

-1.5

1.5

-0.2

-0.1

13.3
1.0
5.5
3.1
0.1
-2.4
-2.2
-1.0
-1.3

-1.9

-1.8

-0.8
-0.6

-0.6
-0.6

7.10

2.27

1.03
2.28

13.4
1.1
6.8
3.2
0.1
-2.6
-2.4
-1.3
-1.3

-1.7

-2.1

-0.8
-0.6

-0.7
-0.6

2.22

2.27

1.03
0.37

12.9
1.0
4.7
2.7
0.1
-1.3
-1.1
-0.6
-0.7

-0.8

-1.0

-0.5
0.3

-0.3
0.3

0.71

2.27

1.03
-0.12

13.2
1.1
4.7
2.3
0.2
-0.7
-0.5
-0.3
-0.4

-1.4

-0.3

0.0
0.8

0.2
0.9

4.64

2.27

1.03
1.13

13.0
1.0
3.6
1.9
0.2
0.1
0.3
-0.2
0.3

-0.7

0.3

0.5
0.5

0.7
0.5

2.46

2.27

1.03
0.06

12.8
1.0
3.5
1.3
0.2
0.5
0.7
-0.3
0.8

0.0

0.5

0.8
0.3

1.0
0.3

-0.22

2.27

1.03
-0.80

12.6
1.0
3.4
1.1
0.3
0.9
1.2
-0.3
1.2

0.6

0.7

1.0
0.2

1.3
0.3

n.a.

n.a.

n.a.
n.a.

n.a.

n.a.

1.08

0.75

0.59

-0.37

n.a.

SP
-4.0

0.3
0.2
-1.1
-3.5
-3.9

-4.1

-2.4

-0.8
0.0
-0.8
-0.2
0.2
-0.1
0.1
-2.0
1.8

2.2

-0.8

1.2

1.4

n.a.

n.a.

n.a.
n.a.

n.a.

Notes:
1On a no-policy-change basis.
2Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by the Commission on the 
basis of the information in the programme.
3Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.

4M odified expenditure aggregate used for the expenditure benchmark, growth rates net of non-discretionary changes in unemployment 
benefit and of discretionary measures.

5The reference rates applicable to 2014 onwards will be available from mid-2012. For illustrative purposes, the current reference rates have 
also been applied to the years 2014 onwards.
6The (standard) reference rate applies starting in the year following the one in which the country reaches its M TO.
7The lower reference rate applies as long as the country is adjusting towards its M TO, including the year in which it reaches the M TO.

Source :
Stability programme (SP); Commission spring 2012 forecasts (COM); Commission calculations.

24

 
 
 
 
Table IV. Debt dynamics 

(% of GDP)

Gross debt ratio1
Change in the ratio
Contributions 2 :

1. Primary balance
2. S nowball effect

Of which:
Interest expenditure
Growth effect
Inflation effect

3. S tock-flow adjustment

Average 
2006-10

2011

2012
COM SP

2013
COM SP

5.3
0.4

-0.2
0.0

0.2
0.0
-0.2
0.6

6.0
-0.6

-1.1
-0.6

0.1
-0.5
-0.2
1.1

10.4
4.4

2.2
-0.2

0.1
-0.1
-0.2
2.3

8.8
2.8

2.4
-0.1

0.2
-0.1
-0.2
0.5

11.7
1.3

1.1
-0.5

0.1
-0.4
-0.3
0.7

11.0
2.2

0.5
-0.3

0.2
-0.2
-0.3
2.0

2014
SP

10.6
-0.4

2015
SP

10.0
-0.6

-0.3
-0.4

0.2
-0.4
-0.3
0.3

-0.7
-0.4

0.2
-0.3
-0.3
0.5

2016
SP

n.a.
-0.5

-1.2
-0.3

0.3
-0.3
-0.3
1.0

Notes:
1End of period.

2The snowball effect captures the impact of interest expenditure on accumulated debt, as well as the impact of real GDP 
growth and inflation on the debt ratio (through the denominator). The stock-flow adjustment includes differences in cash 
and accrual accounting, the accumulation of financial assets and valuation and other residual effects. 

Source :

Stability programme (SP); Commission spring 2012 forecasts (COM); Commission calculations

25

 
 
 
 
Table V. Sustainability indicators 

EE

EU27

No-policy 
change 
scenario 

Programme 
(S P) scenario

No-policy 
change 
scenario 

S CPs scenario

S2
of which:

Initial budgetary position (IBP)
Long-term change in the primary balance (LTC)
 of which:

Pensions
Care (health care and LTC)
Others

S1 (required adjustment)*

2.1

1.2
0.8

-0.2
1.0
0.1
-2.1

0.3

-0.7
1.0

0.2
0.8
0.0
-4.6

2.9

0.7
2.3

1.1
1.5
-0.3
2.2

0.7

-1.6
2.4

1.2
1.5
-0.3
-0.1

Debt,  % of GDP (2011)
Age-related expenditure, % of GDP (2011)
Source : Commission, 2012 stability and convergence programmes.
Note: The "no policy change" scenario depicts the sustainability gap under the assumption that the budgetary position evolves 
* The required adjustment of the primary balance until 2020 to reach a public debt of 60% of GDP by 2030.

82.8
25.8

6.0
19.2

Figure. Medium-term debt projection 

(% of GDP)

Gross debt as % of GDP - EE - Medium-term debt projections

16

14

12

10

8

6

4

2

0

0
0
0
2

2
0
0
2

4
0
0
2

6
0
0
2

8
0
0
2

0
1
0
2

2
1
0
2

4
1
0
2

6
1
0
2

8
1
0
2

0
2
0
2

COM "no-policy change" scenario
COM + Shock ( -1pp in the short-term/long-term interest rate on maturing and new debt from 2014)
COM + Shock (+1pp in the short-term/long-term interest rate on maturing and new debt from 2014)
COM consolidation scenario (0.5% per year on SB) in order to achieve MTO
COM consolidation scenario (1% per year on SB) in order to achieve MTO

26

 
 
 
 
 
Table VI. Taxation indicators 

Total tax revenues (incl. actual compulsory social contributions, % of GDP)
Breakdown by economic function (% of GDP)1
     Consumption

              of which:

              - VAT

             - excise duties on tobacco and alcohol

             - energy

             - other (residual)

     Labour employed

     Labour non-employed

     Capital and business income

     Stocks of capital/wealth
     p.m.  Environmental taxes 2
3
VAT efficiency
     Actual VAT revenues as % of theoretical revenues at standard rate

2001

30.2

2005

30.6

2007

31.4

2008

31.7

2009

35.7

2010

34.2

11.7

12.8

13.0

11.7

14.4

13.6

8.2

1.5

1.6

0.5

8.7

1.7

1.9

0.5

8.9

1.8

1.8

0.5

7.9

1.3

1.9

0.5

8.8

2.5

2.5

0.5

8.8

1.7

2.6

0.5

16.6

14.9

15.6

17.1

18.1

17.8

0.3

0.9

0.6

2.1

0.5

1.9

0.6

2.3

0.4

2.0

0.5

2.2

0.5

1.9

0.6

2.3

0.6

2.0

0.6

3.0

0.6

1.5

0.6

3.0

68.2

75.2

79.7

66.8

66.3

68.5

Note: 
1 T ax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission (2012), 

T axation trends in the European Union, for a more detailed explanation.

2 T his category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.

3 T he VAT  efficiency is measured via the VAT  revenue ratio. T he VAT  revenue ratio is defined as the ratio between the actual VAT  revenue collected and the revenue 

that would theoretically be raised if VAT  was applied at the standard rate to all final consumption. A low ratio can indicate a reduction of the tax base due to large 

exemptions or the application of reduced rates to a wide range of goods and services ('policy gap') or a failure to collect all tax due to e.g. fraud ('collection gap'). See 

European Commission (2011), T ax reforms in EU Member States, European Economy 5/2011, for a more detailed explanation.

Source: Commission

27

 
 
 
 
Table VII. Financial market indicators 

2007

2008

2009

2010

2011

…
95.7
98.3

142.6
92.3
…

153.9
93.4
94.9

135.5
94.8
97.1

0.5
14.8
30.2
0.0
0.0
…
…
…
…

Total assets of the banking sector (% of GDP)
Share of assets of the five largest banks (% of total assets)
Foreign ownership of banking system (% of total assets)
Financial soundness indicators:
              - non-performing loans (% of total loans) 1)
              - capital adequacy ratio (%) 1), 2)
              - return on equity (%) 1), 3)
Bank loans to the private sector (year-on-year % change)
Lending for house purchase (year-on-year % change)
Loans-to-deposits ratio
CB liquidity as % of liabilities
Banks' exposure to countries receiving official financial assistance  (% of GDP)4)
Private debt (% of GDP)
Gross external debt (% of GDP) 4)
            - Public
            - Private
Long-term interest rates spread versus Bund (basis points)*
Credit default swap spreads for sovereign securities (5-year)*
Notes: 
1)  Latest M arch 2011.
2) The capital adequacy ratio is defined as total capital divided by risk-weighted assets.   
3) Net income-to-equity ratio. Branches of foreign banks are excluded.
4) Latest data 2011Q3.
* M easured in basis points.
Source :
Bank for International Settlements and Eurostat (exposure to macro-financially vulnerable countries), IMF (financial soundness indicators), 
Commission (long-term interest rates), World Bank (gross external debt) and ECB (all other indicators).

1.9
18.8
13.4
0.0
0.0
203.9
…
…
101.1

5.4
22.1
2.1
-4.4
-2.1
164.0
…
…
103.6

5.2
22.2
-24.6
-4.8
-1.8
184.0
…
…
112.9

3.2
50.5
418.0
524.8

5.9
49.8
476.1
373.9

5.2
52.6
322.5
107.2

1.4
44.8
187.7
…

118.7
…
…

5.1
16.9
38.6
-3.5
-1.5
145.2
0.0
…
90.1

3.8
48.7
…
102.6

28

 
 
 
 
 
Table VIII. Labour market and social indicators 

Labour market indicators
Employment rate 
(% of population aged 20-64)
Employment growth 
(% change from previous year)
Employment rate of women 
(% of female population aged 20-64)
Employment rate of men 
(% of male population aged 20-64)
Employment rate of older workers 
(% of population aged 55-64)
Part-time employment 
(% of total employment)
Part-time employment of women  
(% of women employment)
Part-time employment of men  
(% of men employment)
Fixed-term employment 
(% of employees with a fixed-term contract)
Unemployment rate1 (% of labour force)
Long-term unemployment2  (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)

2006

2007

2008

2009

2010

2011

75.8

76.8

77.0

69.9

66.7

70.4

6.4

1.4

0.2

-9.2

-4.2

6.7

72.5

72.5

72.8

68.8

65.7

67.6

79.5

81.4

81.7

71.0

67.7

73.5

58.5

60.0

62.4

60.4

53.8

57.2

8.1

8.5

7.5

10.9

11.3

11.0

11.7

12.6

10.8

14.3

15.1

16.1

4.5

2.7

5.9

2.9

4.4

2.1

4.7

2.3

4.2

2.4

5.5

1.7

12.0

10.0

12.0

7.3

2.5

13.8

3.8

27.5

7.3

3.7

16.9

7.7

32.9

Youth NEET3 rate (% of population aged 15-24)

8.8

8.9

8.8

14.9

14.5

Early leavers from education and training (% of 
pop. 18-24 with at most lower sec. educ. and not 
in further education or training)
Tertiary educational attainment (% of population 
30-34 having successfully completed tertiary 
education)
Labour productivity per person employed 
(annual % change )
Hours worked per person employed  (annual % 
change)
Labour productivity per hour worked (annual % 
change; constant prices)
Compensation per employee (annual % change; 
constant prices)
Nominal unit labour cost growth (annual % 
change)

13.5

14.4

14.0

13.9

11.6

34.6

34.6

35.8

36.6

38.0

4.5

6.6

-0.5

-0.2

6.8

-3.8

-1.5

-2.4

12.0

4.2

17.2

14.1

5.0

4.8

9.1

-4.7

-6.9

2.3

-2.4

1.4

2.4

7.4

2.6

4.7

0.3

-5.6

-6.6

Real unit labour cost growth (annual % change)

0.3

5.0

8.3

Notes:

1 According to ILO definition (age group 15-74).
2 Share of persons in the labour force who have been unemployed for at least 12 months.
3 NEET are persons who are neither in employment nor in any education or training.

Sources: 
Commission (EU Labour Force Survey and European National Accounts) 

29

5.8

4.5

12.5

7.1

22.3

:

:

:

0.6

2.3

-1.7

-2.2

0.8

-2.8

 
 
 
 
Table VIII. Labour market and social indicators (continued) 

Expenditure on social protection 
benefits (% of GDP)
Sickness/Health care
Invalidity
Old age and survivors
Family/Children
Unemployment
Housing and social exclusion n.e.c.
Total
of which:  means-tested benefits
Social inclusion indicators
Risk of poverty or exclusion1 (% of total 
population)
Risk of poverty or exclusion of children (% of 
people aged 0-17)
Risk of poverty or exclusion of elderly (% of 
people aged 65+)
At-risk-of-poverty rate2 (% of total population)
Value of relative poverty threshold (single 
household per year) - in PPS
Severe material deprivation3  (% of total 
population)
Share of people living in low work-intensity 
households 4 (% of people aged 0-59 not 
student)
In-work at-risk-of-poverty rate (% of persons 
employed)

Notes:

2005

2006

2007

2008

2009

3.95
1.16
5.34
1.50
0.16
0.03
12.6
0.13

3.74
1.14
5.31
1.45
0.11
0.04
12.1
0.10

4.00
1.12
5.14
1.38
0.14
0.02
12.1
0.07

4.76
1.45
6.22
1.77
0.30
0.02
14.9
0.06

5.38
1.89
7.95
2.26
1.22
0.03
19.2
0.10

2006

2007

2008

2009

2010

22.2

22.0

21.8

23.4

21.7

24.6

20.1

19.4

24.5

24.0

26.8

18.3

35.4

19.4

40.9

19.5

35.6

19.7

19.0

15.8

3377

3895

4538

4794

4490

7.0

5.6

4.9

6.2

9.0

7.1

7.5

6.2

7.8

5.3

7.3

5.6

8.1

8.9

6.5

1 People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) 
and/or suffering from severe material deprivation (SM D) and/or living in households with zero or very low 
work intensity (LWI).

2 At-risk-of-poverty rate: share of people with an equivalised disposable income below 60% of the national 
equivalised median income. 

3 Share of people who experience at least 4 out of 9 deprivations: people cannot afford to i) pay their rent or 
utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish, or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have 
a washing machine, viii) have a colour TV, or ix) have a telephone.

4 People living in households with very low work intensity: share of people aged 0-59 living in households 
where the adults work less than 20% of their total work-time potential during the previous 12 months.

Sources: 
For expenditure on social protection benefits ESSPROS; for social inclusion EU-SILC.

30

 
 
 
 
 
Table IX. Product market performance and policy indicators 

2002-
2006

6.3

10.4

2.0

4.0

0.6

2002-
2006

n.a.

n.a.
0.9

Performance indicators

Labour productivity1 total economy (annual 
growth in %)
Labour productivity1 in manufacturing (annual 
growth in %)
Labour productivity1 in electricity, gas, water 
(annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Patent intensity in manufacturing2 (patents of the 
EPO divided by gross value added of the sector)

Policy indicators

Enforcing contracts 3 (days)
Time to start a business3 (days)
R&D expenditure (% of GDP)
Tertiary educational attainment 
(% of 30-34 years old population)
Total public expenditure on education 
(% of GDP)

Product market regulation4, Overall
(Index; 0 = not regulated; 6 = most regulated)
Product market regulation4, Retail
(Index; 0 = not regulated; 6 = most regulated)
Product market regulation4, Network industries5
(Index; 0 = not regulated; 6 = most regulated)

2007

2008

2009

2010

2011

6.6

5.5

-3.9

-4.7

7.3

0.6

-6.6

-11.2

28.0

n.a.

42.9

-5.5

-4.3

n.a.

n.a.

-10.7

-4.2

0.2

21.7

n.a.

1.2

1.1

n.a.

n.a.

n.a.

2007

2008

2009

2010

2011

425

7
1.1

425

7
1.3

425

7
1.4

425

7
1.6

29.2

33.3

34.1

35.9

40.0

425

7
n.a.

n.a.

18.8

4.9

5.7

n.a.

n.a.

n.a.

2005

2006

2008

2009

2010

2011

n.a.

n.a.

n.a.

n.a.

1.3

1.8

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

2.5*

n.a.

n.a.

n.a.

Notes:
1Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Patent data refer to applications to the European Patent Office (EPO). They are counted according to the year in which 
they were filed at the EPO. They are broken down according to the inventor's place of residence, using fractional counting if 
multiple inventors or IPC classes are provided to avoid double counting. 
3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 
4 The methodologies for the product market regulation indicators are presented in detail on the website 
http://www.oecd.org/document/1/0,3746,en_2649_34323_2367297_1_1_1_1,00.html. The latest available product market 
regulation indicators refer to 2003 and 2008, except for network industries.

5 Aggregate ET CR.

*figure for 2007.

Source :

Commission, World Bank - Doing Business  (for enforcing contracts and time to start a business) and OECD (for the 
product market regulation indicators). 

31

 
 
 
 
Table X. Green growth  

Green growth performance

Macroeconomic
Energy intensity 
Carbon intensity 
Resource intensity (reciprocal of resource productivity)
Waste intensity 
Energy balance of trade 
Energy weight in HICP
Difference between change in energy price and inflation 
Environmental taxes over labour taxes
Environmental taxes over total taxes

Sectoral 

Industry energy intensity 
Share of energy-intensive industries in the economy
Electricity prices for medium-sized industrial users 
Public R&D for energy 
Public R&D for the environment
Recycling rate of municipal waste
Share of GHG emissions covered by ETS
Transport energy intensity
Transport carbon intensity
Change in the ratio of passenger transport and GDP

Security of energy supply
Energy import dependence
Diversification of oil import sources 
Diversification of energy mix
Share of renewable energy in energy mix

kgoe / €
kg / €
kg / €
kg / €
% GDP
%
%
ratio
ratio

kgoe / € 
% GDP
€ / kWh
% GDP
% GDP
ratio
%
kgoe / €
kg / €
%

%
HHI
HHI
%

2001-
2005

0.70
2.51
3.27
n.a.
-2.5%
13
5.18
12.6%
6.8%

0.38
9.5
n.a.
n.a.
n.a.
14.0%
n.a.
0.73
2.11
n.a.

28.3%
n.a.
0.41
10.6%

2006

2007

2008

2009

2010

0.54
1.95
3.24
1.98
-3.4%
13
4.5
14.3%
7.1%

0.28
9.8
0.05
0.02%
0.03%
17.5%
64.7%
0.61
1.79
-8.0%

28.5%
0.00
0.39
9.8%

0.57
2.10
3.67
1.87
-3.6%
11
7.2
13.8%
7.0%

0.27
9.8
0.05
0.02%
0.04%
23.4%
71.0%
0.60
1.72
-6.9%

23.8%
0.00
0.44
9.9%

0.58
2.02
3.39
1.97
-4.2%
12
14.9
13.3%
7.3%

0.26

10.1
0.05
0.02%
0.04%
20.4%
67.5%
0.55
1.56
6.0%

24.0%
0.00
0.41
11.0%

0.61
1.98
3.68
n.a.
-2.3%
13
3.7
16.0%
8.3%

0.23
9.9
0.06
0.02%
0.03%
20.7%
61.3%
0.56
1.63
n.a.

21.2%
0.00
0.40
13.5%

0.68
n.a.
n.a.
n.a.
-1.5%
13
3.9
n.a.
n.a.

n.a.

n.a.
0.06
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

n.a.

n.a.
n.a.
n.a.
n.a.

Country-specific notes: 
The year 2011 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN explanations given below.
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices):
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR);
          Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalent) divided by GDP (in EUR);
          Resource intensity: Domestic material consumption (in kg) divided by GDP (in EUR);
          Waste intensity: waste (in kg) divided by GDP (in EUR).
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP.
Energy weight in HICP: the share of the "energy" items in the consumption basket used in the construction of the HICP.
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %-change).
Environmental taxes over labour or total taxes: from DG TAXUD's database "Taxation trends in the European Union".
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in EUR).
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP.
Recycling rate of municipal waste: ratio of municipal waste recycled over total municipal waste.
Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP.
Share of GHG emissions covered by ETS: based on greenhouse gas emissions as reported by M ember States to EEA (excl LULUCF).
Transport energy intensity: final energy consumption of transport (in kgoe) divided by gross value added of industry (in EUR).
Transport carbon intensity:  greenhouse gas emissions in transport divided by gross value added of the transport sector.
Passenger transport growth : measured in %-change in passenger kilometres.
Energy import dependence: net energy imports divided by gross inland energy consumption incl. of international bunkers.

Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin.

Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels.

Share of renewable energy in energy mix: percentage-share in  gross inland energy consumption, expressed in tonnes of oil equivalent.

32