European Commission
Europe 2020

Country-specific Recommendations

The Country-specific Recommendations are documents prepared by the European Commission for each country, analysing its economic situation and providing recommendations on measures it should adopt over the coming 12 months. They are tailored to the particular issues the Member State is facing and cover a broad range of topics: the state of public finances, reforms of pension systems, measures to create jobs and to fight unemployment, education and innovation challenges, etc. The final adoption of Country-specific Recommendations prepared by the Commission is done at the highest level by national leaders in the European Council.

Proposed recommendations for Estonia 2012

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.

Overview of recommendations

1. Preserve a sound fiscal position by implementing budgetary plans as envisaged, ensuring achievement of the medium-term budgetary objective (MTO) by 2013 at the latest, and compliance with the expenditure benchmark. Complement the planned budget rule with more binding multi-annual expenditure rules within the medium-term budgetary framework, continue enhancing the efficiency of public spending and step up the fight against the shadow economy.
   More information on Estonia’s economy
2. Improve incentives to work by streamlining the social benefits system and increasing flexibility in the allocation of disability, unemployment and parental benefits, while ensuring adequate social protection. Improve delivery of social services, while better targeting family and parental benefits and removing distortionary income tax exemptions related to children. Increase the participation of the young and the long-term unemployed in the labour market.
   More information on tax and benefit systems
3. Link training and education more effectively to the needs of the labour market, and enhance cooperation between businesses and academia. Increase opportunities for low skilled workers to improve their access to life-long learning. Foster prioritisation and internationalisation of the research and innovation systems.
   More information on the European employment strategy
4. Improve energy efficiency, in particular in buildings and transport, and strengthen environmental incentives concerning vehicles and waste, including by considering incentives such as the taxation of vehicles. Foster renewable energy use, including through upgraded infrastructure and legislation.Continue the development of cross-border connections to end relative market isolation.
   More information on the energy strategy for Europe
5. Enhance fiscal sustainability of municipalities while improving efficiency of local governments and ensure effective service provision, notably through stronger incentives for merger or increased cooperation of municipalities. Relevant reform proposals should be put in place within a reasonable timeframe.

See how Estonia compares with other EU Member States in key areas

Commission documents

National Reform Programme

All Member States have committed to the Europe 2020 strategy. However, each country has different economic circumstances and translates the overall EU objectives into national targets in its National Reform Programme – a document which presents the country's policies and measures to sustain growth and jobs and to reach the Europe 2020 targets. The National Reform Programme is presented in parallel with its Stability/Convergence Programme, which sets out the country's budgetary plans for the coming three or four years.

Macroeconomic indicators

Europe 2020 targets – State of play