Recommendation for a COUNCIL RECOMMENDATION on Slovenia's 2013 national reform programme and delivering a Council opinion on Slovenia's stability programme for 2012-2016
Date: 2013-05-29
Institutions: European Commission
Subjects: Slovenia, administrative reform, banking system, budget deficit, budgetary equilibrium, financial legislation, financial solvency, job creation, judicial reform, market access, minimum pay, privatisation, public expenditure, retirement conditions, stability programme, tax reform, youth unemployment

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 374 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Slovenia's 2013 national reform programme  

and delivering a Council opinion on Slovenia's stability programme for 2012-2016 

{SWD(2013) 374 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Slovenia's 2013 national reform programme  

and delivering a Council opinion on Slovenia's stability programme for 2012-2016 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission3, 

Having regard to the resolutions of the European Parliament,4 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

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On  26  March  2010,  the  European  Council  agreed  to  the  Commission’s  proposal  to 
launch  a  new  strategy  for  growth  and  jobs,  Europe  2020,  based  on  enhanced 
coordination of economic policies, which will focus on the key areas where action is 
needed to boost Europe’s potential for sustainable growth and competitiveness. 

On 13 July 2010, on the basis of the Commission's proposals, the Council adopted a 
recommendation  on  the  broad  guidelines  for  the  economic  policies  of  the  Member 
States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on 
guidelines  for  the  employment  policies  of  the  Member  States5,  which  together  form 

OJ L 209, 02.08.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2013) 374 final. 
P7_TA(2013)0052 and P7_TA(2013)0053. 
Council Decision 2013/208/EU of 22 April 2013. 

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(3) 

(4) 

(5) 

(6) 

(7) 

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

On 29 June 2012, the Heads of State or Government decided on a Compact for Growth 
and  Jobs,  providing  a  coherent  framework  for  action  at  national,  EU  and  euro  area 
levels using all possible levers, instruments and policies. They decided on action to be 
taken  at  the  level  of  the  Member  States,  in  particular  expressing  full  commitment  to 
achieving the objectives of the Europe 2020 Strategy and to implementing the country-
specific recommendations. 

On 6 July 2012, the Council adopted a recommendation on Slovenia's national reform 
programme  for  2012  and  delivered  its  opinion  on  Slovenia's  updated  stability 
programme for 2011-2015. 

On  28  November  2012,  the  Commission  adopted  the  Annual  Growth  Survey6, 
marking  the  start  of  the  2013  European  Semester  for  economic  policy  coordination. 
Also,  on  28  November  2012,  the  Commission,  on  the  basis  of  Regulation  (EU)  No 
1176/2011  on  the  prevention  and  correction  of  macroeconomic  imbalances,  adopted 
the  Alert  Mechanism  Report7,  in  which  it  identified  Slovenia  as  one  of  the  Member 
States for which an in-depth review would be carried out.  

On  14  March  2013,  the  European  Council  endorsed  the  priorities  for  ensuring 
financial stability, fiscal consolidation and action to foster growth. It underscored the 
need  to  pursue  differentiated,  growth-friendly  fiscal  consolidation,  to  restore  normal 
lending conditions to the economy, to promote growth and competitiveness, to tackle 
unemployment  and  the  social  consequences  of  the  crisis,  and  to  modernise  public 
administration. 
On  10  April  2013,  the  Commission  published  the  results  of  its  in-depth  review8  for 
Slovenia,  under  Article  5  of  Regulation  (EU)  no  1176/2011.  The  Commission's 
analysis  led  it  to  conclude  that  Slovenia  is  experiencing  excessive  macroeconomic 
imbalances.  Urgent  policy  action  is  needed  to  halt  the  rapid  build-up  of  these 
imbalances and to manage their unwinding. Until now, the levels of private and public 
debt  are  below  the  alert  thresholds  of  the  scoreboard  and  also  net  external  debt  is 
relatively contained. However, the problem is not in the debt level but in its structure, 
which  is  highly  concentrated  in  the  corporate  sector.  In  the  context  of  accelerating 
negative  economic  trends,  this  undermines  financial  sector  stability  and  complicates 
the deleveraging process, including through interlinkages  with  the level of sovereign 
debt. These risks are compounded by limited adjustment capacity in labour and capital 
markets and by an economic structure dominated by state-ownership. Periods of policy 
uncertainty and legal obstacles to reforms have prevented Slovenia from addressing its 
imbalances  adequately  and  enhancing  its  adjustment  capacity,  thus  increasing  its 
vulnerability at a time of heightened sovereign funding stress. 

(8) 

On 9 May 2013, Slovenia submitted its 2013 stability programme covering the period 
2012-2016 and its 2013 national reform programme. In order to take account of their 
interlinkages, the two programmes have been assessed at the same time. 

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COM(2012)750 final. 
COM(2012)751 final. 
SWD(2013) 122 final. 

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(9)   On  23  May  2013  the  Slovene  authorities  sent  a  letter  to  the  Commission 
recapitulating,  amending  and  clarifying  key  commitments  in  the  national  reform 
programme. 

the 

than  expected  at 

to  a  worse  economic  environment 

(10)  Based  on  the  assessment  of  the  2013  stability  programme  pursuant  to  Council 
Regulation (EC) No 1466/97, the Council is of the opinion that despite considerable 
although  back-loaded  consolidation  efforts  that  have  brought  the  deficit  down  from 
6.2% of GDP in 2009 to 4.0% of GDP in 2012, Slovenia is not expected to correct its 
excessive deficit by 2013 as recommended by the Council in late 2009. This is notably 
linked 
time.  The 
macroeconomic scenario underpinning the budgetary projections in the programme is 
broadly  plausible  for  2013,  but  optimistic  for  2014.  In  particular,  the  authorities 
anticipate that after a fall in GDP by 2.3% in 2012 and 1.9% in 2013, GDP will grow 
by 0.2% in 2014, while assuming that fiscal measures are taken to reduce the general 
government  deficit  from  4.2%  of  GDP  (excluding  bank  recapitalisations)  in  2013  to 
2.6% of GDP in 2014. However, the Commission forecasts that GDP will fall by 0.1% 
in  2014  based  on  a  no-policy-change  assumption,  a  scenario  which  only  takes  into 
account measures that were adopted by mid-April 2013, and forecasts a deficit of 4.9% 
of  GDP  for  2014.  The  main  objectives  of  the  budgetary  strategy  outlined  in  the 
programme are to correct the excessive deficit by 2014, one year after the deadline set 
by  the  Council  in  late  2009,  to  achieve  a  balanced  structural  position  by  2017  and 
stabilise the debt ratio below 55% of GDP. The programme confirms the medium-term 
objective (MTO), which is a balanced budget in structural terms. This MTO is not in 
line  with  the  requirements  of  the  Stability  and  Growth  Pact  because  it  does  not 
adequately  take  into  account  the  implicit  liabilities  related  to  ageing.  The  planned 
headline  deficit  targets  in  the  programme  are  consistent  with  a  correction  of  the 
excessive deficit by 2014. However, given the optimistic growth forecast for that year, 
significant risks to revenue projections as well as insufficiently specified expenditure 
measures, [the Council considers that it is not likely that the excessive deficit will be 
corrected  by  2014].  In  these  circumstances,  additional  structural  consolidation 
measures  should  be  specified,  adopted  and  implemented  to  ensure  that  the  excessive 
deficit  is  corrected  by  2015,  at  the  latest  in  a  credible  and  sustainable  manner  as 
recommended  by  the  Council  [on  21  June  2013].  The  general  government  debt-to-
GDP ratio more than doubled from 22.0% in 2008 to 54.1% in 2012 and is projected 
to  increase  further  to  66.5%  by  2014  according  to  the  Commission's  2013  Spring 
Forecast. The authorities expect the debt-to-GDP ratio to peak at 63.2% in 2014 and 
2015 and then drop to 62.8% in 2016. Risks to the debt-to-GDP ratio are tilted towards 
a higher ratio, also due to large contingent liabilities and likely stock-flow adjustments 
from asset transfers to the Bank Asset Management Company, which is not included 
in programme projections. 

(11) 

In May 2013, the authorities made important steps towards the consolidation of public 
finances.  They  achieved  an  agreement  with  social  partners  on  an  additional  1¼% 
reduction in basic gross wages in the public sector, on top of the 3% reduction  that 
was  agreed  in  the  May  2012    Act  on  Balancing  Public  Finances.  Furthermore, 
Parliament  approved  a  constitutional  basis  for  establishing  a  general  government 
budget balance/surplus rule in structural terms. However, the complete transposition of 
the  provisions  of  the  Fiscal  Compact  will  be  made  in  a  special  constitutional 
implementation act, scheduled for parliamentary approval by November 2013. Finally, 
Parliament  almost  unanimously  tightened  the  constitutional  rules  to  call  and  win  a 
referendum,  which  is  expected  to  facilitate  the  introduction  of  fiscal  consolidation 

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implemented,  and 

is  reinforced  and  strictly 

measures. Given the rapidly increasing debt, it is all the more important that the 2013 
that  substantial 
budget  strategy 
consolidation  efforts  are  firmly  pursued  in  subsequent  years.  While  some  taxes  are 
below the EU average, reliance on tax increases cannot indefinitely postpone the need 
to  tackle  expenditure  dynamics.  It  therefore  seems  appropriate  to  complement  the 
revenue  increasing  measures  with  additional  fiscal  efforts  through  structural 
expenditure cuts. The medium-term budgetary framework and expenditure rule remain 
insufficiently focused on achieving the MTO and securing long-term sustainability. In 
addition,  budget  constraints  on  certain  general  government  units,  especially  indirect 
budgetary users, do not appear to be fully enforced. Finally, international and domestic 
estimates  suggest  that  the  size  of  the  shadow  economy  in  Slovenia  is  above  the  EU 
average, which indicates room for improving tax compliance.  

(12)  A  pension  reform  was  passed  in  December  2012  and  entered  into  force  in  January 
2013.  It  addresses  challenges  identified  in  the  2012  recommendations,  though  not 
sufficiently  as  it  is  expected  to  have  only  a  medium-term  impact  on  public  finances 
(until  2020).  While  this  pension  reform  is  an  important  step,  it  does  not  provide 
specific measures to contain age-related costs beyond 2020. Further reform efforts are 
required  to  improve  the  sustainability  of  pension  expenditure  in  the  long-term, 
including  through  aligning  the  statutory  retirement  age  with  gains  in  life  expectancy 
and by further restricting early retirement. In the area of long term care, demand for 
services  outstrips  supply  while  expenditure  is  still  relatively  low.  Demand  for  long-
term  care  and  related  expenditures  are  projected  to  rise  substantially  in  light  of  the 
ageing  trends.  Further  evaluations  of  existing  measures  would  contribute  to    more 
evidence-based policy making in this area. 

(13)  While the size of the Slovenian banking sector is relatively small and less than half of 
the  euro  area  average,  the  largest  banks  experience  sustained  pressure  on  capital 
buffers, which remain low in regional comparison, and their dependence on the state 
for capital is a substantial threat to the economy. Repeated recapitalisation needs are 
concentrated in state-owned domestic banks. While the levels of total private debt are 
below the euro-area average and the alert thresholds of the macroeconomic imbalances 
scoreboard,  the  issue  is  of  structural  nature.  Most  of  the  debt  is  concentrated  in  the 
corporate sector and many companies are over-indebted, which leads to further rises in 
non-performing loans. At the end of 2012, 23.7% of corporate loans were in arrears of 
90  days  or  more.  Reviving  credit  to  the  corporate  sector  is  needed  to  facilitate 
investment,  enhance  productivity  and  competitiveness.  Further  recapitalisations  are 
foreseen  in  the  stability  programme.  The  authorities  have  confirmed  in  writing  the 
commitment  to  provide  additional  capital  if  needed.  Credit  is  contracting  and  the 
interaction between weak banks and the sovereign has intensified. The interest rate on 
corporate credit (for loans above EUR 1m) is more than 2 pps. higher in Slovenia than 
in the euro area as a whole and this margin has increased again in 2012. Framework 
legislation  for  bank  restructuring  was  passed  but  still  needs  to  be  implemented 
effectively.  The  Bank  Asset  Management  Company  (BAMC)  remains  the  central 
institutional  platform  for  bank  rehabilitation.  The  national  reform  programme, 
complemented by recent information provided by the government describes plans for 
transfers  to  the  BAMC  based  on  bottom-up  stress  tests  performed  by  the  Bank  of 
Slovenia. The authorities have confirmed in writing that they stand ready to work with 
the  Commission  and  the  ECB  to  ensure  that  independent  asset  quality  reviews  are 
conducted  for  a  selection  of  banks.  The  exercise  should  be  system-wide  to  ensure 
lasting stability of the banking sector. In other countries such an approach proved to be 

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key  to  regain  confidence,  credibility  and  market  access.  Information  gained  from  a 
thorough,  external  assessment  is  a  necessary  basis  for  an  overall  financial  sector 
strategy.  

(14)  The  national  reform  programme  does  not  describe  any  additional  steps  to  strengthen 
bank  supervision,  which  was  identified  as  necessary  in  the  2013  in-depth  review.  In 
terms  of  supervisory  actions  vis-à-vis  banks,  the  only  new  information  in  the 
programme relates to the new Bank of Slovenia stress tests. A further examination of 
measures such as appropriate macro-prudential policies has not been provided. 

(15)  A  labour  market  reform  was  adopted  in  March  2013  to  reduce  labour  market 
segmentation  and  increase  flexibility  on  the  labour  market.  The  reform  reduces 
protection  of  permanent  contracts  by  simplifying  dismissal  procedures  in  case  of 
individual  and  collective  dismissals  and  by  reducing  dismissal  costs.  Regulation  of 
fixed-term  contracts  has  been  further  tightened  to  reduce  abuse,  while  the  use  of 
temporary agency work is restricted. Although the reform goes in the right direction, it 
remains to be seen whether it is sufficiently ambitious to have a significant impact on 
labour market segmentation and flexibility, and on Slovenia's attractiveness for foreign 
direct  investment.  No  measure  has  yet  been  taken  to  address  the  dual  labour  market 
caused  by  student  work  regulation.  The  national  reform  programme  proposes 
measures  in  the  right  direction.  The  youth  unemployment  rate  in  Slovenia  increased 
strongly, by 4.9 pps. to 20.6% in 2012, while the unemployment rate increased by 0.7 
pp. to 9% in 2012. Despite rising unemployment, the number of unemployed people 
participating  in  active  labour  market  policy  measures,  co-financed  by  the  European 
Social  Fund,  decreased  considerably  in  2012  according  to  the  preliminary  national 
data.  No  measures  have  been  taken  to  adapt  work  environments  to  longer  working 
lives and no tailor-made lifelong learning or active labour market measures have been 
adopted to increase employment of young tertiary graduates, older workers and low-
skilled  workers.  Slovenia  has  taken  some  measures  to  improve  matching  of  skills  to 
labour market needs. A pilot project on how to evaluate those needs is being carried 
out by the Public Employment Service but the cooperation with stakeholders needs to 
be  further  developed.  More  is  needed  to  improve  the  attractiveness  of  relevant 
vocational  education  and  training  programmes.    Additional  career  orientation 
measures  in  SMEs  are  also  being  implemented.  The  role  of  employers  in  vocational 
education  and  training  still  needs  to  be  strengthened.  Improvements  in  these  areas 
would increase productivity and competitiveness. 

(16)  Policy  action  to  improve  cost-competitiveness  has  only  been  partial.  In  2012,  the 
government cut nominal gross wages per employee in the public sector by around 3%. 
A further reduction of labour costs in the public sector was agreed with social partners 
in mid-May 2013.  The minimum wage is among the highest in the EU as a percentage 
of the average wage, is indexed to inflation, and was subject to a large discretionary 
increase  in  2010.  Although  the  growth  rate  of  nominal  compensation  per  employee 
was negative in 2012 (-0.4%) nominal unit labour cost (NULC) registered a moderate 
positive  growth  in  2012  (0.7%)  due  to  more  negative  productivity  growth  (-1.1%). 
Measures  to  lift  productivity  growth  and  sustained  progress  in  reducing  unit  labour 
costs would help to regain competitiveness.  

(17)  State  ownership  has  a  significant  role  in  the  Slovenian  economy  with  many  features 
remaining  unchanged  since  the  transition  period  of  the  1990s.  The  privatisation  and 
corporate restructuring tools adopted during the 1990s resulted in the state remaining 

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dominant,  especially  in  the  financial  sector.  In  2011,  state-owned  enterprises 
accounted for one sixth of total value added of the Slovenian economy, around half of 
the  total  losses  in  the  corporate  sector,  and  employed  one  out  of  eight  people. 
Moreover,  state-controlled  funds  and  enterprises  have  an  impact  on  public  finances 
through  the  interaction  of  elevated  debt  levels,  recapitalisation  needs  and  significant 
government  guarantees. The  size and weakness of state-owned enterprises hold back 
economic  development  and  growth  and  contribute  to  existing  imbalances.  State 
dominance and a frequently malfunctioning governance of state assets impede private 
domestic  and  foreign  investment,  lowering  productivity  and  competitiveness.  The 
cross-ownership  of  state-owned  enterprises  in  the  non-financial  sector  with  state-
owned  financial  institutions  creates  contagion  risks,  limits  adjustment  and  distorts 
resource allocation, especially with regards to new investment. 

(18)  The  national  reform  programme  outlines  policy  priorities  in  the  areas  of  state 
ownership  and  corporate  deleveraging,  but  it  does  not  provide  details  of  measures 
planned. The 2013 in-depth review outlined the economic outcomes in relation to state 
ownership, in terms of direct and contingent fiscal costs, and in terms of distortion of 
normal  commercial  operations.  However,  the  national  reform  programme  cites  only 
the  lack  of  co-ordination  as  a  drawback  to  the  state's  conduct  as  an  owner  of  non-
financial enterprises. Overall, while the national reform programme contains positive 
elements, it does not provide sufficient information regarding the strategic orientation 
for  companies  that  will  remain  in  state  ownership,  and  detailed,  time-bound 
commitments  to  improve  their  financial  performance  and  management.  Some  first 
steps have been taken to improve corporate governance, as recommended in the 2012 
country-specific  recommendations,  and  to  privatise  some  state-owned  enterprises. 
Legislation providing for the establishment of the future Slovenia Sovereign Holding 
(SSH)  was  enacted,  but  still  needs  to  be  implemented  effectively.  A  register  of 
management  and  supervisory  board  appointments  in  state-owned  enterprises  with 
requirements  for  disclosure  of  interests  could  help  to  increase  transparency.  The 
national  reform  programme  announces  the  preparation  of  a  privatisation  strategy  by 
the final quarter of 2013, which will be brought forward to the third quarter, following 
the  letter  of  23  May  2013.  In  the  meantime,  the  government  has  proposed  to 
Parliament a list of 15 companies for privatisation. Besides minority stakes and SMEs, 
this list includes also important companies like the second largest bank, NKBM.  

(19)  Slovenia  has  a  high  number  of  regulated  professions  and  there  is  scope  for  a 
significant  reduction  of  entry  barriers  which  would  have  a  positive  effect  on 
employment and competition. The Slovenian authorities launched a reform process in 
2012 to review numerous regulated professions  with the objective of better defining 
existing regulated professions, reducing administrative costs and simplifying access to 
professions. A first set of laws in the field of craft, tourism and construction was due 
to  be  adopted  by  Parliament  in  early  2013.  However,  the  reform  is  behind  schedule 
except for the craft sector. Slovenia has set the legal pre-conditions for an independent 
Competition  Protection  Agency  but  still  needs  to  ensure  that  appropriate  staff  levels 
will  be  continuously  ensured.  The  legislation  should  be  further  amended  to  give  the 
agency a separate budget line, as this is necessary to ensure its financial independence. 
First  instance  judicial  proceedings  in  litigious  civil  and  commercial  cases  as  well  as 
bankruptcy procedures are unduly long. Despite a visible positive trend in shortening 
lengths  of  civil  and  commercial  cases  continued  effort  is  needed  to  address  these 

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issues,  as  they  hamper  business  activity  and  reduce  Slovenia's  attractiveness  for 
foreign direct investment. In this context, the foreseen cut in the number of judges per 
inhabitant  as  set  out  in  the  national  reform  programme  would  have  to  be 
counterbalanced by significant increases in effectiveness.  

(20)  The  national  reform  programme  asserts  the  need  to  restructure  non-financial 
corporations  in  financial  distress  but  the  policy  challenge  and  the  policy  response 
regarding  corporate  restructuring  need  further  elaboration  focusing  on  market-based 
solutions.  Additional  measures  are  needed  to  attract  private  investment,  including 
foreign  direct  investment,  and  to  ensure  sufficient  private  burden-sharing  preserving 
taxpayer resources. The restructuring process should lead to the sale of the restructured 
companies without involvement of public funding,   

(21)  Slovenia  is  in  the  process  of  amending  legislation  to  increase  the  efficiency  of 
insolvency  procedures.  The  government  amended  the  law  on  Financial  Operations, 
Insolvency  Proceedings  and  Compulsory  Dissolution  Act  in  April  2013.  The 
amendments refine the definition of insolvency and introduce incentives for managers 
to  file  for  insolvency  on  time.  The  current  insolvency  framework  has  insufficient 
incentives and sanctions to ensure that companies file for insolvency at an early stage. 
The  compulsory  settlement  procedures  (in-court  reorganisation)  are  complex  and 
debtor-friendly,  particularly  for  SMEs  and  micro  companies.  There  are  insufficient 
incentives  for  early  out-of-court  settlement,  which  could  help  to  ensure  the 
continuation  of  viable  businesses.  New  legislation  has  been  announced  to  allow  for 
financial  restructuring  of  over-indebted  companies  early  in  the  process,  and  legal 
changes  to  facilitate  out-of-court  restructuring  and  debt  conversion  will  be  proposed 
by  the  Ministry  of  Justice  by  end  of  May  2013.  A  suitable  legal  framework  which 
provides  compatible  incentives  for  creditors,  owners  and  management  would  be 
essential to facilitate the financial restructuring of illiquid but viable companies. 

(22) 

(23) 

(24) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Slovenia’s  economic  policy.  It  has  assessed  the  stability 
programme and national reform programme, and presented an in-depth review. It has 
taken into account not only their relevance for sustainable fiscal and socio-economic 
policy  in  Slovenia  but  also  their  compliance  with  EU  rules  and  guidance,  given  the 
need  to  reinforce  the  overall  economic  governance  of  the  European  Union  by 
providing EU-level input into future national decisions. Its recommendations under the 
European Semester are reflected in recommendations (1) to (9) below. 

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

In the light of the Commission's in-depth review and this assessement, the Council has 
the  stability  programme.  Its 
examined 
recommendations under Article 6 of Regulation (EU) No. 1176/2011 are reflected in 
all recommendations below. 

the  national  reform  programme  and 

(25) 

In  the  context  of  the  European  Semester  the  Commission  has  also  carried  out  an 
analysis of the economic policy of the euro area as a whole. On this basis the Council 
has issued specific recommendations addressed to the Member States whose currency 

9 

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

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is  the  euro.  Slovenia  also  should  ensure  the  full  and  timely  implementation  of  these 
recommendations. 

HEREBY RECOMMENDS that Slovenia should take action within the period 2013-2014 to: 

1.  For  the  year  2013  and  beyond,  implement  and  reinforce  the  budgetary  strategy, 
supported by sufficiently specified structural measures, to ensure the correction of the 
excessive  deficit  by  2015  in  a  sustainable  manner  and  the  improvement  of  the 
structural balance specified in the Council recommendation under the EDP. After the 
correction  of  the  excessive  deficit,  pursue  a  structural  adjustment  effort  that  will 
enable  Slovenia  to  reach  the  MTO  by  2017.  Durable  correction  of  the  fiscal 
imbalances requires the implementation of ambitious structural reforms, which would 
increase  the  adjustment  capacity  of  the  economy  and  boost  potential  growth  and 
employment.  Safeguard  growth-friendly  spending,  adopt  measures  to  improve  tax 
compliance  and  implement  measures  on  the  expenditure  side  underpinned  by 
systematic  reviews  of  public  expenditure  at  all  government  levels.  To  improve  the 
credibility  of  consolidation,  complete  the  adoption  of  a  general  government  budget 
balance/surplus rule in structural terms, make the medium-term budgetary framework 
binding, encompassing and transparent, and strengthen the role of independent bodies 
monitoring  fiscal  policy  by  end  2013.  Take  measures  to  gradually  reduce  the 
contingent liabilities of the state. 

2.  Strengthen the long-term sustainability of the pension system beyond 2020 by further 
adjusting  all  relevant  parameters,  including  through  linking  the  statutory  retirement 
age  to  gains  in  life  expectancy,  while  preserving  the  adequacy  of  pensions.  Contain 
age-related  expenditure  on  long-term  care  and  improve  access  to  services  by 
refocusing  care  provision  from  institutional  to  home  care,  sharpening  targeting  and 
means-testing of benefits, and reinforcing prevention to reduce disability/ dependency. 

3.  Ensure 

including 

the  minimum  wage, 

that  wage  developments, 

support 
competitiveness  and  job  creation.  Monitor  closely  the  effects  of  the  recent  labour 
market  reform  and  if  necessary  identify  the  areas  where  further  action  is  needed  to 
foster  job  creation  and  tackle  segmentation,  including  through  the  regulation  for 
student  work.  Take  further  measures  to  increase  employment  of  young  tertiary 
graduates,  older  persons  and  the  low-skilled  by  focusing  resources  on  tailor-made 
active labour market policy measures while improving their effectiveness. Address the 
skills  mismatch  by  improving  the  attractiveness  of  the  relevant  vocational  education 
and  training  programmes  and  by  further  developing  cooperation  with  the  relevant 
stakeholders in assessing labour market needs. 

4.  Take  the  necessary  steps,  with  input  from  European  partners,  to  contract  an 
independent  external  adviser  by  June  2013  to  conduct  a  system-wide  bank  asset 
quality review. Complete this exercise in 2013, with faster progress in the cases of the 
two banks already subject to the state aid procedure, to accelerate their balance sheet 
repair.  Stand  ready  to  provide  additional  capital  should  the  asset  transfer  or  asset 
quality  review  reveal  additional  shortfalls.  All  measures,  including  objective 
assessments of capital needs, transfer of assets to Bank Asset Management Company, 
asset  protection  scheme,  operational  implementation  of  the  restructuring  measures 
should  be  implemented  in  full  compliance  with  state  aid  rules  in  case  state  aid  is 
involved. In parallel, develop by March 2014 and implement a comprehensive sector 
strategy  to  ensure  arms-length  management  of  reformed  banks  and  to  substantially 

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improve  governance,  risk  management  and  profitability  in  the  sector,  including 
through  consolidation  where  appropriate.  Swiftly  proceed  with  preparations  for  the 
announced  privatisation  of  NKBM  and  establish,  by  September  2013,  an  ambitious 
timetable for the divestment of direct and indirect state shareholdings of banks. 

5.  Review  the  bank  regulatory  framework  by  end  2013,  and  based  on  this  review, 

strengthen supervisory capacity, transparency and statistical disclosure. 

6.  Accelerate the reform of regulated services, including a significant reduction of entry 
the 
barriers.  Improve 
independence  of  and  providing  sufficient  and  autonomous  financing  to  the 
Competition Protection Agency.  

the  business  environment, 

through  ensuring 

including 

7.  Build  on  previous  efforts  to  further  reduce  the  length  of  judicial  proceedings  at  first 
instance in litigious civil and commercial cases and the number of pending cases, in 
particular enforcement cases.  

8.  As  part  of  the  planned  strategy  of  the  government,  to  be  completed  by  September 
2013,  classify  core  and  non-core  state  assets  according  to  economic  criteria,  with  a 
view to divesting non-core assets. Make the Slovenia Sovereign Holding (SSH) fully 
operational  in  a  timely  manner,  and  transfer  both  ownership  and  management  of  all 
stakes  to  the  SSH,  potentially  excluding  those  that  are  on  the  list  for  immediate  full 
privatisation. Ensure professional management of the SSH from the outset, potentially 
including international expertise, and a clearly defined arms' length relationship with 
the companies involved. For core stakes, develop sector-specific strategies to improve 
profitability and corporate governance. Introduce an obligatory and publicly available 
register  of  management  and  supervisory  board  appointments 
in  state-owned 
enterprises  with  requirements  for  disclosure  of  interests.  Ensure  that  the  regulatory 
framework  facilitates  divestment  of  non-core  state  assets  and  that  administrative 
hurdles are minimised. 

9.  Identify  and  start  to  work  on  removing  all  existing  legal  and  administrative 
impediments to sustainable restructuring of over-indebted/undercapitalised but viable 
companies  through  market-based  solutions.  In  this  context,  take  measures  to  ensure 
sufficient  private  burden  sharing,  to  increase  private  investment,  including  foreign 
direct investment, and to achieve efficiency gains in troubled companies as part of the 
restructuring  process.  Adopt 
legal  framework  for  out-of-court 
restructuring  by  September  2013,  ensuring  that  it  is  coherent  with  the  existing 
provisions on insolvency and provides incentives for both creditors and shareholders 
to reach out-of-court restructuring agreements. Improve the enforcement of corporate 
insolvency  procedures  and  in-court  settlements,  including  swiftly  resolving  pending 
court cases related to bankruptcy procedures, in order to maximise recovery value and 
to facilitate the timely and efficient resolution of non-performing loans. 

the  necessary 

Done at Brussels,  

For the Council 
The President 

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