Recommendation for a COUNCIL RECOMMENDATION on Estonia’s 2013 national reform programme and delivering a Council opinion on Estonia’s stability programme for 2012-2017
Date: 2013-05-29
Institutions: European Commission
Subjects: Estonia, administrative reform, budgetary equilibrium, educational reform, energy saving, job creation, local government, public expenditure, research and development, social-security benefit, trans-European network

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 356 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Estonia’s 2013 national reform programme  

and delivering a Council opinion on Estonia’s stability programme for 2012-2017 

{SWD(2013) 356 final}

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Estonia’s 2013 national reform programme  

and delivering a Council opinion on Estonia’s stability programme for 2012-2017 

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 the recommendation of the European Commission2, 
Having regard to the resolutions of the European Parliament3, 

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) 

(3) 

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  States4,  which  together  form 
the  ‘integrated  guidelines’.  Member  States  were  invited  to  take  the  integrated 
guidelines into account in their national economic and employment policies. 

On  29  June  2012,  the  Heads  of  State  and  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. 

1 
2 
3 
4 

OJ L 209, 2.8.1997, p. 1. 
COM(2013)356 final. 
P7_TA(2013)0052 and P7_TA(2013)0053. 
Council Decision2013/208/EU of 22 April 2013. 

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(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

On 6 July 2012, the Council adopted a recommendation on Estonia’s national reform 
programme  for  2012  and  delivered  its  opinion  on  Estonia’s  updated  stability 
programme for 2011-2015. 
On  28  November  2012,  the  Commission  adopted  the  Annual  Growth  Survey5, 
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  Report6,  in  which  it  did  not  identify  Estonia  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 30 April 2013, Estonia submitted its 2013 stability programme covering the period 
2012-2017 and its 2013 national reform programme. In order to take account of their 
interlinkages, the two programmes have been assessed at the same time. 

Based  on  the  assessment  of  the  2013  stability  programme  pursuant  to  Council 
Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  the  macroeconomic 
scenario  underpinning  the  budgetary  projections  in  the  programme  is plausible  in 
2013-2014  when  real  GDP  growth  is  expected  to  average  around  3.3%.  The 
Commission  2013  spring  forecast  foresees  growth  of  3.5%  in  2013-2014.  Estonia 
achieved a headline budget deficit of 0.3% of GDP in 2012. The programme confirms 
the  previous  medium-term  objective  (MTO)  of  a  structural  surplus.  This  is  more 
ambitious  than  required  by  the  Stability  and  Growth  Pact.  As  Estonia’s  structural 
balance  was  in  surplus  in  2012,  the  country  achieved  its  MTO  one  year  earlier  than 
foreseen in its previous programme. The objective of the budgetary strategy outlined 
in the Stability Programme is to ensure sustainable fiscal policy that supports balanced 
growth,  by  staying  at  the  MTO  while  ensuring  sufficient  fiscal  buffers  and  reducing 
the  tax  burden  on  labour.  The  planned  headline  deficit,  0.5%  of  GDP  in  2013,  is 
envisaged by the programme to improve over the forecast horizon, reaching balance in 
2014  and  moving  into  surplus  thereafter.  Following  an  overall  assessment  of  the 
recalculated  structural  balance,  including  an  analysis  of  expenditure  benchmark, 
Estonia does not deviate significantly from the MTO in 2013, returning to a structural 
surplus  in  2014.  The  debt  ratio  is  well  below  60%  of  GDP  and,  according  to  the 
programme, is likely to decrease after 2013 to about 9% in 2015-2016. Estonia plans 
to introduce a structural budget balance rule in 2013, in line with the requirements of 
the  Treaty  on  Stability,  Coordination  and  Governance.  The  rule  should  be 
complemented  by  strengthening  the  binding  nature  of  the  multiannual  expenditure 
targets as soon as the budget rule is in place.  

As  regards  the  labour  market,  while  employment  continues  to  grow,  there  are 
long-term 
remaining  bottlenecks 
unemployment,  skills  mismatches,  growing  work  force  shortage,  including  labour-
force losses due to long-standing health problems. The social-benefit system should be 
made  more  flexible  and  targeted,  providing  support  services  and  incentives  for  the 

including  persistent  youth  and 

to  growth 

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COM(2012) 750 final. 
COM(2012) 751 final. 

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unemployed  and  for  inactive  persons  who  could  be  re-employed,  while  activation 
measures should be strengthened to make sure that they reach those most in need. The 
cost  efficiency  of  family  policy  expenditure  could  be  improved  in  a  budget-neutral 
way,  including  by  reallocating  financing  from  parental  benefit  to  more  efficient 
measures  such  as  childcare  services  with  an  expected  positive  effect  on  female 
employment.  Economic  development  in  the  regions  has  to  be  addressed  in  a  more 
coordinated way to provide more visible results. 

In  the  field  of  education  and  training,  Estonia  has  partially  implemented  the  2012 
recommendations;  the  higher  education  reform  was  adopted  in  2012  and  a  new 
comprehensive vocational education and training reform is set to be adopted in 2013. 
A  particular  attention  will  be  needed  to  ensure  a  sufficient  involvement  of  social 
partners to ensure a sufficient number of apprenticeships in vocational education. The 
rationalised  provision  of  secondary  education  remains  an  important  commitment  not 
yet  fulfilled.  The  still  relatively  high  youth  unemployment  needs  to  be  addressed  in 
light  of  the  high  share  of  persons  without  professional  or  vocational  education.  The 
access  to  lifelong  learning  for  low-skilled  workers  is  still  not  sufficiently  addressed 
and  measures  for  the  young  unemployed  do  not  always  credibly  meet  labour-market 
needs. The existing disconnection between the public research sector and the economy 
continues  to  hamper  productivity  growth  and  to  affect  Estonia’s  competitiveness.  In 
addition,  the  internationalisation  and  prioritisation  of  the  research  and  innovation 
system remains a challenge given the small size of the economy.  

(11)  Estonia’s energy intensity continues to be very high. While the government has taken 
certain steps the efforts need to be continued and increased, with additional emphasis 
on the renovation of residential buildings. The fleet of new cars in Estonia is the most 
energy  intensive  in  the  EU  and  consumer  patterns  are  not  changing  in  spite  of  the 
increased fuel excise duties. In the absence of additional measures, Estonia is unlikely 
to meet its greenhouse gas emission target, in particular if no measures are taken in the 
field  of  transport  and  housing.  Estonia’s  energy  market  remains  relatively  isolated 
given that cross-border connections are insufficient. 

(12)  Provision of the services that local government is legally obliged to furnish is in most 
sectors  ineffective,  notably  in  long-term  care,  family-support  services,  health  care, 
education  and  transport.  This  is  due  to  the  low  administrative  capacity  of  local 
governments  and  the  mismatch  between  local  government  revenue  and  devolved 
responsibilities.  No  viable  plan  for  improving  the  local  administration  has  yet  been 
established.  

(13) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Estonia’s  economic  policy.  It  has  assessed  the  stability 
programme  and  national  reform  programme.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socio-economic  policy  in  Estonia  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 (5) below. 

(14) 

In  the  light  of  this  assessment,  the  Council  has  examined  Estonia’s  stability 
programme, and its opinion7 is reflected in particular in recommendation (1) below. 

7 

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

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

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

1. 
Pursue a growth-friendly fiscal policy and preserve a sound fiscal position as 
envisaged, ensuring compliance with the medium-term budgetary objective over the 
programme horizon. Complement the planned budget rule with more binding multi-
annual expenditure rules within the medium-term budgetary framework and continue 
enhancing the efficiency of public spending. 

Improve  incentives  to  work  by  making  the  various  existing  social-benefit 
2. 
systems  more  consistent  and  by  increasing  the  flexibility  and  targeting  of  benefit 
allocation.  Improve  the  delivery  of  social  services,  including  childcare,  while 
increasing  the  efficiency  and  cost-effectiveness  of  family  policy.  Strengthen 
activation  measures  to  facilitate  the  return  to  the  labour  market  of  the  long-term 
unemployed  and  people  receiving  disability  benefits  and  incapacity  for  work 
benefits.  Establish  a  coordinated  strategy  for  fostering  economic  development  in 
regions affected by high unemployment.  

3. 
Continue  efforts  to  improve  the  labour-market  relevance  of  education  and 
training  systems,  including  by  further  involving  social  partners  and  implementing 
targeted  measures  to  address  youth  unemployment.  Significantly  increase  the 
participation of the low skilled in life-long learning. Intensify efforts to prioritise and 
internationalise  the  research  and  innovation  systems  and  enhance  cooperation 
between businesses, higher education and research institutions.  

4. 
Improve  energy  efficiency,  in  particular  in  buildings  and  transport,  and 
strengthen  environmental  incentives  concerning  vehicles  and  waste,  through 
considering  car  taxation  and/or  higher  excise  duties  on  motor  fuels.  Step  up  the 
development  of  cross-border  energy  connections  to  diversify  energy  sources  and 
promote competition in the energy market. 

5. 
Better  balance  local  government  revenue  against  devolved  responsibilities. 
Improve  the  efficiency  of  local  governments  and  ensure  quality  provision  of  local 
public services.  

Done at Brussels,  

For the Council 
The President 

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