title: Rakkomandazzjoni tal-Kummissjoni dwar l-aġġornament ta’ l-2004 dwar il-Linji ta’ Gwida Ġenerali tal-Politka Ekonomika ta’ l-Istati Membri u tal-Komunità (għall-perjodu 2003-2005) (ippreżentat skond l-Artikolu 99(2) tat-Trattat KE)

text:
                     KUMMISSJONI TAL-KOMUNITAJIET EWROPEJ

                                                       Brussel, 7.4.2004
                                                       KUMM (2004) 238 finali

                      RAKKOMANDAZZJONI TAL-KUMMISSJONI

     dwar l-aġġornament ta’ l-2004 dwar il-Linji ta’ Gwida Ġenerali tal-Politka Ekonomika
                 ta’ l-Istati Membri u tal-Komunità (għall-perjodu 2003-2005)

                        (ippreżentat skond l-Artikolu 99(2) tat-Trattat KE)

MT                                                                                MT
 ---pagebreak---                                                             WERREJ

     I.    Linji Ta’ Gwida Ġenerali Dwar Il-Politika EKONOMIKA ........................................ 3
     1.    L-istrateġija preżenti tibqa' valida................................................................................ 3
     2.    Sfond ekonomiku mtejjeb ............................................................................................ 3
     3.    L-integrazzjoni ta' l-għaxar Stati Membri ġodda fil-BEPGs ta' l-2003-05 .................. 4
     3.1   It-tkabbir ekonomiku u l-politika makroekonomika orjentata lejn l-istabbilità........... 5
     3.2   Riformi ekonomiċi sabiex jiżdied il-potenzjal ta’ l-Ewropa għat-tkabbir ekonomiku 7
     3.3   It-tisħiħ tas-sostenibbiltà .............................................................................................. 9
     II.   Linji ta’ Gwida Ta’ Politika Ekonomika Speċifika Għall-Pajjiż ............................... 10
     1.    Il-Belġju ..................................................................................................................... 10
     2.    Id-Danimarka ............................................................................................................. 10
     3.    Il-Ġermanja ................................................................................................................ 10
     4.    Il-Greċja ..................................................................................................................... 11
     5.    Spanja......................................................................................................................... 11
     6.    Franza......................................................................................................................... 11
     7.    L-Irlanda..................................................................................................................... 12
     8.    L-Italja........................................................................................................................ 12
     9.    Il-Lussemburgu .......................................................................................................... 13
     10.   L-Olanda .................................................................................................................... 13
     11.   L-Awstrija .................................................................................................................. 14
     12.   Il-Portugall ................................................................................................................. 14
     13.   Il-Finlandja................................................................................................................. 15
     14.   L-Isvezja..................................................................................................................... 15
     15.   Ir-Renju Unit .............................................................................................................. 15
     16.   Ċipru........................................................................................................................... 16
     17.   Ir-Repubblika Ċeka .................................................................................................... 18
     18.   L-Estonja .................................................................................................................... 22
     19.   L-Ungerija .................................................................................................................. 25
     20.   Il-Latvja...................................................................................................................... 29
     21.   Il-Litwanja.................................................................................................................. 32
     22.   Malta .......................................................................................................................... 36
     23.   Il-Polonja.................................................................................................................... 39
     24.   Is-Slovakkja ............................................................................................................... 44
     25.   Is-Slovenja ................................................................................................................. 48

MT                                                                  2                                                                            MT
 ---pagebreak---      I.        LINJI TA’ GWIDA ĠENERALI DWAR IL-POLITIKA EKONOMIKA

     1.        L-ISTRATEĠIJA PREŻENTI TIBQA' VALIDA

     Il-Kunsill adotta rakommandazzjoni fis-26 ta’Ġunju 2003 dwar il-Linji ta’ Gwida Ġenerali dwar il-
     Politika Ekonomika ta’ l-Istati Membri u tal-Komunità għall-perjodu bejn l-2003-20051. Dawn il-Linji
     ta' Gwida Ġenerali dwar il-politika ekonomika (BEPGs) jikostitwixxu l-istrateġija tal-politika
     ekonomika fuq iż-żmien mezzan ta l-UE. Il-BEPGs jiffokaw fuq il-kontribuzzjoni li l-politika
     ekonomika tista’ tagħmel biex twettaq l-iskop strateġiku ta’ Lisbona. Huma kkonċentrati madwar:

     • politika makroekonomika msejsafuq it-tkabbir u l-istabbilità;
     • riformi ekonomiċi sabiex jogħla l-potenzjal tat-tkabbir ekonomikuta' l-Ewropa; u
     • it-tisħiħ tas-sostenibilità.

     Fl-isfond tar-riżultati ta’ l-ewwel valutazzjoni tar-rapport mogħti lill-BEPGs ta’ l-2003-05 kif
     ippreżentat fir-Rapport ta’ Implimentazzjoni2 u l-pariri mill-Kunsill Ewropew tar-Rebbiegħa ta’ l-
     2004, din ir-rakkomandazzjoni taġġorna u tikkompleta l-istrateġija preżenti. L-ebda emendi kbar tal-
     politika m’huma meqjusa neċessarji tant li jkun hemm bżonn bidla fil-linji ta’ gwida ġenerali. L-enfażi
     f’dan l-aġġornament hu dwar l-integrazzjoni ta’ l-għaxar Stati Membri ġodda fil-qafas ta’
     koordinazzjoni tal-politika ekonomika preżenti.

     L-ewwel Parti ta’ dan l-aġġornament tikkonċentra fuq il-konsiderazzjonijiet rilevanti sabiex jiġu
     applikati l-linji ta’ gwida fil-BEPGs ta’ l-2003.05 lill-Istati Membri. Il-linji ta’ gwida ġenerali preżenti
     jibqgħu validi u ma jinbidlux. Għandhom japplikaw fl-Istati Membri u fil-Komunità. Bl-iskop li tiġi
     kkompletata l-istrateġija preżenti, il-Parti II tippreżenta rakommandazzjonijiet speċifiċi għall-pajjiżi
     ta’ l-għaxar Stati Membri ġodda. Tinkludi wkoll aġġornamenti tan-noti tal-pajjiż għall-Ġermanja, il-
     Greċja, Franza, l-Italja, l-Olanda, il-Portugall u r-Renju Unit biex tippermetti emendi tal-politika fis-
     settur tal-politika tal-baġit.

     2.        SFOND EKONOMIKU MTEJJEB

     L-irkupru ta’ l-ekonomija fl-aħħar qed iseħħ fl-UE, appoġġjat mit-titjib ġenerali fl-ambjent
     internazzjonali. It-tkabbir tal-GDP beda jissaħħaħ bil-mod il-mod mill-adozzjoni tal-BEPGs fis-sajf ta’
     l-2003, bl-esportazzjonijiet bħala l-mutur ewlieni għall-bidu ta’ dan l-irkupru, minkejja t-tisħiħ ta’ l-
     ewro. Il-kundizzjonijiet huma wkoll mistennija jitjiebu fit-talba domestiku: il-fiduċja fost il-kumpaniji
     u l-konsumaturi qabdet, ir-rati ta’ l-imgħax qatt ma kienu daqsekk baxxi, u l-prezzijiet ta' l-ishma
     qegħdin jerġgħu jirkupraw. Fuq dan l-isfond, it-Tħabbir Ekonomiku tar-Rebbiegħa 2004 ibassar
     irkupru ieħor u t-tkabbir ekonomiku huwa mistenni li jilħaq il-potenzjal lejn l-aħħar ta’ l-2004. Hemm
     bżonn li jissaħħu dawn l-ewwel sinjali tat-tkabbir ekonomiku. Il-Kunsill Ewropew approva
     uffiċjalment f’Diċembru 2004 l-inizjattivi għat-tnedija ta’ azzjoni mmirata bil-għan li jiġi ffaċilitat
     tkabbir ekonomiku sostenibbli.

     1
             Rakkomandazzjoni tal-Kunsill tas-26 ta’ Ġunju 2003 dwar il-Linji Ta’ Gwida Ġenerali dwar il-politika
             ekonomika ta’ l-istati Membri u tal-Komunità (għall-perjodu 2003.05), 2003/555/KE, ippubblikata fil-
             Ġurnal Uffiċjali Nru L 195/1 ta’ l-ewwel ta’ Awissu 2003.
     2
             Komunikazzjoni tal-Kummissjoni ‘L-ewwel Rapport ta’ l-Implmentazzjoni tal-Linji ta’ Gwida Ġenerali
             tal-Politika Ekonomika’ KUMM(2004)20 finali, adottata fil-21 ta’ Jannar 2004.

MT                                                        3                                                         MT
 ---pagebreak---      L-inflazzjoni hi mistennija li taqa’ taħt it-2 fil-mija waqt l-2004 u li terġa’ tonqos fl-2005. Filwaqt li
     żjidiet fil-prezzijiet amministratti u t-taxxi indiretti sejrin ikollom effet li jgħollu l-prezzijiet fl-2004,
     it-tneħħija ta’ l-effett temporanju mill-aħħar żjidiet fil-prezzijiet ta’ l-ikel għandhom l-effett oppost.
     Bl-istess mod, iż-żjieda fil-valur ta’ l-ewro sejra żżomm iż-żjieda fil-prezzijiet. Per eżempju, din
     assorbit bil-kbir iż-żjieda fil-prezz f’dollari taż-żejt. Minbarra dan, il-moderazzjoni tal-pagi hi
     mistennija tkompli fiż-żmien mezzan u bl-irkupru ċikliku tal-produttività tax-xogħol, it-tkabbir fl-
     unità nominali ta’ l-ispejjez tax-xogħol jistgħu jaqgħu konsiderevolment u b’hekk jikontribwixxu
     għall-istabbiltà tal-prezzijiet.

     Is-sitwazzjoni tas-suq tax-xogħol għandha t-tendenza li tirrifletti l-iżvilupp ekonomiku b’lura. Wara
     waqfa fl-2003, l-impjieg hu mistenni jibbenefika mill- attività ekonomika totali li reġgħet qabdet fit-
     tieni nofs tas-sena l-oħra. Madankollu, minħabba li l-irkupru jseħħ gradwalment, l-impjiegi huma
     mistennija jogħlew modestament din is-sena u jiżdiedu b’qawwa ikbar is-sena d-dieħla.

     B’mod ġenerali, l-iżviluppi ekonomiċi jwettqu l-istennija prevalenti meta tiġi adottata l-istrateġija tal-
     politika ekonomika fuq iż-żmien mezzan; l-ekonomija qiegħda tirkupra għalkemm b' pass moderat, u
     l-prospetti għall-2004.05 ma jippuntaw lejn l-ebda żbilanċ makroekonomiku li jeħtieġ bidla fil-
     politika. Fl-istess ħin, it-tbassir juri li l-ħila ta’ l-aġġustament ta’ l-ekonomija ta’ l-UE u t-tkabbir
     potenzjali għadhom kajmani. Huwa għalhekk essenzjali li t-titjib tal-kundizzjonijiet ekonomiċi
     għandhom jiġu sfruttati kompletament sabiex jkun hemm progress deċisiv fl-geħluq tad- "differenza
     tal-kunsinna" f’termini ta’ diskrepanza bejn il-miżuri tar-riforma strutturali kkunsidrati u dawk
     eventwalment adottati. Il-funzjonament mill-ġdid ta’ l-attività ekonomika bħalissa jista’ jissaħħaħ
     aktar permezz ta’ politika makroekonomika soda u permezz ta’ implimentazzjoni ddeterminata tar-
     riformi ekonomiċi għat-tisħiħ tat-tkabbir ekonomiku msemmija fil-BEPGs ta’ l-2003-05.

     3.        L-INTEGRAZZJONI TA' L-GĦAXAR STATI MEMBRI ĠODDA FIL-BEPGS TA' L-2003-05

     L-adeżjoni ta’ Ċipru, ir-Repubblika Ċeka, l-Estonja, l-Ungerija, il-Latvja, il-Litwanja, Malta, il-
     Polonja, is-Slovakkja u s-Slovenja fl-1 ta’ Mejju 2004 sejra tkun ġrajja importanti ħafna fl-istorja ta’ l-
     Unjoni.

     It-tkabbir se jikkontribwixxi għal dinamiżmu ekonomiku ġdid b’effetti ta’ tisħiħ reċiproku. Il-
     potenzjal tat-tkabbir ekonomiku ta’ l-Istati Membri l-ġodda hu stmat għal madwar 4 fil-mija kull sena,
     li jirrefletti inter alia il-progress sod tagħhom f’dawn l-aħħar snin b’rifomi strutturali u istituzzjonali.
     Is-Suq Intern għanhu jitkabbar għal 455 miljun ċittadin. Minkejja l-progress reċenti, hemm bżonn li
     jingħaraf li l-punt tat-tluq tagħhom kien differenti u li l-pajjiżi ta’ l-adeżjoni sejrin għall-bidu jgħoddu
     biss għal 5 fil-mija tal-GDP ta' l-Unjoni. B’livelli ta’ dħul ta’ inqas min-nofs ta’ l-UE-15 medja (ara t-
     Tabella 1), l-isfidi ewlenien għall-pajjiżi ta' l-adeżjoni huma li jiżguraw konverġenza vera fuq medda
     twila ta’ żmien, filwaqt li fl-istess ħin jiksbu konverġenza nominali fit-terminu qasir sa medju.

MT                                                         4                                                          MT
 ---pagebreak---                                                 Graff 1: GDP per capita 2003 (UE-15=100)

                   90

                   80

                   70

                   60

                   50

                   40

                   30

                   20

                   10

                    0
                            CY        SI      MT        CZ       HU       SK      AC10       PL   EE   LT   LV

                        Sors: Servizzi tal-Kummissjoni (Eurostat, Indikaturi strutturali).

     L-isfidi strutturali li jħabbtu wiċċhom magħhom l-Istati Membri ġodda mhumiex fundamentalment
     differenti minn dawk ta’ l-istai attwali, anke jekk ċerti sfidi jitolbu iktar attenzjoni3. L-istraġija tal-
     politika ekonomika preżenti għalhekk tidher bħala xierqa b’mod ġenerali. L-iskala ta’ l-isfidi ffaċċjati
     minn dawn il-pajjiżi tagħmilha kruċjali li jitfittex bilanċ xieraq bejn il-ħtiġijiet politiċi differenti. Per
     eżempju, b’kunsiderazzjoni tal-bidla strutturali li għadha ma tlestietx lejn ekonomija tas-suq modewrn
     ibbażata fuq is-servizzi servizz modern ibbażat fuq suq ta’ l-ekonomija, ħafna mill-pajjiżi ta’ l-
     adeżjoni għandhom bżonn politika li tiffavorixxi konverġenza vera. L-UE sejra tikkontribwixxi b’mod
     siewi għall-konverġenza vera billi tinvesti fir-reġjuni li baqgħu lura bis-saħħa tal-fondi strutturali u ta’
     koeżjoni kif ukoll tal-Bank Ewropew ta’ l-Investimenti. Madankollu, il-baġits nazzjonali għandhom
     ikopru r-rekwiżiti finanzjarji importanti maqgħuda mal-bżonn biex tittejjeb il-bażi kapitali fiżika u
     umana, u l-awtoritajiet fiskali għandhom bżonn ilaħħqu mal-pressjonijiet tan-nefqa li ġejjin mit-tlestija
     tar-riformi ta’ transizzjoni, waqt li jassiguraw onestà fiskali. Fl-istess waqt u b’konsiderazzjoni għall-
     iżbilanċ fl-estimi medji inizjali ta' xi 6 fil-mija tal-GDP, hemm bżonn li tiġi ggarantita l-
     konsolidazzjoni neċessarja għall-finanzi pubbliċi biex tissaħħaħ l-istabbilità makroekonomika.

     It-taqsimiet sussegwenti jirrevedu l-istrateġija tal-politika ekonomika eżistenti u jagħtu importanza lil
     dawk il-linji ta’ gwida ġenerali jew setturi tal-politika, fejn iċ-ċirkustanza speċifika ta’ bosta mill-
     pajjiżi ta’ l-adeżjoni huma tali li perjodu itwal ta’ aġġustament ikun meħtieġ. Hemm bżonn li jiġi
     enfasizzat li d-differenzi huma differenti skond il-pajjiżi ta’ l-adeżjoni. B’konsiderazzjoni tad-
     differenzi fir-rendiment, il-prospetti, l-istrutturi u l-istituzzjonijiet ekonomiċi tagħhom, il-Parti II ta’
     dan l-aġġornament tippreżenta r-rakkomandazzjonijiet speċifiċi għall-pajjiż lill kull pajjiż ta’ l-
     adeżjoni.

     3.1       It-tkabbir ekonomiku u l-politika makroekonomika orjentata lejn l-istabbilità

     Politika makroekonmika soda għandha rwol kruċjali sabiex tappoġja t-tkabbir u l-impjieg u sabiex
     iżżomm sod l-istabbiltà tal-prezzijiet. L-Istati Membri ġodda għandhom, bħal dawk attwali, jimmiraw
     biex jiksbu tkabbir ekonomiku ibbilanċjat sew li jwettaq kompletament il-potenzjal ta’ dan it-tkabbir.

     3
             L-Ekonomija ta’ l-Ewropa, karta okkażjonali Nru 4 “Sfidi strutturali ewlenija fil-pajjiżi ta’ l-adeżjoni: l-
             intergrazzjoni tal-pajjiżi ta’ l-adeżjoni fil-proċessi ta’ koordinazzjoni tal-politika ta’ l-ekonomija tal-
             Komunità” mingħand il-Kumitat tal-Politika ta’ l-Ekonomija, Lulju 2003.

MT                                                                       5                                                  MT
 ---pagebreak---      Minbarra dan, għal dak li għandu x’jaqsam ma’ bosta mill-pajjiżi ta’ l-adeżjoni, il-politika
     makroekonomika għandha tappoġġja wkoll il-bidla strutturali li fadal lejn ekonomika b’iktar servizzi.

     L-Istati Membri ġodda għandhom bżonn ifittxu sinerġija b’saħħitha bejn ir-riformi strutturali
     neċessarji u l-politika makroekonomika li ssaħħaħ l-istabbilità. L-iskemi tar-rata tal-kambju
     jikkostitwixxu parti importanti tal-qafas tal-politika ekonomika u monetarja kumplessiva u għandhom
     jiġu orjentati sabiex jiksbu konverġenza nominali reali u sostenibbli. Il-parteċipazzjoni fl-ERM II, f’xi
     fażi wara l-adeżjoni, għandha tgħin dawk it-tentattivi. Politika monetarja kredibbli għandha
     tippermetti iżjed tnaqqis fir-rati ta’ l-imgħax fit-tul li jwassal għal kemm għall-investiment għoli tant
     meħtieġ kif ukoll għall-konsolidazzjoni fiskali.

     Għal dak li għandu x’jaqsam mal-bżonn li “jintlaħqu u jinżammu pożizzjonijiet baġitarji sodi”,
     għandha tinstab medda ta’ żmien xierqa bejn il-ħeffa tal-konsolidazzjoni tal-baġit neċessarja u l-
     pożizzjoni fiskali xierqa li tappoġġja t-transizzjoni. Is-sorveljanza tal-baġit għal dak li jikkonċerna l-
     Istati Membri ġodda għandha tibda bl-eżami tal-Programmi ta’ Konverġenza tagħhom. Għandha
     tingħata attenzjoni partikolari liċ-ċirkostanzi speċifiċi tal-pajjiż, b’mod partikolari lill-pożizzjonijiet
     tal-baġit tal-bidu, il-bidliet strutturali li għaddejjin fl-ekonomiji u r-riskji possibbli li jirriżultaw mill-
     iżbilanċi fil-kontijiet kurrenti u t-tkabbir qawwi tal-kreditu. Jista’ jkun xieraq, minn punt ekonomiku, li
     jitħalla perjodu għall-aġġustament annwali f’ċerti każijiet fejn hemm bżonn li jiġi korrett defiċit ta’
     iktar minn 3 fil-mija. Dan jippermetti lill-Istati Membri biex jikkonsolidaw il-finanzi pubbliċi tagħhom
     b’mod sostenibbli, filwaqt li fl-istess ħin itemmu r-ristrutturar ta’ l-ekonomija. B’mod ġenerali, l-
     effiċjenza ta’ l-infiq pubbliku tista’ tittejjeb konsiderevolement, inter alia bis-saħħa ta’ ridirezzjoni ta’
     l-infiq pubbliku lejn investimenti li jġibu t-tkabbir u li jipproduċu riżultati effettivi għal infiq li
     mhuwiex eċċessiv: investimenti fil-kapital fiżiku u uman u fir-riċerka u l-innovazzjoni. Barra minn
     dan, twessigħ tal-bażi tat-taxxi fuq ix-xogħol u titjib tal-ġbir tat-taxxi sabiex jiġi żgurat id-dħul
     meħtieġ jista’ jiffaċilita tnaqqis fir-rati ta' taxxa fuq ix-xogħol (inklużi rati għolja ta’ kontribuzzjonijiet
     tas-sigurtà soċjali).

                  Tabella 1: Indikaturi Makroekonomiċi għall-Istati Membri ġodda u dawk preżenti fl-2003

                                                                                AC10    UE15
                 Tkabbir GDP (reali, % p.a.)                                          3.6     0.8
                 Inflazzjoni (% p.a.)                                                 2.1     2.0
                 Kont kurrenti(% tal-GDP)                                            -3.7     0.2

                 Qgħad (%)                                                          14.3      8.0
                 Bilanċ tal-Gvern (% tal-GDP)                                        -5.7     -2.6
                 AC10= l-għaxar pajjiżi ta’ adeżjoni.
                 Sors: Servizzi tal-Kummissjoni (inkluż Eurostat, Indikaturi strutturali).

     Id-defiċit attwali kien jgħodd għal medja xi 4.5 fil-mija tal-GDP fl-2003 fl-Istati Membri ġodda, u dan
     jirrifletti l-proċess li qed jgħaddu minnu dawn il-pajjiżi biex ilaħħqu ma’ l-oħrajn u l-lakuni kbar fiit-
     tfaddil-investiment domestiku. Sfida kbira tal-politika makroekonomika għal xi uħud minn dawn il-
     pajjiżi ta’ l-adeżjoni tikkonsisti għalhekk f’li jżommu defiċits relattivament għolja fil-limiti li fihom
     jista’ jiġi żgurat finazjament estern sod. F’dan ir-rigward, it-trażżin fiskali u l-ħtieġa li tiġi evitata
     politika pro-ċiklika se jkunu essenzjali sabiex jitnaqqsu d-defiċits attwali, minħabba li l-finazjament
     tagħhom jista’ jsir aktar diffiċli wara li jitlesta għal kollox il-proċess ta’ privatizzazzjoni.

     Ambjent makroekonomiku stabbli jeħtieġ żjidiet nominali fil-pagi li huma konsistenti kemm ma’ l-
     istabbilità tal-prezzijiet kif ukoll mal-kisbiet fil-produttività. Se jkun importanti wkoll għall-ħolqien
     tal-pagi fil-pajjiżi ta’ l-adeżjoni li jkun appoġġ għar-ristrutturar ta’ l-ekonomija li jsir mezz biex il-pagi
     jirriflettu aħjar id-differenzi fil-kundizzjonijiet tas-suq tax-xogħol lokali li hemm bejn ditti, setturi,

MT                                                                     6                                               MT
 ---pagebreak---      reġunijiet u xogħlijiet differenti. Lil hinn min dan, żviluppi reali fil-pagi jridu jappoġġjaw il-
     kompettività esterna fl-Istati Membri fid-dawl ta’ l-ħtieġa li jiġi attirat l-investiment barrani dirett.

     3.2       Riformi ekonomiċi sabiex jiżdied il-potenzjal ta’ l-Ewropa għat-tkabbir
               ekonomiku

     Il-proċess ta’ tlaħħiq ma’ l-oħrajn fil-livelli tad-dħul huwa proċess fuq medda twila ta’ żmien. Se jkun
     kruċjali li tidjieq il-qasma bejn ir-rati ta’ l-impjieg u l-livelli ta’ produttività bejn il-pajjiżi ta’ l-
     adeżjoni u l-UE-14. Il-linji ta’ gwida eżistenti li jimmiraw għal ‘ xogħol aktar u aħjar’ u ‘ż-żjieda fil-
     produttività u d-dinamiżmu tan-negozju’ huma implimentati l-aħjar b’mod komprensiv u koordinat.

     Il-kontibuzzjoni li l-politika ta’ l-impjiegi tista’ tagħti hija riflessa fil-linji ta’ gwida eżistenti li jagħfsu
     fuq il-kunċett ta’ li ‘nġiegħlu x-xogħol iħallas’ u fuq li nipprezzaw in-nies lura fix-xogħol, l-aktar
     dawk ta’ ħiliet u snajja’ limitati jew dawk li jgħixu f’reġjuni ifqar. Il-qagħda tas-suq tax-xogħol hija
     konsiderevolment agħar fil-pajjiżi ta’ l-adeżjoni, b’ rati ta’ l-impjiegi huma jew weqfin jew inkella
     neżlin, rati ta’ qgħad għoljin (li wkoll għandhom tendenza jkunu fuq medda twila ta’ żmien u jolqtu l-
     aktar liż-żgħażagħ), numri kbar ta’ persuni mhux attivi u setturi informali mdaqqsin. Se jkun għalhekk
     essenzjali li l-isforzi politiċi jagħfsu fuq numru żgħir ta’ oqsma prioritarji li aktarx jista’ jkollhom l-
     akbar impatt fuq ir-rendiment tas-suq tax-xogħol: li jkun żgurat li l-iżviluppi reali fil-pagi jirriflettu t-
     tkabbir fil-produttività; it-tijtib ta’ l-inċentivi finazjarji għax-xogħol bis-saħħa ta’ riforma fuq is-
     sistemi tat-taxxa / tal-benefiċċji soċjali; it-titjib tal-formazzjoni tal-kapital uman; u t-teħid ta’ riformi
     xierqa fir-regolamenti tas-suq tax-xogħol. Il-politika dwar l-impjiegi trid tappoġġja l-proċess li
     għaddej taċ-ċaqliq strutturali kbir fil-kompożizzjoni settorjali u reġjonali ta’ l-impjiegi.

                                                                  Graff 2: Impjiegi u livelli ta’ produttività fl-Istati Membri ta’ l-UE
                                                                                u pajjiżi ta’ adeżjoni (2002)

                                                           140

                                                           130
                                                                                LU         IE
                 Labour productivity per person employed

                                                           120
                                                                            IT
                                                           110                                      BE        FR
                                                                                EU 15       FI             NL
                           EU-15 = 100 (2002)

                                                           100
                                                                                ES                                                 DK
                                                                                AT
                                                            90                    MT    EL                                        UK       SE
                                                                                DE       CY
                                                            80

                                                            70                                                 SI
                                                            60                          HU                          CZ PT
                                                                                SK
                                                            50                         AC-10
                                                                       PL                           LV                            Lisbon target
                                                            40                                      LT   EE

                                                            30
                                                                 50              55            60            65             70               75        80
                                                                                Employment rate as % of working age population

                                                             Sors: Servizzi tal-Kummissjoni Eurostat, Indikaturi strutturali).

     Se jkun essenzjali li jiżdiedu r-rati ta’ l-impjieg u li fl-istess ħin jittejjeb it-tkabbir tal-produttività
     għall-Istati Membri (ara Graff nru 2). Ir-ristrutturar li għaddej fl-ekomomija ta’ dawn il-pajjiżi huwa
     strumentali fit-titjib tal-livell ta’ produttività li ġeneralment huwa baxx. It-transizzjoni minn
     speċjalizzazzjoni f’attivitajiet ta’ valur miżjud baxx jew valur tax-xogħol baxx lejn attivitajiet ta’ valur
     miżjud għoli għandu jqis il-vantaġġi komparattivi attwali. L-integrazzjoni ekonomika akbar fis-Suq

MT                                                                                7                                                  MT
 ---pagebreak---      Intern u l-miżuri li jakkumpanjawha sabiex jippromwovu l-kompetizzjoni fl-ekomomija għandhom
     jgħaġġlu l-proċess tar-ristruttar fl-Istati Membri ġodda. Il-kompetizzjoni akbar teħtieġ proċess aktar
     mgħaġġel fil-privatizzazzjoni, tnaqqis fil-piż regolatorju fuq in-negozju u appoġġ akbar għall-
     intraprenditorjat. F’dan il-kuntest, trid tissaħħaħ il-ħila ta’ l-awtoritajiet ċentrali u lokali biex jinfurzaw
     il-ħtiġijiet leġislattivi, l-aktar f’dak li għandu x’ jaqsam mar-regoli legali dwar id-dħul fis-suq u l-ħruġ
     minnu tal-kumpaniji.

                      Tabella 2: Indikaturi Ekonomiċi għall-Istati Membri ġodda u dawk preżenti fl-2003
                                                                                AC10               UE15
                                   1
                 GDP per capita                                                              48.7              100
                                                                2
                 Produttività għal kull persuna impjegata                                    53.6              100
                                                  3
                 Rata ta’ Impjiegi (fl-2002)                                                 55.9              64.3

                 Investimenti tan-Negozju (% tal-GDP)4                                       17.9              17.2
                                                         5
                 Total ta’ FDI inflows (% tal-GDP)                                            5.0               4.4
                                              6
                 Nefqa R&D (% tal-GDP)                                                       0.83              1.98
                 1
                    f’ PPS, livell, UE15=100. 2 GDP f’ PPS għal kull persuna impjegata, livell, UE15=100.
                 3
                   Rata ta’ impjiegi totali – Persuni impjegati li għandhom età ta’ 15-64 bħala porzjoni tal-popolazzjoni totali
                 ta’ l-istess faxxa ta’ età, 2002. 4 Investmenti ta’ kapital gross fiss mis-settur privat, 2001 għal AC10 u 2002
                 għal UE15. 5 2002. 6 Nefqa gross domestika fuq R&D, 2001.
                 Sors: Servizzi tal-Kommissjoni (inkluż Eurostat, indikaturi strutturali).

     It-tkabbir fil-produttività se jitjieb aktar bit-transizzjoni ta’ l-Istati Membri ġodda għal ekonomija
     msejsa fuq l-għerf, li hija fil-qofol ta’ l-istrateġija UE ta’ Lisbona. Barra minn dan, l-Inizjattiva
     Ewropea għat-Tkabbir Ekonomiku tisħaq dwar l-importanza ta’ l-investimenti f’ netwerks u fir-riċerka
     bħala passi kruċjali lejn l-għoti ta’ spinta lit-tkabbir ekonomiku, integrazzjoni aħjar ta’ Ewropa
     mkabbra, u t-titjib ta’ produttività u l-kompetittività. Għall-Istati Membri ġodda, it-tixrid u t-
     tasferimenti teknoloġiċi R&D huwa importanti kemm bħala investiment R&D kif ukoll bħala għodda
     biex jgħaġġlu t-transizzjoni lejn attivitajiet ta’ valur miżjud ogħla. Huwa essenzjali li jiġi sostnut livell
     għoli ta’ investiment dirett barrani f’dan l-isforz kollu, bħal ma huwa daqstant importanti li jkun hemm
     tweġiba aħjar u akbar għas-sistema ta’ edukazzjoni u taħriġ għall-ħtiġijiet li dejjem qed jinbidlu tas-
     suq tax-xogħol. Ir-riformi tas-sistemi ta’ edukazzjoni u taħriġ jistgħu wkoll jgħinu sabiex jħeġġu għal
     mixja lejn attivitajiet li huma aktar innovattivi u msejsa b’mod instensiv fuq l-għerf, kif ukoll l-
     investimenti fit-teknoloġija ambjentali.

     Rwol importanti fl-allokazzjoni u d-direzzjoni ta’ flejjes lejn investimenti produttivi u lejn fiduċja
     akbar ta’ l-investitur jinvolvi is-swieq kapitali żviluppati li jaħdmu mingħajr xkiel żejjed. Filwaqt li,
     fil-pajjiżi ta’ l-adeżjoni, is-swieq kapitali ilhom jikbru mill-bidu tad-Disgħinjiet (kemm f’dak li
     għandu x’jaqsam ma’ daqs u valur), jibqgħu ġeneralment sottosviluppati fil-konfront ta’ bosta Stati
     Membri attwali (minbarra Ċipru u Malta). L-integrazzjoni rapida fis-suq uniku għas-servizzi
     finanzjarji bis-saħħa ta’ traspożizzjoni u implimentazzjoni f’waqtha ta’ l-acquis kollu f’dan il-qasam,
     se jkun dejjem aktar importanti għall-appoġġ ta’ l-iżvilupp ta’ setttur finanzjarju sod u kkapitalizzat
     sew u għaż-żamma ta’ ambjent ugwali għal kulħadd f’dak li għandu x’jaqsam ma’ l-istituzzjonijiet
     finanzjarji f’ Unjoni Ewropea mkabbra. Barra minn hekk, is-swieq kapitali f’bosta Stati
     Membri ġodda huma kkaratterizzati minn livell għoli ta’ intermedjazzjoni bankarja
     (tipikament aktar minn 80 fil-mija ta’ l-assi finanzjarji totali fl-Ewropa Ċentrali u l-Istati
     Baltiċi) u fenomenu estensiv ta’ sidien barranin ta’ banek tal-pajjiż (minbarra f’ Ċipru u s-
     Slovenja), filwaqt li bosta qed jaraw żvilupp mgħaġġel ta’ intermedjarji finanzjarji oħra bħal
     fondi tal-pensjonijiet (eż. Il-Polonja). F’ dan il-kuntest, se jkun partikolarment importanti
     għall-Istati Membri ġodda li jkomplu jsaħħu l-arranġamenti ta’ superviżjoni finanzjarja

MT                                                                      8                                                          MT
 ---pagebreak---      tagħhom u jtejbu l-kooperazzjoni minn fruntiera għall-oħra fis-superviżjoni finanzjarja u fil-
     crisis management finanzjarju.

     3.3       It-tisħiħ tas-sostenibbiltà
     Il-BEPGs jagħmlu enfażi konsiderevoli fuq li jiġi żgurat li t-tkabbir ekonomiku huwa sostenibbli fl-
     UE, billi jiġu integrati s-sostenibbiltà ekonomika, soċjali u ambjentali fl-istrateġija tal-politika
     ekonomika.

     Popolazzjoni li qed tixjieħ sejra timplika sfidi simili għas-sostenibbiltà ekonomika fl-Istati Membri u
     fl-UE 15. Filwaqt li ġeneralment il-punt tat-tluq tagħhom huwa aħjar (b’liveli ta’ dejn inqas f’bosta
     każi), il-ġejjieni demografiku x’aktarx ikollu implikazzjonijiet ekonomiċi u soċjali) akbar.

                        Tabella 3: Indikaturi ta’ sostenibilità għall-Istati Membri ġodda u dawk preżenti

                                                                                AC10                     UE15
                Dejn tal-Gvern (2003, % tal-GDP)                                42.2             64.0
                                                           1
                Rata ta' impjiegi ta’ ħaddiema anzjani                          30.4             40.1
                                             1
                Rata ta' impjiegi fit-tul                                        8.1             3.0

                Emissjonijiet ta’ Greenhouse gas2                                 69              98
                                         3
                Intensità ta’ enerġija                                           709            194

                1
                 Figuri għal 2002. 2Figuri għal 2001, 1990 sena bażi =100. 3 konsum ta’ l-enerġija fl-2001 diviż mill-GDP b’
                prezzijiet kostanti, kilogramma ta’ żejt ekwivalenti għal kull 1000 Ewro.

                Sors: Servizzi tal-Kummissjoni (inkluż. Eurostat, indikaturi strutturali).

     Fil-qofol, il-politika ekonomika soda tagħti kontribut importanti lis-sostenibbiltà soċjali minħabba li x-
     xogħol għandu sehem vitali f’li joħroġ in-nies mill-faqar u mill-esklużjoni soċjali. Fl-Istati Membri
     ġodda, trid issir enfażi addizzjonali fuq l-immodernizzar tas-sistemi ta’ protezzjoni soċjali u t-titjib tal-
     ħiliet tal-ħaddiema, bil-għan li jiżdiedu r-rati ta’ parteċipazzjoni u tittejjeb il-mobilità. Ir-rati baxxi ta’
     qgħad, kemm tal-ħaddiema żgħażagħ kif ukoll ta’ dawk ikbar, teħtieġ attenzjoni speċjali f’dan ir-
     rigward. Għandhom jiġu indirizzati d-differenzi reġjonali l-kbar, l-aktar billi jiġi żgurat li jkun hemm
     investimenti effiċjenti u differenzjazzjoni xierqa tal-pagi (li tirrifletti d-differenzi fil-produttività).
     Barra minn hekk, l-ambjent tan-negozju għandu jitjieb, speċjalment bis-saħħa ta’ miżuri għall-bini ta’
     ħiliet fit-tmexxija pubblika. Dan għandu wkoll itejjeb l-effiċjenza fl-użu tal-fondi Strutturali u ta’
     Koeżjoni ta’ l-UE.

     L-investimenti sostanzjali fl-infrastruttura ta' l-enerġija u t-trasport li huma tant meħtieġa fil-biċċa l-
     kbira ta’ l-Istati Membri ġodda għandhom il-għan li jnaqqsu l-impatti ambjentali ta’ l-użu ta’ l-
     enerġija u t-trasport u li jtejbu l-effiċjenza ta’ l-enerġija. Investimenti bħal dawn se jkunu kruċjali
     minħabba li l-intensitajiet enerġetiċi tagħhom jaqbżu ‘l dawk ta’ l-Istati Membri attwali kważi b’ 4
     darbiet, ara Tabella Nru 3, minkejja titjieb ta’ 6% fis-sena tul l-aħħar għaxar snin. Se jkun
     partikolarment essenzjali li jitqiesu sew l-ispejjeż involuti fil-konfront tad-dannu ambjentali meta jsiru
     deċiżjonijiet dwar l-investiment, inkluż it-tnaqqis tas-sussidji għall-enerġija u l-introduzzjoni ta’ taxxi
     u charges xierqa, għal per eżempju il-konsum ta’ l-enerġija u/jew l-użu tat-trasport.

MT                                                                       9                                                     MT
 ---pagebreak---      II.      LINJI TA’ GWIDA TA’ POLITIKA EKONOMIKA SPEĊIFIKA GĦALL-PAJJIŻ

     Part II contains updates of the country-notes for Germany, Greece, France, Italy, the Netherlands,
     Portugal and the United Kingdom. It also presents country-notes for the ten new Member States.

     The Council adopted the broad guidelines of the economic policies for the 2003-05 period for the
     current Member States on 26 June 2003. The country-specific recommendations therein generally
     remain valid, although some of them need to be updated to allow for necessary policy adjustments in
     the area of budgetary policies.

     It is important to note that, even when measures have been taken that partly or even fully address a
     particular recommendation, that recommendation is not updated until a full assessment of their impact
     can be carried out. The pace and nature of progress in the implementation of the various guidelines is
     reviewed in the annual Implementation Report.

     1.       Il-Belġju

     No update.

     2.       Id-Danimarka

     No update.

     3.       Il-Ġermanja

     One of the challenges facing Germany is to “reduce rapidly the general government deficit to
     below 3 per cent of GDP and keep government finances on a steady consolidation path”. In order to
     achieve this, Germany was recommended in the 2003 version of the Broad Economic Policy
     Guidelines to:

     • ensure a rigorous budget execution and implement the announced or compensatory measures for
       2003 amounting to 1 per cent of GDP and put an end to the present excessive deficit situation by
       2004 at the latest (recommendation 6); and

     • lower the cyclically-adjusted deficit by at least one percentage point of GDP between the end of
       2003 and 2005 (recommendation 7).

     These two recommendations were similar to those addressed by the Council to Germany on
     21 January 2003 in accordance with Articles 104(7) of the Treaty. On 18 November 2003, the
     Commission adopted two recommendations on the basis of Article 104(8) and 104(9) respectively for
     the Council to decide (1) that action taken by Germany was inadequate to bring the excessive deficit to
     an end and (2) to give notice to Germany to take the necessary measures to bring the general
     government deficit below 3 per cent of GDP in 2005 at the latest. On 25 November 2003, the Council
     did not adopt the two Commission recommendations but adopted instead a set of conclusions
     endorsing, inter alia, the commitments made by Germany to reduce the cyclically-adjusted deficit by
     0.6 per cent of GDP in 2004, and by 0.5 per cent of GDP or a larger amount in 2005 so as to ensure
     that the general government deficit would be brought below 3 per cent of GDP in 2005. In its Opinion
     on the 2003 update of the stability programme of Germany4, the Council reaffirmed these conclusions.

     4
             OJ C68, 18.3.2004.

MT                                                     10                                                      MT
 ---pagebreak---      In the light of these developments and bearing in mind that budgetary plans for the years beyond 2005
     are to an important extent formed within the period covered by the BEPGs (inter alia in the multi-
     annual stability programmes), recommendations 6 and 7 are replaced by the following:

     “6.      achieve an annual reduction in the cyclically-adjusted deficit of 0.6 per cent of GDP in 2004
              and of at least 0.5 per cent of GDP or a larger amount in 2005 so as to ensure that the general
              government deficit is brought below 3 per cent of GDP in 2005 (GL 1);

     7.       should the recovery in economic activity be stronger than currently expected, allocate any
              higher-than-expected revenues to deficit reduction and accelerate the reduction in the
              cyclically-adjusted deficit;

     7bis     ensure that the budgetary consolidation continues in the years after 2005, namely through a
              steady reduction in the cyclically-adjusted budgetary deficit by at least 0.5 percentage points
              of GDP per year or more if necessary to achieve the medium term position of government
              finances close to balance or in surplus and bring back the debt ratio to a declining path (GL
              1).”

     4.       Il-Greċja

     One of the challenges facing Greece is to “ensure the long-term sustainability of public finances in the
     face of population ageing, in particular in view of the high government debt ratio”. In order to achieve
     this, Greece was inter alia recommended in the 2003 version of the Broad Economic Policy
     Guidelines to:

     • ensure effective control of government current primary spending by addressing resolutely the
       problem of the inelastic elements of expenditures, e.g. the wage bill (recommendation 2).

     The fiscal data for 2003 show that the general government deficit stayed only just below the 3 per cent
     of GDP reference value. This represents a considerable widening of the deficit compared to 2002 in
     spite of a positive output gap, reflecting the pro-cyclical, expansionary nature of Greek fiscal policies.
     For 2004, there is a distinct risk that the reference value for the deficit may be breached. Greece is
     moving further away from a budgetary position of close to balance or in surplus..

     In the light of these developments, recommendation 2 is replaced by the following:

     “2.      until a medium-term position of close to balance or in surplus is achieved, ensure an
              improvement in the cyclically-adjusted budget balance of at least 0.5 per cent of GDP per
              year, specifically through effective control of government current primary spending, and
              stand ready to take further measures to avoid the occurrence of an excessive deficit (GL 1).”

     5.       Spanja

     No update.

     6.       Franza

     One of the challenges facing France is to “reduce rapidly the general government deficit to
     below 3 per cent of GDP and keep government finances on a steady consolidation path”. In order to
     achieve this, France was recommended in the 2003 version of the Broad Economic Policy Guidelines
     to:

     • achieve a significantly larger improvement in the cyclically-adjusted deficit in 2003 than that
       currently planned (recommendation 1);

MT                                                      11                                                        MT
 ---pagebreak---      • implement measures ensuring that the cyclically-adjusted deficit is reduced in 2004 by 0.5 per
       cent of GDP, or by a larger amount, so as to ensure that the cumulative improvement in 2003-2004
       is enough to bring the nominal deficit below 3 per cent in 2004 at the latest (recommendation 2);
       and

     • limit the increase in the general government gross debt to GDP ratio in 2003 (recommendation 3).

     These three recommendations were similar to those addressed by the Council to France on
     3 June 2003 in accordance with Article 104(7) of the Treaty. On 8 and 21 October 2003 respectively,
     the Commission adopted two recommendations on the basis of Article 104(8) and 104(9) respectively
     for the Council to decide (1) that no effective action had been taken by France in response to the
     recommendation of 3 June and (2) to give notice to France to take the necessary measures to bring the
     government deficit below 3 per cent of GDP in 2005 at the latest. On 25 November 2003, the Council
     did not adopt the two Commission recommendations but adopted instead a set of conclusions
     endorsing, inter alia, the commitments made by France to reduce the cyclically-adjusted deficit by
     0.8 per cent of GDP in 2004, and by 0.6 per cent of GDP or a larger amount in 2005 so as to ensure
     that the general government deficit would be brought below 3 per cent of GDP in 2005. In its Opinion
     on the 2003 update of the stability programme of France5, the Council reaffirmed and further clarified
     these conclusions.

     In the light of these developments and bearing in mind that budgetary plans for the years beyond 2005
     are to an important extent formed within the period covered by the BEPGs (inter alia in the multi-
     annual stability programmes), recommendations 1, 2 and 3 are replaced by the following:

     “1.      achieve an annual reduction in the cyclically-adjusted deficit of 0.8 per cent of GDP in 2004
              and of at least 0.6 per cent of GDP or a larger amount in 2005 so as to ensure that the general
              government deficit is brought below 3 per cent of GDP in 2005 (GL 1);

     2.       should the recovery in economic activity be stronger than currently expected, allocate any
              higher-than-expected revenues to deficit reduction and accelerate the reduction in the
              cyclically-adjusted deficit through the implementation of additional measures. In addition,
              any budgetary margin stemming from a slower than planned increase in expenditures should
              be allocated to deficit reduction;

     3.       ensure that the budgetary consolidation continues in the years after 2005, namely through a
              steady reduction in the cyclically-adjusted budgetary deficit by at least 0.5 percentage points
              of GDP per year or more if necessary to achieve the medium term position of government
              finances close to balance or in surplus and bring back the debt ratio to a declining path (GL
              1).”

     7.       L-Irlanda

     No update.

     8.       L-Italja

     One of the challenges facing Italy is to “rapidly consolidate public finances”. In order to achieve this,
     Italy was inter alia recommended in the 2003 version of the Broad Economic Policy Guidelines to:

     • Until a medium-term budget position of close to balance or in surplus is achieved, ensure a
       reduction in the cyclically-adjusted deficit of at least 0.5 per cent of GDP per year, replacing one-
       off measures by measures of a more permanent character (recommendation 1).

     5
             OJ C43, 19.2.2004.

MT                                                      12                                                       MT
 ---pagebreak---      The fiscal data for 2003 show that the general government deficit was 2.4 per cent of GDP, almost
     unchanged compared to 2002 (2.3 per cent). In a context of weak economic growth, the authorities
     have continued to rely on temporary measures to restrain the deficit. Such measures are estimated to
     have improved the budgetary outturn by slightly more than 2 percentage points of GDP (around 1.5
     percentage points in 2002). Markedly lower interest expenditure compared to the previous year also
     helped stave off a larger increase in the deficit. In 2004, with reliance of one-off measures to be
     reduced by half, there is a distinct risk that the 3 per cent of GDP reference value for the deficit may
     be exceeded. With the output gap practically unchanged, the development in the cyclically-adjusted
     balance is also unfavourable. The adjustment towards a position close to balance in cyclically-adjusted
     terms is further set back.

     In light of these developments, recommendation 1 is replaced by the following:

     “1.       until a medium-term position of close to balance or in surplus is achieved, ensure an
               improvement in the cyclically-adjusted budget balance of at least 0.5 per cent of GDP per
               year, replacing one-off measures by measures of a more permanent character, and stand
               ready to take further measures to avoid the occurrence of an excessive deficit (GL 1).”

     9.        Il-Lussemburgu

     No update.

     10.       L-Olanda

     One of the challenges facing the Netherlands is to “pursue budgetary adjustment in the coming years
     in the face of weaker potential growth, and the budgetary costs of ageing”. In order to achieve this, the
     Netherlands was recommended in the 2003 version of the Broad Economic Policy Guidelines to:

     • continue to contain government expenditure within clearly defined ceilings set in real terms,
       consistent with a budgetary position close to balance or in surplus (recommendation 1).

     The fiscal data for 2003 show that the general government deficit stayed only just below the 3 per cent
     of GDP reference value. This is linked to the sharp economic downturn, which led to a stronger-than-
     expected increase in the deficit, despite a substantial package of fiscal savings. For 2004, there is a risk
     that the 3 per cent of GDP reference value for the deficit might be exceeded. However, taking into
     account the widening of the output gap, the development of the cyclically-adjusted balance is more
     favourable. In cyclically-adjusted terms an adjustment towards a position close to balance is well
     underway.

     In the light of these developments, recommendation 1 is replaced by the following:

     “1.       continue to contain government expenditure within clearly defined ceilings set in real terms,
               consistent with a medium-term budgetary position close to balance or in surplus and stand
               ready to take further measures to avoid the occurrence of an excessive deficit (GL 1 and
               14).”

MT                                                       13                                                         MT
 ---pagebreak---      11.      L-Awstrija

     No update.

     12.      Il-Portugall

     One of the challenges facing Portugal is to “accelerate the consolidation of public finances and address
     the strong dynamics of government expenditure”. In order to achieve this, Portugal was inter alia
     recommended in the 2003 version of the Broad Economic Policy Guidelines to:

     • ensure that the government deficit is further reduced in 2003 as planned and that the cyclically-
       adjusted deficit is thereafter lowered by at least 0.5 per cent of GDP a year in order to reach a
       budget position that is close to balance (recommendation 1).

     The fiscal data for 2003 show a general government deficit of 2.8 per cent of GDP, thereby in
     compliance with the Council Recommendation of 5 November 2002 addressed to Portugal under
     Article 104(7) of the Treaty, which called for a government deficit below the 3 per cent of GDP
     reference value by 2003 at the latest. The large negative output gap associated with the economic
     recession of 2003 hindered considerably the process of budgetary consolidation, because of the
     massive shortfall in tax revenue that developed during 2003 (excluding the one-off measure on the
     sale of tax and social contributions arrears). Although the government has been broadly successful in
     securing the planned restraint of expenditure (i.e. growth in current primary expenditure continued to
     decelerate from 8.9 per cent in 2001 to 7.8 per cent in 2002 and 4.1 per cent in 2003), the shortfall in
     tax revenue induced by the recession led the government to rely, to a significant degree, on one-off
     measures for a second consecutive year (1.5 and 2.1 per cent of GDP in 2002 and 2003 respectively).
     For 2004, there is a distinct risk that the reference value for the deficit may again be exceeded in view
     of slow growth and the only partial replacement planned so far of the significant amount of one-off
     measures adopted in 2003.

     In light of these developments, recommendation 1 is replaced by the following:

     “1.      until a medium-term position of close to balance or in surplus is achieved, ensure an
              improvement in the cyclically-adjusted budget balance of at least 0.5 per cent of GDP per
              year, replacing one-off measures by measures of a more permanent character, and stand
              ready to take further measures to avoid that the deficit breaches the 3 per cent of GDP
              reference value again (GL 1).”

MT                                                      14                                                       MT
 ---pagebreak---      13.      Il-Finlandja

     No update.

     14.      L-Isvezja

     No update.

     15.      Ir-Renju Unit

     The fiscal data for 2003 show that the general government deficit was 3.2 per cent of GDP, above the
     3 per cent of GDP reference value. The budgetary position deteriorated more than planned in 2003 due
     principally to weaker-than-expected direct tax receipts. In the medium term, both the headline and
     cyclically-adjusted deficits are projected to decline to just below 2 per cent of GDP, in the context of
     continuing increases in planned expenditure aimed at addressing past under-investment by the public
     sector and under-provision of public services. The projected deficit path does not, however, allow a
     sufficient safety margin to prevent a breach of the 3 per cent of GDP reference value with normal
     macroeconomic fluctuations. Furthermore, there are risks to the budgetary projections stemming from
     the assumed autonomous rise in the revenue ratio.

     In the light of these developments, the United Kingdom faces an additional challenge compared to
     the 2003 version of the Broad Economic Policy Guidelines, namely to:

     Strengthen the budgetary position so as to avoid emerging budgetary imbalances

     In order to strengthen the budgetary position so as to ensure sound public finances, the United
     Kingdom is recommended to:

     “6.      improve the cyclically-adjusted position to consolidate the public finances, consistent with a
              budgetary position of close to balance or in surplus in the medium term, and stand ready to
              take further measures so as to endeavour to avoid the occurrence of an excessive deficit (GL
              1).”

MT                                                     15                                                       MT
 ---pagebreak---      16.      Ċipru

     The small economy, with tourism as a mainstay, has shown some resilience in the face of a difficult
     international environment. At first, steady and high real GDP growth averaging 4.2 per cent for 1997-
     2001 was driven both by domestic demand and continued high growth in tourist arrivals. However,
     after 11 September 2001 the economy was hit by the slump in tourism linked to international terrorist
     threats, war in Afghanistan and Iraq, and SARS, with the decline continuing in 2003. Growth therefore
     more than halved but still reached 2 per cent in 2002 and 2003, supported by moderate domestic
     demand. This is however below potential growth.

     The relatively good growth performance was supported by a market economy dominated by the
     private sector and with, inter alia, a highly developed financial and legal system, generally prudent
     economic policies, and a flexible labour market. The latter has been operating close to full
     employment and with high participation rates; with unemployment rates fluctuating between 3-5 per
     cent, Cyprus effectively does not have an unemployment problem. At the same time, the crisis in
     (mass-) tourism in Cyprus has underlined the increasing economic dependence on this sector, while
     traditional sources of export earnings, particularly within the manufacturing sector, show a structural
     decline. Therefore, Cyprus may have an interest in increasing its diversification towards higher value
     added activities. To this end, Cyprus may accelerate the transition toward a knowledge-based
     economy and continue to simplify the business environment.

     A fiscal consolidation plan was introduced in 1999 and revised and extended in following years.
     However, fiscal performance in 2002 and 2003 slipped again and consolidation was effectively
     abandoned as deficits increased to 4.6 per cent and 6.3 per cent of GDP respectively. The
     expansionary fiscal stance contributed to an increase in domestic demand and a current account deficit
     projected at 4.4 per cent of GDP for 2003. The government intends to tackle anew the fiscal deficit for
     this and following years, thus working towards a more favourable policy mix and supporting a
     narrowing of the current account deficit.

     Policies in Cyprus should aim at achieving a high degree of sustainable convergence, in particular as
     regards the consolidation of public finances. Both the further consolidation of public finances and
     management of the increasing tourism dependence need to be supported by policies which assist in
     perpetuating the strong growth performance into the medium and long term. This requires in particular
     a strengthening of the growth and employment base and Cyprus should continue its further transition
     to a knowledge-based economy. Against this background, Cyprus faces two major challenges:

     • Ensure a reduction of the general government deficit on a sustainable basis,

     • Increase the diversification of the economy towards higher value added activities.

     Ensure a reduction of the general government deficit on a sustainable basis

     Fiscal consolidation went increasingly off target in 2002 and 2003. The original fiscal consolidation
     plan, introduced in 1999, was revised in 2001 and again in 2002. It aimed at reducing the deficit to
     2.0 per cent of GDP by 2002 while reaching fiscal balance by 2005. However, lower growth in 2002
     brought the budget shortfall to 4.6 per cent of GDP, instead of a previously planned 2.6 per cent. For
     2003 further slippage occurred, linked to continued modest growth and tax avoidance with marked
     revenue shortfalls, while spending increased through higher defence outlays and expansionary
     measures introduced to offset subdued external demand. This effectively rendered the consolidation
     program defunct, and the government deficit for 2003 reached 6.3 per cent of GDP. The expansionary
     fiscal stance contributed to an increase of domestic demand and to a continued relatively high current
     account deficit projected at 4.4 per cent of GDP for 2003. The government intends to tackle anew the
     fiscal deficit, thus working towards a more favourable policy mix and supporting a narrowing of the
     current account deficit. To put fiscal consolidation on track again significant corrective measures are

MT                                                     16                                                      MT
 ---pagebreak---      required. The quality of public finances should improve due to a comprehensive fiscal reform, to be
     finished by end-2004. These reforms will support further deficit reductions and assist in keeping the
     current account deficit in sustainable territory if private net saving should become less favourable
     again.

     Increase the diversification of the economy towards higher value added activities

     While tourism accounts for around 15-20 per cent of GDP and employment, the economy has shown
     some resilience in the face of a difficult international environment. However, in a longer term
     perspective, Cyprus may have an interest to up-grade tourism activities and to develop other value
     added activities. In this respect, the Cypriot government has initiated a number of reforms to facilitate
     the transition towards a knowledge based economy. Nevertheless the low level of R&D expenditure,
     particularly by the business sector, and the lack of IT related skills may still be handicaps. Finally,
     both e-commerce and the percentage of households with internet access are quite limited.

     A better business environment is also key to improving the efficiency of product markets. First, the
     Cypriot economy is dominated by small family enterprises whose expansion may be partly hindered
     by access to finance. Second, competition in the network industries is still limited. For example, the
     unbundling of the transmission system operator is still lacking in the electricity market. In November
     2003, the regulator for the telecommunications and postal services sectors issued two decrees
     advancing but not completing the unbundling of the local loop in these sectors. Finally, barriers to
     market access remain in air transport and the acquis in the maritime sector still has to be fully
     implemented.

     Country specific recommendations to Cyprus

     Meeting the challenges outlined above requires broad structural reforms as they are laid down in the
     general guidelines (GL) in Part I of the Broad Economic Policy Guidelines.

     In order to ensure a reduction of the general government deficit on a sustainable basis, Cyprus is
     recommended to:

     1.       reduce the general government deficit in a credible and sustainable way within a multi-
              annual framework in line with the decisions to be taken by the Council in the context of the
              forthcoming budgetary surveillance exercise (GL 1).

     In order to increase the diversification of the economy towards higher value added activities, Cyprus is
     recommended to:

     2.       step up efforts to increase the adequacy of skilled human capital, promote R&D and
              innovation, in particular in the business sector, and improve conditions to facilitate ICT
              diffusion (GL 9, 13).

     3.       continue to simplify the business and taxation environment (GL 11).

MT                                                      17                                                       MT
 ---pagebreak---      17.      Ir-Repubblika Ċeka

     After the economic slowdown of 1997-1998, the Czech Republic’s annual real GDP growth averaged
     about 3 per cent, with the exception of 2002 when the country was hit by serious floods and GDP
     growth reached only 2 per cent. The HICP inflation reached very low levels (1.4 per cent in 2002 and -
     0.1 per cent in 2003) and the monetary authorities were undershooting the inflation target. The growth
     performance has been underpinned by restructuring efforts, but output has not yet fully reached its
     estimated potential. The main restructuring process took place in the banking sector. The restructuring
     of the banking sector was accompanied by substantial fiscal costs as the state took over bad assets in
     the banks’ balance sheets. Moreover, fiscal policy has been until recently somewhat relaxed, causing
     the general government deficit to surge. The expansionary fiscal stance contributed to a domestic
     demand boom and an increasingly consumption-driven widening of the current account deficit to more
     than 6 per cent of GDP.

     Policies in the Czech Republic should aim at achieving a high degree of sustainable convergence, in
     particular as regards the consolidation of public finances. The economy has been characterised by
     relatively low growth in comparison with the other new Member States. Therefore, the further
     consolidation of public finances needs to be supported by policies which assist in accelerating the
     growth performance into the medium and long term. This requires, in particular, an effort to tackle the
     remaining structural shortcomings, notably in the labour market and in the business environment, and
     to speed up the transition towards a knowledge-based economy. Against this background, the Czech
     Republic faces four major challenges:

     • Urgently ensure a further reduction of the general government deficit on a sustainable basis and the
       long-term sustainability of public finances,

     • Continue to address the structural problems in the labour market,

     • Improve conditions for an accelerated productivity growth,

     • Promote entrepreneurship and SMEs.

     Urgently ensure a further reduction of the general government deficit on a sustainable
     basis and the long-term sustainability of public finances

     The general government deficit increased from 6.4 per cent of GDP in 2002 to 12.9 per cent of GDP in
     20036, thereby giving impetus for further worsening of the current account deficit. In 2003, the
     government has introduced a fiscal consolidation programme which aims to reduce the general
     government deficit to 4 per cent of GDP in 2006. The fiscal consolidation will support further deficit
     reductions and assist in bringing the current account deficit in more sustainable territory if private net
     saving should become less favourable.

     However, improvement in the quality of public finances will largely depend on the implementation of
     the fiscal reform. A very important feature of the fiscal reform is the modification of the institutional
     framework, with the introduction of the medium-term expenditure frameworks and performance-
     oriented budgets. In particular, the expenditure frameworks should diminish the central government’s
     incentives to provide state guarantees, which remain a source of substantial fiscal risk. In addition,
     given the ongoing decentralisation of public administration, the lack of budgetary rules at regional and
     local levels represents a risk to a sound fiscal position in the future. As a positive development, it is
     worth mentioning that in its reform plans the government does not foresee a lowering of the share of
     public investment expenditures as a percentage of GDP in the coming years.

     6
             This deficit is partly due to one single imputed state guarantee, which is about 6.3 per cent of PGD.

MT                                                         18                                                        MT
 ---pagebreak---      As far as the long-term sustainability of public finances is concerned, extra-budgetary spending and
     rapidly increasing social security and health care expenditures are reasons for major concern.
     Although the current level of government debt in the country is not high, developments regarding the
     items above contributed to a rapid increase in recent years (from 25.2 per cent of GDP in 2001 to
     37.6 per cent of GDP in 2003).

     Continue to address the structural problems in the labour market

     Between 1990 and 2002 the Czech labour market experienced substantial structural changes. The
     share of people employed in the primary sector fell from 12.4 per cent to 4.8 per cent of the labour
     force, from 45.1 per cent to 39.6 per cent in the secondary sector and increased from 42.5 per cent to
     55.6 per cent in the tertiary sector. The unemployment rate was 7.3 per cent at the end of 2002, and
     has since risen up to 8.1 per cent in the fourth quarter of 2003. In addition to the restructuring process,
     unemployment is likely to be affected by public finance reform, according to which 2 per cent of
     public sector jobs are to be lost annually over the period 2004-2006. The impact of trade unions on
     wage formation is low. The wage negotiation process is decentralised with wage setting mostly at the
     enterprise level. Bargaining coordination across firms and sectors is weak. Despite the fact that the
     employment rate is high (65.5 per cent in 2002) and the unemployment rate is around the EU average,
     the Czech labour market displays a number of structural shortcomings. First, regional disparities in
     unemployment are very high. The rate of unemployment in structurally weak regions is more than four
     times higher than in Prague and in some regions it exceeds 25 per cent. Second, the share of long-term
     unemployed (more than one year) is very high as it reached 40.3 per cent by the end of 2003. In
     addition, the average period of registration at the labour offices is becoming longer. Third, the rate of
     youth unemployment (people under 25 years old) is very high. The average share of youth
     unemployed was almost 23 per cent with substantial regional disparities.

     On the labour supply side, long-term unemployment and low occupational flexibility stem from the
     disincentives embedded in the tax and benefit system, from the underdeveloped system of life-long
     learning programmes, and from shortcomings of the education and training systems. As regards the
     latter, they do not sufficiently provide skills that are adapted to the needs of the labour market, in
     particular to the demands of the knowledge-based economy. The structural shortcomings in the Czech
     labour market also mirror low geographical mobility, which results from two principal shortcomings:
     First, the regulation of housing prices weakens incentives for supply of housing in regions where jobs
     are created. And second, the weak transport infrastructure increases the costs of commuting and
     creates obstacles for investment and setting up of new enterprises in the structurally weak regions.

     On the labour demand side, the high rate of health and social security contributions might have
     negative effects. The total rate of health and social security contributions has reached 47.5 per cent of
     gross wage of which about ¼ is paid by employees and about ¾ by employers.

     Improve conditions for an accelerated productivity growth

     Productivity growth in the Czech Republic has been comparatively low. Over the period 1996-2002,
     labour productivity grew by 2.1 per cent annually, the lowest rate among the new members. Moreover,
     the level of productivity is still very low in comparison with the EU (around 55 per cent of the EU 15
     average in 2003). Factors contributing to this situation could be the limited flexibility of the education
     system, the low effectiveness of R&D and innovation, and the low use of ICT. The limited flexibility
     of the education and training system in responding to the changing skills requirements manifests itself
     through the qualification mismatches in the labour market. Educational attainment (the percentage of
     the population aged 20-24 with at least upper secondary education) is very high (92 per cent), but the
     share of tertiary graduates is one of the lowest in the EU. Despite a relatively high level of expenditure
     on R&D in comparison with the new members, the resulting innovation activity, as measured by the
     number of patents, is very low, pointing to low effectiveness of R&D. There seems to be only limited
     cooperation between the research institutions (e.g. universities and the Czech Academy of Sciences)

MT                                                       19                                                        MT
 ---pagebreak---      and the private sector. Recognising these problems, the government has adopted the National R&D
     Policy for 2004-2008 to promote R&D but results will largely depend on its full implementation.

     Promote entrepreneurship and SMEs

     Despite the progress in establishing a well-functioning competition framework and continuous
     developments in the legal environment there seem to remain significant barriers to entrepreneurship in
     the Czech Republic. This is reflected inter alia in the low share of GDP accounted for by SMEs (less
     than 40 per cent). The gross-birth rate of enterprises as a percentage of all enterprises is relatively low
     in comparison with other new members.

     Factors contributing to this situation appear to be the weaknesses in the business environment which
     have a disproportionately heavier impact on SMEs, e. g. regarding regulations and legal enforcement,
     excessive administrative burden on companies and limited access to finances. The administrative
     process of setting up a new company is very lengthy and complicated. The ineffective and often non-
     transparent operation of the Commercial Register is frequently criticised by entrepreneurs. Also the
     bankruptcy legislation does not allow for effective market exit or restructuring of troubled companies.
     Several legislative proposals to tackle some of these problems are currently being prepared but the
     progress has proven to be slow. Notwithstanding improvements in the qualification of judges, the
     quality and timeliness of legal enforcement remain fundamental weaknesses. In addition, new
     businesses find it excessively difficult to find external sources of financing.

     Country specific recommendations to the Czech Republic

     Meeting the challenges outlined above requires broad structural reforms as they are laid down in the
     general guidelines (GL) in Part I of the Broad Economic Policy Guidelines.

     In order to urgently ensure a further reduction of the general government deficit on a sustainable basis
     and the long-term sustainability of public finances, the Czech Republic is recommended to:

     1.        reduce the general government deficit in a credible and sustainable way within a multi-
               annual framework in line with the decisions to be taken by the Council in the context of the
               forthcoming budgetary surveillance exercise (GL 1).

     2.        reform the health care and pension systems to ensure their financial sustainability, in
               particular to counter the expected increase in the old-age dependency ratio and take measures
               to reduce fiscal risk stemming from the rising stock of contingent liabilities; and to ensure
               that incentives to work are enhanced and the high social policy contribution rates are
               lowered (GL 4, 14 and 16).

     In order to continue to address the structural problems in the labour market, the Czech Republic is
     recommended to:

     3.        strengthen labour supply by reforming tax benefit systems to eliminate disincentives to work
               and enhance occupational and regional mobility by reducing skill mismatches, whilst
               ensuring the efficiency of retraining measures and other active labour market policies,
               deregulating the housing market, and improving transport infrastructure (GL 4, 7, 8 and 13).

     In order to improve conditions for an accelerated productivity growth, the Czech Republic is
     recommended to:

MT                                                       20                                                        MT
 ---pagebreak---      4.       improve the efficiency and quality of the education and training system and its
              responsiveness to changing skills requirements (GL 13).

     5.       improve the efficiency of R&D and innovation activities, foster the transfer of knowledge
              through FDI and support the diffusion of knowledge (GL 13).

     In order to promote entrepreneurship and SMEs, the Czech Republic is recommended to:

     6.       improve the business climate by, in particular, removing administrative burdens, improving
              and enforcing the legal framework and increasing access to finance (GL 11 and 12).

MT                                                   21                                                    MT
 ---pagebreak---      18.      L-Estonja

     Against the background of weak external demand, macroeconomic performance in Estonia remained
     solid in 2003, but the current account deficit widened to 13.7 per cent of GDP. GDP growth of 4.8 per
     cent was underpinned both by buoyant investment and private consumption growth. The latter was
     driven by strong credit expansion, higher wages and modest employment growth. Against the
     backdrop of a protracted investment sluggishness in the euro area, capital spending in Estonia grew
     briskly at over 11 per cent, due to strong FDI inflows and low interest rates. Inflation, which had
     accelerated to almost 7 per cent in mid-2001, receded to 1.3 per cent in 2003. The general government
     surplus widened to 1.8 per cent of GDP in 2002 and further to 2.6 per cent in 2003, on account of
     strong activity and improved tax collection, and despite additional spending approved by parliament.
     Some local governments continued to exert a drag on public finances.

     Policies in Estonia should aim at achieving a high degree of sustainable convergence, and a narrowing
     of the current account deficit. Fiscal policy can have a significant impact on the current account, while
     structural policies, particularly those that aim at improving productivity and increasing competition,
     can raise the economy's growth potential, and in turn further improve the saving-investment balance
     and the current account. Additionally, the labour market, and specifically the high unemployment rate,
     remains an important challenge for the authorities following the restructuring of the economy after
     independence. Against this background, Estonia faces four major challenges:

     • Address the sizeable current account deficit, to which an appropriate fiscal policy should
       contribute,

     • Address the structural problems in the labour market,

     • Improve conditions for increasing productivity,

     • Develop effective competition in network industries.

     Address the sizeable current account deficit, to which an appropriate fiscal policy should
     contribute

     A mismatch between domestic and foreign demand was manifested in a robust demand for imports
     (7.9 per cent increase), and a relatively sluggish export performance (4.2 per cent increase), and
     consequently in a deterioration in the current account deficit to 13.7 per cent of GDP in 2003. A
     number of large one-off items, concerning mainly the import of investment goods, and a negative
     income balance accounted for a large part of the deficit, while the capital account remained in surplus,
     thanks to strong FDI inflows. The low level of public debt (around 5 per cent of GDP) and the positive
     credit rating of the country help to allay immediate stability concerns about the financing of the
     current account deficit. In addition, the central government has accumulated a “stability reserve”
     amounting to 9 per cent of GDP, which has been financed from budget surpluses and privatisation
     revenues since 1997.

     Structural policies enhancing the external competitiveness of Estonian goods and services, primarily
     through a rapid improvement of the country’s infrastructure as well as investments in human capital,
     with a particular focus on the country’s disadvantaged regions, are therefore essential to decisively
     reduce this major macroeconomic imbalance of the Estonian economy in the medium-term.

     The continuation of prudent fiscal policies plays a key role in addressing the current account deficit.
     While the general government surplus increased from 1.8 per cent of GDP in 2002 to 2.6 per cent of
     GDP in 2003, some local governments continued to exert a drag on public finances with budget
     slippages in both 2002 and 2003. Despite the fiscal surpluses of recent years and the low public debt,
     plans for additional expenditures and tax cuts along with commitments related to EU accession will

MT                                                      22                                                       MT
 ---pagebreak---      make for higher budgetary pressure in the near future. This may lower national savings further and
     thus have a negative impact on the overall policy mix, particularly against the background of a very
     high current account deficit. On the whole, the Estonian general government balance should remain in
     balance or in surplus over the next few years, even with some fiscal easing. Moreover, an easing of
     fiscal policy over the first few years of EU membership is likely to coincide with an economic
     upswing. A pro-cyclical effect of the envisaged fiscal policy stance may not be ruled out. Thus, the
     implementation of the medium-term fiscal policy program in Estonia requires a prudent and flexible
     approach.

     Address the structural problems in the labour market

     Conditions in the labour market in Estonia have deteriorated gradually following the country's
     independence. The restructuring of the economy, and the resulting skill mismatch, appear to be the
     main factors behind the rise in unemployment to 14½ per cent by mid-2000 (based on the ILO
     definition). The employment rate which had declined from 65 per cent in 1997 to 60.6 per cent in
     2000, edged up to 61.1 per cent in 2002 for the first time since the country’s independence
     contributing to a turnaround in the labour market, resulting in a fall in the unemployment rate to
     10.3 per cent in 2002. However, this improvement was the result of modest employment gains, and a
     significant decline in the economically active population; employment increased by some 2 per cent
     over 1997-2002 while the economically active population declined by almost 2.5 per cent.

     The rising unemployment over 1997-2002 was associated with a steady increase in the proportion of
     long-term unemployed, and of discouraged workers, and consequently an increase in the structural
     unemployment rate. However, the share of those without a job for more than a year declined to 41 per
     cent of the unemployed in 2002, or almost to the same level as in 1997, after having increased
     considerably to 60 per cent during this period. Even so, the number of long-term unemployed remains
     particularly high, suggesting that a large number of the unemployed do not possess the skills required
     to reintegrate successfully into the labour market. Regional disparities continue to persist and
     unemployment remains considerably higher in the Northeast (at around 19 per cent of the labour
     force) than compared with the South (8½–9 per cent).

     Improve conditions for increasing productivity

     In Estonia, the level of productivity is still very low compared to the EU average (42 per cent of the
     EU 15 level in 2002). While labour productivity growth remained strong (7 per cent per annum) over
     the period 1997-2000, it has slowed down since 2000. Two main factors could constitute a handicap
     for future increases in productivity growth: the lack of qualifications in the workforce and the low
     level of R&D and innovation. These two factors also explain that FDI are mainly concentrated in areas
     that do not require important R&D and qualifications.

     The lack of qualifications in the workforce results from inefficiencies in the education system, as
     public expenditures on education are relatively high (6.7 per cent of GDP in 2000). Particularly
     worrying is the fact that the education system is not sufficiently close to the needs of the labour
     market, creating a mismatch.

     A well-designed R&D policy can also have an important role in increasing productivity growth.
     Currently Estonia has a relatively low level of R&D expenditures, below that of other European
     countries (0.8 per cent of GDP in 2001), and the lowest rate of business R&D among the new
     members. This is partly due to the weak links between the academic sector and the business
     community. In this area, a new strategy has been approved which foresees a significant increase in
     total R&D expenditures over the period 2002-2006.

     Develop effective competition in network industries

MT                                                    23                                                      MT
 ---pagebreak---      While the liberalisation of network industries has started in Estonia, competition is still very limited in
     the electricity market. The country has negotiated a long transition period for the liberalisation of this
     sector, in light of its dependence on oil shale as a source of electricity generation. The restructuring of
     the oil-shale sector has started, but the progress made in the planned liberalisation of the market is
     limited. The electricity market is dominated by a State-owned, vertically integrated company with
     operations in supply, generation, monopoly transmission and distribution. The declared current market
     opening of 10 per cent, is below most of the other new member states’ degree of market opening. One
     of the most important obstacles to liberalisation of the electricity market is the imposition of strict
     import licence rules by the authorities. Ensuring the independence of the energy regulator is also
     important given the State’s ownership of the incumbent in the electricity market.

     The problems are less acute in gas and telecommunication. The gas market is privatised and open,
     with a single supplier operating on the market. The telecommunication market has been also
     liberalised. However, some problems might arise because the owner of the network also operates as a
     distributor.

     Country specific recommendations for Estonia

     Meeting the challenges outlined above requires broad structural reforms as they are laid down in the
     general guidelines (GL) in Part I of the Broad Economic Policy Guidelines.

     In order to address the sizeable current account deficit, to which an appropriate fiscal policy should
     contribute, Estonia is recommended to:

     1.        implement a fiscal policy that is in line with the decisions to be taken by the Council
               in the context of the forthcoming budgetary surveillance exercise (GL 1), and which
               is consistent with the objective of avoiding pro-cyclical policies that may exacerbate
               the external imbalance (GL 2).

     In order to address the structural problems in the labour market, Estonia is recommended to:

     2.        adopt policies with particular emphasis on re-integrating the long-term unemployed,
               particularly in regions worst hit by the restructuring of the economy, by promoting
               vocational training and life-long learning, and by setting up an effective institutional
               framework that is supporting job creation (GLs 4, 6 and 8).

     3.        encourage social partners to ensure that wage developments—including changes to the
               minimum wage legislation—do not hinder employment growth, and hold up the recovery in
               the labour market (GL 3and 5).

     In order to improve conditions for increasing productivity, Estonia is recommended to:

     4.        improve the efficiency and quality of the education system and vocational training in order
               to reduce the mismatch on the labour market (GL 13).

     5.        implement the R&D strategy approved in 2001 and, in particular, promote the stronger
               involvement of the business sector in R&D spending (GL 13).

     In order to develop effective competition in network industries:

     6.        proceed with the liberalisation of the electricity market, strengthen the independence of the
               regulator and ensure effective competition in telecommunications (GL 9).

MT                                                       24                                                        MT
 ---pagebreak---      19.       L-Ungerija

     Following a relatively high real GDP growth of 3.5 per cent in 2002, real GDP growth in 2003 slowed
     to below 3 per cent. While unemployment is among the lowest of the acceding countries, the
     participation rate is very low compared to the EU average. Serious structural shortcomings in the
     labour market render further increase in employment difficult: notably a lack of regional mobility,
     skill mismatches and disincentives from the benefit systems. Achieving a high degree of sustainable
     convergence requires regaining and maintaining competitiveness at a sustainable high level. A return
     to reasonable real wage development and the creation of a more investment-promoting environment
     seems therefore crucial in order to ensure a balanced medium-term growth.

     After the high fiscal deficit of 9.3 per cent of GDP in 2002, fiscal policy became restrictive again in
     2003. However, the general government deficit still reached 5.9 per cent of GDP. The significant
     overshooting of the fiscal deficit targets during the last two years contributed to the consumption-
     driven widening of the current account deficit to above 5 ½ per cent of GDP. Together with other
     problems in the macroeconomic policy mix (such as the high real wage growth and very high real
     interest rates) and the high volatility of the exchange rate, this has led to a general loss in financial
     markets’ confidence and to a loss in overall competitiveness.

     Policies in Hungary should aim at achieving a high degree of sustainable convergence, in particular as
     regards the consolidation of public finances. Hungary implemented a number of structural reforms and
     has achieved important catch-up with the EU. However there are areas which pose further challenges
     to the country. Hungary should aim to adopt measures in order to make the education system more
     effective and R&D has to be encouraged in order to achieve higher productivity. Competition in the
     network industries needs to be further improved and the independence of the regulators has to be
     strengthened. Against this background, Hungary faces five major challenges:

     • Ensure a further reduction of the general government deficit on a sustainable basis,

     • Increase employment rates and address the structural problems in the labour market,

     • Enhance cost-competitiveness by pursuing policies that induce wage moderation,

     • Improve conditions for increasing productivity,

     • Develop effective competition in network industries.

     Ensure a further reduction of the general government deficit on a sustainable basis

     After the high deficit of 9.3 per cent of GDP in 2002, fiscal policy became restrictive in 2003.
     However, the general government deficit of 2003 was still 5.9 per cent of GDP. While for 2004 a
     further reduction of the deficit is foreseen, the starting position for the achievement of the 2004 deficit
     target seems rather difficult. While initially aiming at comprehensive public finance reforms, a
     significant number of expenditure items have not been addressed at all in the budget of 2004, and still
     seem not to have been considered in the consolidation plans. Meanwhile, savings are intended to result
     mainly from cuts in current and operational expenses. The previous expansionary fiscal stance, along
     with high real wage growth, contributed to high domestic demand and an increasingly consumption-
     driven widening of the current account deficit, to somewhat above 5½ per cent of GDP. A reduction in
     the high government sector level of borrowing is also crucial in order to improve the current account.
     Households’ savings can not be expected to be sufficient to finance the rise in private investment
     (including those related to EU accession). This is expected to put further pressure on the current
     account. Even maintaining the present current account deficit, while allowing investment to take place,
     would thus require additional budgetary constraint. A return to sustainable policies in Hungary has to
     be based on a consolidation of public finances.

MT                                                       25                                                        MT
 ---pagebreak---      Increase employment rates and address the structural problems in the labour market

     Hungary has one of the lowest unemployment rates among the acceding countries (5.8 per cent in
     2003). However, this is accompanied by a stagnating labour force and a low participation rate
     (59.7 per cent in the 15-64-year age-bracket for 2002) compared to the EU average. Consequently, the
     low unemployment rate does not reflect the substantial disengagement from the labour market and the
     high level of inactivity particularly in the end-of career working age population.

     The labour market is also characterised by structural shortcomings. Regional differences can mostly be
     observed in the form of increasing urbanisation and the East-West axis, with a less developed
     infrastructure and higher unemployment in the Eastern part of the country. Internal mobility is low in
     international comparison, with housing and transport as the main impediments. Furthermore, a
     significant number of unemployed are young adults (the youth unemployment rate is 11.4 per cent).

     Enhance cost-competitiveness by pursuing policies that induce wage moderation

     While showing a slight improvement since the beginning of 2003, Hungary’s cost competitiveness has
     shown a significant deterioration in the years 2000-2002. The decline in cost competitiveness was
     partly due to the fast increase in wages. Real wage growth exceeded productivity growth in the last
     three years, led by a rise in minimum wages and by the public sector, but also by a delayed adaptation
     of the corporate sector to the new low-inflation environment. Although wage growth slowed down
     towards the end of the year, real wages still grew by 9.2 per cent in 2003 (with 7.3 per cent in the
     business sector and 12.7 per cent in the public sector). They have negatively influenced cost-
     competitiveness, and led to decreasing employment in some low-skill segments of the labour market.
     While this process has contributed to a change in the structure of industrial production towards high
     skilled labour, increasing unit labour costs have led to a deterioration in the overall competitive
     position of the country, not just in labour-intensive activities.

     Improve conditions for increasing productivity

     Productivity growth has been decreasing since 2000, although it remained slightly above the average
     of the new Member States. While labour productivity growth was 4.2 per cent in 2000 it decreased to
     2.4 per cent in 2003. Factors contributing to the slowdown in productivity growth have been the
     relatively low level of R&D (0.95 per cent of GDP in 2001), inefficiencies in the education system,
     and instability in the business environment.

     While some measures have been taken to improve the flexibility of the education system in order to
     better adapt to the changing needs of the labour market, there is still a lack of “middle-skilled” and
     high-skilled workers in the labour market. The number of PhD students is increasing but many
     terminate their studies before obtaining their diploma. The number of total tertiary graduates in
     science and technology per 1000 of population (aged 20-29) has been decreasing during the last years:
     in 2001 it was 3.7 which is one of the lowest in the EU. In the field of research and development,
     applied research is lagging behind, partly due to the low level of business R&D expenditures and
     limited cooperation between companies and research institutes. Public R&D expenditures are also
     relatively low, not only as a share of GDP but also as a share of total government expenditures (R&D
     expenditures by the government represented 0.9 per cent of total government expenditures in 2001).
     Another factor which might negatively affect productivity growth is the frequently shifting policy
     environment. Regulations and government strategies have often been changed during the last decade,
     which reduced the predictability of policies and trust in the government, and hampered longer term
     planning.

     Develop effective competition in network industries

     While liberalisation has started in most of the network industries, effective competition is still limited
     in these sectors. One of the most liberalised markets is telecommunication. However, even in this

MT                                                      26                                                        MT
 ---pagebreak---      market, competition is restricted due to the strong dominant position of the previously State owned
     enterprise in the fixed line market and the quasi duopoly situation on the mobile market. Electricity
     and gas markets have been opened up for big customers. However, long-term purchase agreements
     and the low availability of interconnection capacities continue to pose obstacles to competition in
     electricity. Finally, in certain of these sectors the State has retained its capabilities to intervene in the
     activities of the network regulators. This is the case in the electricity and gas markets where the
     government has the possibility to influence prices.

     Country specific recommendations to Hungary

     Meeting the challenges outlined above requires broad structural reforms as they are laid down in the
     general guidelines (GL) in Part I of the Broad Economic Policy Guidelines.

     In order to ensure a further reduction of the general government deficit on a sustainable basis,
     Hungary is recommended to:

     1.        reduce the general government deficit in a credible and sustainable way within a
               multi-annual framework in line with the decisions to be taken by the Council in the
               context of the forthcoming budgetary surveillance exercise (GL 1).

     In order to increase employment rates and to address the structural problems in the labour market,
     Hungary is recommended to:

     2.        strengthen labour supply by removing obstacles to regional mobility through appropriate
               measures in the housing and transportation policy, and by encouraging disadvantaged groups
               (ethnic minorities, disabled and homeless people) to (re-)enter the labour market (GL 7 and
               8).

     3.        ensure that the tax and benefit systems support employment and provide incentives to enter
               or remain in the labour market (make work pay- principle) – the high tax burden of labour
               force should be further reduced (GL 4).

     In order to enhance cost-competitiveness by pursuing policies that induce wage moderation, Hungary
     is recommended to:

     4.        encourage a reform of wage setting which allows wages to better reflect productivity.
               Promote multi-annual wage agreements with the social partners in order to keep real wage
               development in line with productivity growth (GL 5).

     In order to improve conditions for increasing productivity, Hungary is recommended to:

     5.        promote the stronger involvement of the private sector in R&D and innovation, strengthen
               the link between business and research institutions, ensure sufficient resources to improve
               the quality of research and support the transfer of knowledge through FDI (GL 13).

     6.        improve the efficiency of the education system, increase its flexibility in order to better adapt
               to the skill needs of the market and ensure adequate resources for vocational training and
               education (GL 13).

     7.        ensure stability of legislation and government policies to create a business environment,
               more supportive to entrepreneurship (GL 11).

     In order to develop effective competition in network industries, Hungary is recommended to:

MT                                                        27                                                         MT
 ---pagebreak---      8.   proceed with the liberalisation of the network industries, increase effectiveness of
          competition and the independence of the network regulators (GL 9).

MT                                            28                                                 MT
 ---pagebreak---      20.       Il-Latvja

     Robust economic performance was registered in Latvia in recent years despite a weak external
     environment. It is expected that GDP growth will remain at potential growth of 5-6 per cent per year
     in the medium term. Private consumption and gross fixed capital formation have been particularly
     strong and are the driving factors for growth. Despite high private consumption growth, inflation
     remained modest. External trade has expanded rapidly and since imports are outpacing exports,
     the current account deficit has increased to 9.3 per cent of GDP in 2003 and is expected to remain at
     this high level in the medium term. Latvia made remarkable progress implementing structural reforms
     in recent years, but still faces some challenges, that if not fully met, may impair its ability to stay on a
     path of strong growth.

     The unemployment rate declined slowly and varies considerably across regions. The smooth
     functioning of the labour market is hampered by a number of structural problems, including
     inadequate education and training systems, skills mismatches and low geographical mobility.
     Competition on Latvian product markets has been boosted by the privatisation of most State-owned
     companies, and the level of State aid remains lower than the EU average. The few remaining
     competition problems are mainly concentrated in network industries. Although Latvia benefits from
     low labour costs and taxes, the low level of labour productivity remains a major concern.

     The decreasing trend in the general government deficit was interrupted in 2002, when it rose to 3 per
     cent of GDP, from 1.6 per cent in 2001. In 2003 better than expected tax revenues and close
     monitoring of expenditure by the government helped to reduce the general government deficit to
     1.8 per cent of GDP and in 2004 the deficit is planned to be 2 per cent of GDP. However, Latvia’s
     fiscal position depends on the strength of the commitment to ensure budgetary discipline;
     consequently, a pro-cyclical stance characterizes Latvia’s fiscal policy. On the other hand, the general
     government debt remains low at 15.6 per cent of GDP.

     Policies in Latvia should aim at achieving a high degree of sustainable convergence, in particular as
     regards the consolidation of public finances. Both the further consolidation of public finances and
     solutions to address the under-utilisation of Latvia’s human resources need to be supported by policies
     which assist in perpetuating the strong growth performance into the medium and long term. This
     requires in particular a strengthening and diversification of the growth and employment base by
     fostering the entrepreneurial climate. Furthermore, the productivity level needs to be raised and Latvia
     should prepare for the eventual transition to a knowledge-based economy. Against this background,
     Latvia faces four major challenges:

     • Address the sizeable current account deficit, to which an appropriate fiscal policy should
       contribute,

     • Improve conditions for increasing productivity,

     • Address the structural problems in the labour market,

     • Develop effective competition in network industries.

     Address the sizeable current account deficit, to which an appropriate fiscal policy should
     contribute

     Latvian domestic demand for imported goods remains stronger than the external demand for Latvian
     goods, thus, the current account deficit has increased to 9.3 per cent of GDP in 2003. Export growth in
     2002 and 2003 was very strong despite the international slowdown; however, imports grew even faster
     than exports. In the next few years the trade balance is expected to worsen even more, because of
     strong and growing investment needs as the economy continues to develop and restructure. This will

MT                                                       29                                                         MT
 ---pagebreak---      lead to a broadening of the current account deficit. Although export prices grew faster than import
     prices in 2003, the terms of trade do not show consistently favourable developments over the last
     years, thus adding uncertainty regarding potential future pressures on the current account.

     The modest pace of fiscal consolidation was disrupted by fiscal slippage in 2002, despite strong
     economic growth of the Latvian economy. Consequently, the general government fiscal deficit rose to
     3 per cent of GDP. Even though the Latvian authorities maintain a commitment to balancing the
     budget in the medium term, the current pro-cyclical fiscal stance, and a limited ability of the
     government to increase tax revenues in a period of high economic growth, put Latvia in a difficult
     position from which to meet future spending needs related to EU and NATO accession. These
     spending pressures are also likely to exacerbate the current account deficit. In the face of a weak
     external demand and already high domestic demand, a spending surge in late 2002, strong credit
     growth, significant tax reduction in early 2003, and further fiscal loosening are a cause for concern.
     The key economic policy challenge is to avoid a pro-cyclical fiscal stimulus that could overheat
     domestic demand and aggravate the current account deficit.

     Improve conditions for increasing productivity

     Labour productivity in Latvia is the lowest in the EU (under 40 per cent of the EU-15 average). Over
     the period 1995-2003, it has increased relatively to the EU average but its growth rate slowed down in
     recent years. Several factors bear on Latvia’s productivity performance. First, although reforms have
     been initiated, the educational system still suffers from efficiency, contents, and external partnerships
     problems, and the links between higher education and industries are still underdeveloped. Second,
     R&D – in particular the share of business R&D - and innovation activities appear to be limited, both
     because of a lack of funding and the absence of critical mass for most Latvian companies to carry out
     research activities. Productivity growth is also constrained by the low level of entrepreneurial activity
     as companies face heavy local regulations, difficulties in accessing finance, and a nascent
     entrepreneurial culture. Despite high levels of business investments, productivity levels are still held
     back by low capital deepening and a still relatively low level of physical infrastructure. All these
     factors also contribute to explain why Latvia remains specialised in relatively low-tech sectors and in
     transit activities without much value-added.

     Address the structural problems in the labour market

     The Latvian labour market displays a number of structural shortcomings, the main being high regional
     differences in unemployment, and a high share of long-term unemployment and youth unemployment.
     In 2002, the participation rate reached 68.8 per cent and the employment rate was 60.5 per cent. The
     unemployment rate was 12.1 per cent at the end of 2002 and has declined in 2003.

     The smooth functioning of the labour market is hampered by a number of structural problems. First,
     the under-utilisation of human resources stems from feeble entrepreneurial climate. Latvia has the
     lowest rate of business start-ups in the EU, which underlines the necessity to facilitate
     entrepreneurship and the development of small and medium size enterprises, in this way fostering the
     employment base. Second, the labour tax wedge is high in Latvia and creates a disincentive to work in
     the official economy. In addition, given the low wages, even modest social benefits make working or
     returning to work costly decisions and therefore discourage labour market participation. Third, the
     high rate of unemployment reflects to some extent skills mismatches between labour supply and
     demand. Moreover, the education system fails to meet the demand for more flexible and modern forms
     of training. The Latvian authorities have recently proposed a comprehensive reform of the education
     system to better adapt it to the requirements of a market economy, however, implementation of the
     reform might be both costly and lengthy. Finally, regional discrepancies in employment and
     unemployment are also the result of low geographical mobility, which could be enhanced through
     improvements in transport infrastructure.

MT                                                      30                                                       MT
 ---pagebreak---      Develop effective competition in network industries.

     Steps to liberalise network industries have only been recently taken place with full liberalisation of
     voice telecommunications in 2003 and progressive liberalisation of other network industries to comply
     with EU legislation. All network industries are still dominated by the respective incumbents - some of
     them being gradually privatised – facing low effective competition and benefiting from the absence of
     a real choice of supplier. Low effective competition has several sources. In some cases, technical and
     practical barriers impede competition to develop, as is the case in telecommunications, where local
     loop unbundling, carrier selection and number portability are trailing behind. In some other cases, the
     legal base for more effective competition is not yet fully in place, such as in energy. One additional
     source of low effective competition is a lack of interconnection. Latvia’s railways connections are not
     well-developed with Baltic neighbours and other European countries. In gas, the Latvian market is still
     dominated upstream by very few importers and is de facto dependent on Russian gas supply. Finally,
     cross-border interconnections in electricity between Baltic States and other Member States may be
     insufficient to cope with long-term demand.

     Country specific recommendations to Latvia

     Meeting the challenges outlined above requires broad structural reforms as they are laid down in the
     general guidelines (GL) in Part I of the Broad Economic Policy Guidelines.

     In order to address the sizable current account deficit, to which an appropriate fiscal policy should
     contribute, Latvia is recommended to:

     1.       reduce the general government deficit in a credible and sustainable way within a
              multi-annual framework in line with the decisions to be taken by the Council in the
              context of the forthcoming budgetary surveillance exercise (GL 1 and 2).

     In order to improve conditions for increasing productivity, Latvia is recommended to:

     2.       increase the efficiency, quality and accessibility of the education and training systems, and
              their responsiveness to the labour markets’ needs (GL 13 and 14).

     3.       encourage R&D and innovation, in particular in the business sector (GL 13 and 14).

     4.       encourage an entrepreneurial culture (GL 11).

     In order to address the structural problems in the labour market, Latvia is recommended to:

     5.       revise the tax and benefit system in order to make work pay more, in particular by increasing
              the efficiency of social spending (GL 4).

     6.       strengthen labour supply by pursuing efforts to better adapt the qualifications of the
              workforce to the requirements of the labour market and by facilitating labour mobility,
              especially through improvements in transport infrastructure (GL 7 and 13).

     In order to develop effective competition in network industries, Latvia is recommended to:

     7.       take legal measures to enhance effective competition in network industries and to strengthen
              the role of the regulator (GL 9).

     8.       increase physical interconnections with other European networks (GL 9).

MT                                                     31                                                      MT
 ---pagebreak---      21.      Il-Litwanja

     In spite of a weak external environment, Lithuania’s macroeconomic performance remained
     particularly strong in the last two years. Real GDP growth accelerated rapidly to 8.9 per cent in 2003,
     primarily supported by strong investment and private consumption, although export growth remained
     robust. A large nominal effective appreciation of the litas, together with strong productivity growth
     that attenuated wage inflation, led to a decline in price levels. The decline (measured in HICP)
     amounted to 1.1 per cent in 2003. Strong economic growth was positively reflected in the labour
     market, although high unemployment remains as a major weakness in the Lithuanian economy.

     The decreasing trend in the general government deficit initiated in 2000 was interrupted in 2003, when
     the deficit increased slightly to 1.7 per cent of GDP, from 1.4 per cent in 2002. Significant increases in
     both current and capital expenditure, partly associated with EU accession related expenditure, are
     approved in the budget for 2004 and are expected to result in a further rise of the deficit. Fiscal
     consolidation is expected to resume in 2005. Moderate budget deficits in previous years have
     contributed to maintaining sustainable current account deficits, which have to a large extent been
     financed by foreign direct investment. The currency board arrangement has proved a successful
     nominal anchor for monetary policy, contributing to macroeconomic stabilisation and historically low
     inflation rates. The enhanced macroeconomic stability has allowed for a decreasing trend in interest
     rates in the last few years, contributing to high domestic credit growth and consequently to rapid
     growth of investment and consumption.

     Policies in Lithuania should aim at achieving a high degree of sustainable convergence. The labour
     market is a source of concern. Decreasing the high unemployment rate and a further consolidation of
     public finances will be crucial to enhance macroeconomic stability in the medium term. Preserving
     Lithuania’s competitiveness will be of paramount importance for a rapid and sustained convergence
     with the EU economies. Further structural changes will be necessary to maintain the current
     productivity growth trend, which is required to close the substantial productivity gap between
     Lithuania and the EU average. In this regard, adapting the education system to the needs of the labour
     market and developing R&D and innovation are required to facilitate much-needed progress towards
     the transition to the knowledge-based economy. Against this background, Lithuania faces four major
     challenges:

     • Address the structural problems in the labour market,

     • Maintain low general government deficits,

     • Improve conditions for increasing productivity,

     • Develop effective competition in network industries.

     Address the structural problems in the labour market

     Despite visible improvements in the labour market in the last two years, the unemployment rate
     remained high at 12.7 per cent in 2003 and major structural weaknesses persist. Large regional
     disparities are evident, with several regions recording unemployment rates around 20 per cent. The
     youth unemployment rate remained high at 23 per cent in 2002, whereas the long-term unemployment
     rate stood at 7 per cent. Close to 17 per cent of employment lies in the low-productivity agricultural
     sector, where significant labour shedding is likely to take place and exert upward pressure on
     unemployment in the next years.

     Major structural shortcomings in the labour market are related to the limited occupational and
     geographic mobility of the workforce, mismatches between supply and demand of skills and education
     deficiencies. Despite enjoying high participation rates in higher education, professional qualifications
     of the Lithuanian workforce are often specialised in areas that do not match properly the current

MT                                                      32                                                        MT
 ---pagebreak---      demand for skills. Labour shortages are emerging in the areas of information technologies,
     management and several categories of engineering. Enhancing the links between educational
     institutions and business would help to better adapt vocational training and tertiary education to the
     current needs. At the same time, lifelong learning activities, which are essential to increase the
     workforce’s capacity to adapt to future demands, are currently at one of the lowest levels among the
     acceding countries. Further efforts to improve the quality and availability of vocational training would
     be beneficial, especially in the least developed regions. The high share of low-qualified workers in
     unemployment calls for special attention to training activities for this category of workers. Improving
     the educational infrastructure, particularly in poorer regions, would contribute to establishing better
     framework conditions for attracting investment and increase the workforce’s capacity and willingness
     to move. Further efforts to improve the business environment would help to create employment and
     offset redundancies stemming from industrial and agricultural restructuring. The unemployment
     benefits system needs to be streamlined, the size of unemployment benefits are not linked to previous
     wages, coverage of the insurance is not clearly defined in the legislation and the links between the
     contributions and benefits of the unemployment insurance system are unclear.

     Maintain low general government deficits

     The authorities have held to their fiscal consolidation plans. Accordingly, the general government
     deficit decreased from 5.7 per cent of GDP in 1999 to 1.4 per cent in 2002. However, the deficit
     reversed its decreasing trend and picked up slightly to 1.7 per cent in 2003. Against the background of
     higher revenue collection than expected in the first half of 2003, the government decided to allocate
     additional expenditure by means of a supplementary budget in July 2003. The amendments resulted in
     significant increases in current expenditure that prevented a further reduction of the deficit in 2003,
     mainly in the form of compensations for the loss of rouble savings7 (about 0.4 per cent of GDP) and
     agricultural subsidies (0.2 per cent of GDP). The 2004 budget foresees a further increase of the deficit,
     largely related to a surge in public investment and higher expenditure related to the social security
     system and public sector wages, as well as significant transition costs of the pension reform. Spending
     pressures stemming from high investment needs and sizeable fiscal obligations and contingent
     liabilities denote a risk for the consolidation of public finances in the medium-term.

     Despite efforts made to improve the tax system, there is considerable room for improvement as
     regards the efficiency of tax collection. Government revenues as a percentage of GDP have decreased
     from 38.1 per cent in 1998 to 33.8 per cent in 2002, while expenditure has remained largely stable.
     Additional expenditure to the budget plans is frequently allocated in the second half of the year, which
     prevents a faster consolidation of public finances. A pro-cyclical fiscal policy stance could entail some
     risks as additional spending pressures are intensifying. Although low budget deficits have contributed
     to alleviate pressures on the current account in the last years, fiscal policy might need to play a role in
     mitigating a potential deterioration of the private sector’s savings-investment balance, which could be
     stimulated by the present rapid credit growth dynamics.

     Improve conditions for increasing productivity

     Lithuania has had high productivity growth after the Russian crisis in 1999, but the productivity level
     is still very low at 42 per cent of the EU 15 average. Also the recent high productivity growth seems to
     have been partly caused by one-off effects due to better capacity utilisation of existing resources. With
     a GDP per capita level at 39 per cent of the EU 15 average in 2002 a high and sustainable productivity
     growth is necessary to reduce the income gap with the EU. In this respect, deficiencies of the
     education system and the low level of R&D and innovation are a handicap.

     7
             The government committed to compensate citizens for the loss of rouble savings in the first years of
             transition and to restitute ownership rights or pay pecuniary compensations for real estate property
             confiscated during Soviet times. The outstanding amounts to be paid accounted for about 6.7 per cent of
             PGD at the end of 2003.

MT                                                        33                                                           MT
 ---pagebreak---      Firstly, despite high public spending on education and a high number of tertiary graduates there is a
     mismatch between the skills acquired in the education and training systems and the needs in the
     business sector as described in the first key challenge. The government is preparing a program for the
     implementation of an education strategy stretching to 2012, but further efforts may be necessary to
     adapt the education and training systems to the future needs as the economic structure develops.
     Secondly, a large share of the current economic structure is based on low technology activities. A
     change of the structure will require higher R&D and more innovation, which currently are among the
     lowest in the new Member States. Maintaining high levels of FDI could act as a catalyst through
     knowledge transfer and thereby contribute to faster structural changes in the economy towards higher
     value-added sectors and improved productivity. Further development of the physical infrastructure
     could also contribute to maintaining the high productivity growth. IT expenditure has increased
     slightly from a very low level and low IT penetration could be a hindering factor for improving
     productivity.

     Develop effective competition in network industries

     Despite deregulation in most network industries, effective competition remains weak in all of them,
     except mobile telephony and road transport. The fixed telephony market was fully liberalised in
     January 2003, but the incumbent is still the only player in the market. The telephone market regulator
     does not yet seem to have adequate resources to effectively promote competition. The implementation
     of the EU legislation on railway market opening has not yet been completed and the infrastructure is
     poorly developed, especially the interconnections with Poland.

     The opening-up of the energy markets have led to few visible benefits for consumers and high
     concentration ratios persist, both in supply and distribution. The electricity market was opened-up for
     large customers in January 2002, corresponding to a fourth of the electricity consumption. Further
     deregulation is foreseen in steps and a privatisation of electricity distributors is currently underway.
     However, about 80 percent of all electricity is produced by a nuclear power plant and a lack of
     interconnection capacity with other acceding countries prevents integration with the EU electricity
     market. Also the gas market has been liberalised for large customers, corresponding to 80 per cent of
     consumption. However, there are few independent players in the market and there is no
     interconnection with the Western European gas network.

     Country specific recommendations to Lithuania

     Meeting the challenges outlined above requires broad structural reforms as they are laid down in the
     general guidelines (GL) in Part I of the Broad Economic Policy Guidelines.

     In order to address the structural problems in the labour market, Lithuania is recommended to:

     1.       enhance regional mobility and reduce skill mismatches, whilst ensuring the
              efficiency of education, retraining measures and other active labour market policies
              (GL 4, 7 and 8).

     2.       improve the combined incentive effects of taxes and benefits (GL 4).

     In order to maintain low general government deficits, Lithuania is in particular recommended to:

     3.       pursue low budget deficits in a credible and sustainable way within a multi-annual
              framework in line with the decisions to be taken by the Council in the context of the
              forthcoming budgetary surveillance exercise (GL 1).

MT                                                     34                                                       MT
 ---pagebreak---      4.       avoid pro-cyclical fiscal policies that prevent a further reduction of the general government
              deficit, in particular by avoiding budget amendments that allocate additional expenditure in
              response to higher than expected revenues (GL 2).

     In order to improve conditions for increasing productivity, Lithuania is recommended to:

     5.       improve the efficiency and quality of the education and training systems and their
              responsiveness to labour market needs (GL 13).

     6.       promote R&D and innovation, strengthen the links between research institutes and the
              business sector and support knowledge transfer through FDI and higher IT penetration (GL
              13).

     In order to develop effective competition in network industries, Lithuania is recommended to:

     7.       pursue liberalisation and enforce effective competition in energy, telecommunication and
              railway markets (GL 9).

     8.       create and improve interconnection capacities with neighbouring EU Member States (GL 9).

MT                                                    35                                                      MT
 ---pagebreak---      22.       Malta

     In-natura miftuħa li dejjem qed tiżdied ta' l-ekonomija Maltija, id-dipendenza kbira fuq id-dħul mit-
     turiżmu u d-daqs żgħir tagħha jagħmel l-ekonomija iktar vulnerabbli għall-ekonomija esterna u x-
     xokkijiet ġeopolitiċi. L-ambjent internazzjonali ekonomiku diffiċli fl-aħħar sentejn u r-ristrutturar tas-
     settur pubbliku ġab tkabbir ekonomiku limitat, l-aktar minħabba konsum kbir mill-pubbliku. It-tkabbir
     reali tal-GDP bħalissa hu ħafna aktar baxx mill-potenzjal stimat.

     Minkejja tkabbir ekonomiku batut, il-qgħad ma żdiedx sostanzjalment fil-perjodu bejn Jannar u
     Ottubru tas-sena l-oħra (5.7 perċentwali f’Ottubru 2003), għalkemm hi mistennija deterjorazzjoni fix-
     xhur sussegwenti, marbuta ma’ l-istrutturar fl-industrija tat-tarzna u fis-setturi tal-manifattura u t-
     turiżmu. Il-progress ġenerali ta’ Malta fl-adozzjoni ta’ l-acquis ma kienx akkumpanjat mit-tkomplija
     tar-riformi ekonomiċi kruċjali kontra l-isfond tas-sħubija fl-UE f’Mejju 2004. It-tnaqqis fis-settur
     pubbliku u t-tnaqqis fl-għajnuna ta’ l-Istat u s-sussidji u r-riforma tal-pensjonijiet u s-sistemi tas-saħħa
     ġew posposti, bir-riżultat ta’ impatt neggattiv fuq it-tkabbir ekonomiku, il-ħolqien ta’ l-impjiegi u l-
     finanzi pubbliċi. Ir-rata ta’ qgħad komparabbilment baxxa, partikolarment fost in-nisa, tibqa' ħaga tat-
     tħassib. Fil-kuntest ta’ sforzi żgħar biex jiġu kkonsolidati l-finanzi pubbliċi, tkabbir tal-GDP inqas
     milli mistenni fis-sena 2003 u n-nefqa pubblika li dejjem qed tiżdied iddeterjoraw iżjed l-iżbilanc tal-
     gvern ġenerali, li jpoġġi pressjoni fuq il-bilanċ tal-kont kurrenti. Il-politika f’Malta għandha tfittex
     livell għoli ta’ konverġenza sostenibbli, b’mod partikolari fir-rigward tal-konsolidazzjoni tal-finanzi
     pubbliċi. B’din il-mira f’moħħna, il-pass tar-riforma fil-pensjonijiet u s-sistemi tal-kura tas-saħħa u s-
     settur pubbliku għandhom jerga’ jibda jiżdied Minkejja li sar certu progress, il-grad tal-kompetizzjoni
     f'ċerti oqsma għadu mhux biżżejjed u l-isforzi tal-privatizzazzjoni jridu jitkomplew. F’dan l-isfond
     Malta trid tħabbat wiċċha ma’ tliet sfidi ewlenin:

     • Tiżgura tnaqqis ta’ l-iżbilanc ġenerali tad-defiċit tal-gvern fuq bażi sostenibbli u sostenibbilità fit-
       tul tal-finanzi pubbliċi,

     • Żjieda fir-rati ta’ l-impjiegi, speċjalment fost in-nisa,

     • Tħeġġeġ kompetitività effettiva billi tqis il-karatteristiċi speċifiċi ta’ ekonomija domestika żgħira.

     Tiżgura tnaqqis ta’ l-iżbilanc ġenerali tad-defiċit tal-gvern fuq bażi sostenibbli u s-
     sostenibbiltà fit-tul tal-finanzi pubbliċi.

     Biex jiffaċċja l-figuri għoljin ta’ l-iżbilanc fil-baġit ġenerali tal-gvern, il-gvern qed jippjana li
     jimplimenta sensiela ta’ miżuri biex isaħħaħ l-infurzar tat-taxxa biex iżid id-dħul. Huwa interessanti li
     wieħed jinnota li d-dħul mhux mit-taxxa hu mistenni li jikber aktar mid-dhul mit-taxxa. Primarjament
     dan huwa dovut l-aktar minhabba d-dħul miġbur taħt l-iskema tar-reġistrazzjoni barranija u minħabba
     l-Kumpens tal-Baġit ta’ l-UE fil-kwadru tal-Pakkett ta’ Kopenħagen. Fir-rigward tat-taxxa diretta, xi
     tnaqqis hu ppjanat minħabba l-introduzzjoni ta’ taxxa b’ ħames kategoriji (s’issa, hemm tliet
     kategoriji) u ż-żieda fit-threshold tad-dħul li għandu jkun intaxxat.

     Min-naħa tan-nefqa, il-piżijiet kbar tal-pagi fis-settur pubbliku, il-pensjonijiet u żjieda fin-nefqa fuq is-
     sistema tas-saħħa huma ta’ riskju għas-sostenibbilità tal-finanzi pubbliċi. Fir-rigward tan-nefqa
     kurrenti, hemm bżonn ta’ kontroll ogħla ta’ l-approprijazzjoniet tal-benefiċċji tal-welfare u programmi
     oħra ta’ għajnuna, barra minbarra t-tnaqqis fis-sussidji. Madankollu, minħabba bżonnijiet persistenti
     għall-immodernizzar u l-bini ta’ infrastruttura ġdida, in-nefqa kapitali tista’ żżomm n-nefqa globali fl-
     livell għoli (maqwar 50 perċentwali tal-GDP), għalkemm hu mistenni li jonqos fl-2006 (għal madwar
     46.6 perċentwali tal-GDP).

     Il-popolazzjoni li dejjem tixjieħ tfisser riskju fiskali relativament sinifikanti għas-sostenibbiltà fit-tul
     tal-finanzi pubbliċi, b’mod partikolari minħabba livell għoli ta’ dejn tal-gvern. Iż-żieda mgħaġġla
     mistennija fir-ratio tad-dipendenza ta’ l-anzjani bejn is-snin 2000 u 2050 (minn 18% għal 38.6%)

MT                                                        36                                                         MT
 ---pagebreak---      għandha tħalli pressjoni fiskali sinifikanti fuq il-finanzi pubbliċi fil-futur. Filwaqt li riforma fl-ewwel
     pilastru ta’ l-iskema tal-pensjoni qed tiġi ppjanata, m’huwiex ċar meta se tkun implimentata.

     Il-livell sostenibbli għall-garanziji ta’ l-istat li għad baqa’ (22 fil-mija ta’-GDP fl-2002) qed thedded il-
     pożizzjoni fiskali tal-gvern. Il-pjanijiet tal-gvern huma li fil-futur jillimita l-ħrug ta’ garanziji ġodda
     (tnaqqis fl-ammont għal 15% tal-GDP fl-2006), li għandha ssir mill-infurzar strett tar-regoli tal-baġit li
     jirregolaw il-ħruġ tal-garanziji. Dan għandu jikkontribwixxi għal tnaqqis ippjanat f’terminu medju fil-
     livell tad-djun kontinġenti impliċiti u jnaqqas ir-riskju eżistenti espost, li jirriżulta mill-ħrug ta’ ittri ta’
     konfort jew faċilitajiet tal-krediti.

     jŻieda fir-rati ta’ l-impjiegi, speċjalment fost in-nisa

     F’Malta, is-suq tax-xogħol jidher li hu flessibbli biżżejjed biex jaġġusta għax-xokkijiet ekonomiċi
     mingħajr ma jiġġenera perjodi twal ta’ qgħad għoli. Madankollu, f’Settembru 2003 ir-rata ta’ l-
     impjiegi (53.7%) kienet iktar baxxa meta mqabbla mal-medja ta’ l-UE. Ir-rata ta’ l-impjiegi
     relattivament baxxa kienet attribwita għar-rata baxxa ta’ impjiegi femminili (33.1 fil-mija) peress illi l-
     figura ekwivalenti maskili (74.2%) kienet ogħla mill-medja ta' l-UE. Iż-żjieda fir-rata totali u fir-rata
     ta’ l-impjieg tan-nisa hi ta’ importanza kbira biex titwessa’ l-bażi għall-kontribuzzjonijiet tas-sigurtà
     socjali, fid-dawl ta’ popolazzjoni li dejjem qed tixjieħ. F’dan ir-rigward, dan l-aħħar ittieħdu xi miżuri
     li jinkoragixxu l-parteċipazzjoni femminili, għax il-preżenza baxxa tan-nisa fis-suq tax-xoghol hi, sa
     ċertu punt, minħabba fatturi kulturali li jistgħu jingħelbu maż-żmien.

     Kif il-gvern jirrealizza l-importanza li tiżdied il-parteċipazzjoni femminili fix-xenarju ta’ rati tat-
     twelid li qed jonqsu u popolazzjoni li qed tixjieħ, inizjattivi mmirati lejn iż-żieda fir-rata tal-
     parteċipazzjoni femminili huma inklużi fl-Att dwar l-Impjiegi u r-Relazzjonijiet Industrijali (ERA), li
     daħlu fis-seħħ f'Diċembru 2002 u kienu kkumplimetati bi tmien avviżi legali (wieħed minnhom
     jikkonċerna r-Regolament dwar id-Dritt tal-Leave tal-Ġenituri). Inizjattivi oħrajn f’dan il-qasam huma
     l-Iskema ta’ Childmining, u Pjan ta’ Azzjoni dwar l-Ugwaljanza bejn is-Sessi u mainstreaming tas-
     sessi fis-settur pubbliku. Iżjed minn hekk, it-tlestija tal-proċess tal-privatizzazzjoni u t-tnaqqis fis-
     settur pubbliku jistgħu jikkontribwixxu lejn riżorsi iktar effiċjenti għall-vantaġġ tas-settur privat u
     jkunu jistgħu jagħtu spinta lill-ekonomija u lill-impjiegi.

     Taxxi għoljin fuq il-pagi jfixklu kemm id-domanda kif ukoll il-provvista tax-xogħol, fil-waqt li l-
     attività tiġi trasferita lejn l-ekonomija informali. Id-differenza bejn il-paga minima u l-benefiċċji tal-
     qgħad, speċjalment għall-familji kbar, tibqa’ baxxa ħafna u tnaqqas l-inċentivi għax-xogħol. Skemi ta’
     irtirar kmieni użati bħala mezz għar-ristrutturar ta’ l-entitajiet tas-settur pubbliku għandhom ikunu
     limitati wkoll, bl-isforzi jiġu indirizzati lejn it-taħrig mill-ġdid. L-ERA jirregola wkoll l-impjegati
     part-time u l-kuntratti ta’ servizzi għal terminu fissi biex iżid il-fessibilità fis-suq tax-xogħol. L-
     Attivitajiet Edukattivi Vokazzjonali żdiedu mill-2001, meta ġie mwaqqaf il-Kullegg Malti għall-Arti,
     Xjenza u Teknoloġija, għalkemm għandhom isiru iktar sforzi biex titjieb ir-rata ta’ suċċess fl-
     edukazzjoni sekondarja u jitnaqqas in-numru ta' dawk li jħallu l-iskola kmieni. Fl-2003 inħolqu tliet
     istituti ġodda fl-oqsma tal-Mekkanika, ta' l-Inġinerija, l-Ażjendi Agrikoli u s-Servizzi fil-Komunità.
     Huwa importanti li wieħed jinnota il-livell eċċezzjonalment għoli tal-kisbiet fl-edukazzjoni
     sekondarja, u l-livell baxx ħafna miksub fil-livelli sekondarji għoljin u dawk terzjarji.

     It-tħeġġiġ tal-kompetitività effettiva billi jittieħdu in konsiderazzjoni l-karatteristici speċifiċi
     ta’ ekonomija domestika żgħira

     Numru sinifikanti ta’ riformi ġew introdotti biex iżidu l-kompetizzjoni fl-ekonomija Maltija. Fl-
     industriji tan-netwerks, is-settur tat-telekomunikazzjoni huwa issa lliberalizzat, filwaqt li s-settur tas-
     servizzi postali qed jinfetaħ iżjed. Fit-trasport bl-ajru, il-monopolju ta’ l-attivitijajiet ta’ assistenza fuq
     l-art (groundhandling) tneħħa wara li ħarġet sejħa internazzjonali għall-offerti. Fir-rigward tat-trasport
     marittimu, l-implimentazzjoni ta’ l-acquis għandha trid tiġi kompluta. F’xi setturi ta’ l-ekonomija

MT                                                         37                                                            MT
 ---pagebreak---      Maltija, il-kompetizzjoni hija dgħajfa, bħal fit-tħin tal-qamħ u fiż-żrieragħ ta’ -likel, u fis-settur tal-
     bini tal-vapuri, fejn l-għajnuna ta’ l-istat għandha titnaqqas flimkien mal-proċess ta’ l-istrutturar.

     Rakkomandazzjonijiet speċifici għal Malta

     Biex jintlaħqu l-isfidi msemmija hawn fuq hemm bżonn riformi struttrali kif inhuma stabbiliti fil-linji
     ta’ gwida ġenerali (GL) f’Parti I tal-Linji ta’ Gwida tal-Politika Ekonomika Wiesa’.
     Biex tassigura tnaqqis ta’ l-iżbilanc ġenerali tal-gvern fuq bażi sostenibbli u s-sostenibbiltà fit-tul tal-
     finanzi pubbliċi, Malta qed tingħata l-parir li:

     1.        tnaqqas l-iżbilanc tal-gvern b’mod kredibbli u sostenibbli fi kwadru multi-anwali fil-
               linja mad-deċiżjonijiet meħuda mill-kunsill fil-kuntest ta’ l-eżerċizzju tas-sorveljanza
               tal-baġit li jmiss(GL 1).

     Biex iżżid r-rati ta’ l-impjiegi, speċjalment fost in-nisa, Malta qed tingħata parir sabiex:

     2.        tirranġa l-interazzjoni tas-sistema tal-benefiċċji fiskali biex issaħħah l-inċentivi għax-
               xogħol u tnaqqas it-taxxa fuq ix-xogħol sabiex ittejjeb il-kompetitività .(GL 4).

     3.        ittejjeb il-kwalità ta’ l-edukazzjoni sekondarja u t-tahrig vokazzjonali (GL 8).

     4.        issaħħaħ it-taħriġ mill-ġdid tal-ħaddiema u tagħmilhom iktar flessibbli f’każ ta’ bdil
               tax-xogħol u tiffaċilita r-ritorn lejn id-dinja tax-xogħol ta' nisa ta’ età medja (GL 8).

     Biex tħeġġeġ il-kompetitività effettiva meta wieħed iqis il-karatterisitċi speċifiċi ta’
     ekonomija domestika żgħira, Malta qed tingħata l-parir li:

     5.        tagħmel sforzi biex iżżid il-kompetizzjoni f’ċerti setturi bħal fl-industriji tan-
               netwerks, l-industriji ta’ l-ikel, u t-tarznari (GL 9).

MT                                                       38                                                         MT
 ---pagebreak---      23.      Il-Polonja

     After a record of strong growth during most of the 1990s, Poland experienced a sharp economic
     slowdown in 2001-2002. Since the end of 2002, the recovery has gradually gained strength, and real
     GDP growth accelerated to 3.7 per cent in 2003. In 2004, growth is likely to reach its potential level
     estimated at around 4.5 per cent.

     Despite remarkable progress in recent years, Poland still faces serious structural problems that may
     impair its capacity to stay on a path of strong growth. The unemployment rate has increased rapidly
     since 1999 and is now, at about 20 per cent, the highest among the acceding countries. In parallel, the
     employment rate has fallen markedly and almost half of the working age population is without work.
     The smooth functioning of the labour market is hampered by a number of structural problems,
     including limited responsiveness of wages to labour conditions, disincentives from the tax and benefit
     system, skills mismatches and low geographical mobility.

     Poland’s fiscal position has deteriorated significantly since 2000, as a result of both cyclical factors
     and the relaxation of fiscal policy. The general government deficit increased from 1.8 per cent of GDP
     in 2000 to 3.6 per cent in 2002. Until recently, the authorities have shown some reluctance to tackle
     the fiscal problems, including the rapidly rising debt ratio. The public finance reform adopted by the
     government early this year envisages substantial spending cuts but postpones the needed fiscal
     adjustment until 2005.

     Policies in Poland should aim at achieving a high degree of sustainable convergence, in particular as
     regards the consolidation of public finances. Moreover, stability-oriented macroeconomic policies
     need to be complemented by structural reforms aiming at improving Poland’s growth performance. In
     addition to the under-utilisation of human resources, the relatively low productivity level limits the
     capacity of the Polish economy to increase both actual and potential output growth. To address this
     issue, continued efforts are needed to improve the education and training system and also to create
     favourable conditions for R&D and technology transfer. In addition, the economy, in particular the
     agriculture sector, calls for more restructuring and there is room to improve the business environment.
     Against this background, the challenges facing Poland are to:
     • Urgently address the deep-seated structural problems in the labour market,
     • Ensure a reduction of the general government deficit on a sustainable basis and the long-term
       sustainability of public finances,
     • Improve conditions for increasing productivity,
     • Speed up the restructuring of the economy and accelerate privatisation in industry,
     • Improve the business environment.

     Urgently address the deep-seated structural problems in the labour market

     Poland has the highest unemployment rate (19.8 per cent in 2002) and the lowest employment rate
     (51.5 per cent) among the acceding countries. The employment rate is exceptionally low among
     elderly people and young people. In addition, the Polish labour market displays the following features:
     a high youth unemployment rate, a high long-term unemployment rate, significant differences across
     regions and a high share of unemployed in rural areas.

     The smooth functioning of the labour market is hampered by a number of structural problems. First,
     the concentration of unemployment in particular regions and among certain groups reflects in part the
     imperfect adjustment of wages to regional differences in productivity and individual skill levels. The
     wage-setting process lacks flexibility and in particular has proved so far ineffective in imposing wage

MT                                                     39                                                       MT
 ---pagebreak---      discipline in state-owned enterprises and in the general government sector. In addition, the nationally-
     set minimum wage is high relative to average wages in many regions and hence contributes to the
     persistence of high unemployment among young and low-skilled workers.

     Second, the labour tax wedge is high in Poland and creates a disincentive to work in the official
     economy. In addition, the combined effects of tax and benefit systems make working or returning to
     work a costly decision and therefore discourage labour market participation. Tightening the eligibility
     criteria for disability pensions and phasing out early retirement benefits would be a first step towards
     increasing the attractiveness of work.

     Third, the high rate of unemployment reflects to some extent skills mismatches between labour supply
     and demand. Moreover, education levels in the adult population are relatively low. The Polish
     authorities have recently launched a comprehensive reform of the education system to better adapt it to
     the requirements of a market economy. Finally, regional discrepancies in employment and
     unemployment are also the result of low geographical mobility, which could be enhanced through
     reforms of the housing market and improvements in transport infrastructure.

     Ensure a reduction of the general government deficit on a sustainable basis and the long-
     term sustainability of public finances

     Poland’s fiscal position has deteriorated significantly since 2000, only partly for cyclical reasons. The
     general government deficit reached 3.6 per cent of GDP in 2002 and is estimated to have increased
     further to 4.1 per cent in 2003. The fiscal expansion over the last two years is to a large extent due to a
     loosening of the fiscal stance. Fiscal policy is expected to remain pro-cyclical in 2004. The
     government has recently adopted a public finance reform which provides for savings in social
     spending and administrative expenditure over the period 2004-2007. However, there remains
     uncertainty with regard to the approval of the full fiscal reform package by Parliament. Reining in the
     government deficit is also crucial to maintain the current account deficit at sustainable levels,
     especially in case the current savings-investment surplus of the private sector should diminish sharply
     in the coming years.

     The deterioration of fiscal accounts together with the slowdown in privatisation has resulted in a sharp
     increase in the government debt ratio since 2001. Although still relatively low by international
     standards, the debt level is rapidly rising and approaching the thresholds that trigger corrective
     mechanisms under the fiscal rules laid down in the Polish Constitution and the Public Finance Act. In
     view of the government’s growing borrowing needs, the exposure of the budget to foreign exchange
     risk and risks stemming from contingent liabilities, debt dynamics is a major matter of concern.

     Contingent liabilities constitute potentially a serious risk to the sustainability of public finances. State-
     owned companies in the sectors in need of restructuring are an important source of such liabilities. The
     stock of outstanding guarantees is rapidly increasing and will put pressure on public finances in the
     coming years.

     The demographic structure in Poland is still relatively favourable. Nevertheless, the pension system
     underwent a major reform in 1999in order to adjust it to the demographic and labour force changes
     and to counter the consequences of the expected sharp increase in the old-age dependency ratio (from
     18 per cent in 2000 to 50 per cent in 2050).

     Improve conditions for increasing productivity

     Despite reasonable productivity gains over the period 1995-2002, labour productivity per person
     employed (in PPS) in Poland was less than half that of the EU15 in 2002 and below the average of the

MT                                                        40                                                         MT
 ---pagebreak---      new Member States. The catching-up process is therefore not satisfactory yet. This relatively low
     productivity level may be explained by various factors.

     First, there is the high share of employment in agriculture, a sector with particularly low productivity
     levels. The difficulty of new firms to grow and the lack of mobility may be slowing down the
     transition of workers from agriculture to other activities. Second, Poland remains below the EU15
     average in terms of investment in ICT and R&D. The low level of business investment in R&D is
     particularly problematic (only 30 per cent of the total R&D expenditure is financed by firms). Reasons
     cited include insufficient cooperation between research establishments and business, a lack of highly-
     skilled human capital and the fact that for firms short-term financial considerations tend to override
     long-term interests. An increase in the skills of the workforce is also to be achieved by promoting
     tertiary education and life-long learning. The low productivity is indeed related to the structural
     problems in the labour market, particularly a mismatch between skills taught in the education system
     and those required by the market place, together with a need for investment in physical infrastructure.

     Speed up the restructuring of the economy and accelerate privatisation in industry

     After a slow start, privatisation peaked in 2000 (as testified by a peak in FDI of 5.7 per cent of GDP
     which was boosted by a few large one-off privatisation transactions), but it has slowed down again
     since then, as the most attractive assets have been sold. The traditional sectors remain state-owned
     (among others mining, chemicals, defence sectors and railway). In these sectors, the Polish
     government has favoured a policy of consolidation before privatisation with the aim of creating
     “national champions” able to compete on EU markets. The pressure to limit short-term social
     disruption and the substantial consultation required with social partners and several ministers slow
     down the privatisation process. As a result, the attractiveness of firms to be privatised is considerably
     reduced, often deterring potential investors. Yet, there is evidence that the FDI inflows have
     contributed to restructuring the manufacturing sector and improved the export capacity and
     distribution networks. This is partly because, following privatisation, strategic investors have injected
     substantial equity capital and know-how into their firms which has resulted in large productivity gains.

     The liberalisation of the electricity and gas sectors has started. Local and long-distance
     telecommunication services were fully liberalised in January 2002 and international services since
     January 2003. However, the level of competition in network industries is not satisfactory. In the gas
     sector, there is currently no unbundling at all. In telecommunications, the incumbent has retained its
     dominant position in the market. Prices for international calls are among the highest. Moreover, the
     Competition Office has repeatedly found the incumbent guilty of using its dominant position to the
     disadvantage of competitors.

     State aid remains high (in form of tax and social security arrears) and state-owned firms have large
     debts to other companies, damaging those companies’ finances. With respect to the enforcement
     record, shortcomings have been identified in the handling of rescue and restructuring aid as well as
     research and development aid.

     Improve the business environment

     Poland has made substantial progress in developing a large SME sector thanks to recent reforms. In
     particular, a new enterprise register is being set up, which creates a “one-stop shop” for firms from
     January 1, 2004. Since January 2004 a single 19 per cent corporate tax is also in application. Finally, a
     new solvency law was adopted in 2003 bringing the bankruptcy framework in line with the
     requirements of a modern market economy. The SME sector accounts for around two-thirds of
     employment and half of GDP and exports in Poland. However, SMEs continue to face difficulties in
     growing. Despite the recent reforms to support entrepreneurship, the firm size remains small and the

MT                                                      41                                                       MT
 ---pagebreak---      entrepreneurship environment can still be improved. This is due to the lack of human capital, the lack
     of labour mobility, the underdeveloped infrastructure (especially the road and telecommunication
     networks), the high tax-burden (social security contributions in particular) and the liquidity
     constraints. These factors limit company creation and growth. Therefore, there are concerns that the
     problems just mentioned may reduce Poland’s attractiveness to foreign investors (FDI).

     Country-specific recommendations to Poland

     Meeting the challenges outlined above requires broad structural reforms as they are laid down in the
     general guidelines (GL) in Part I of the Broad Economic Policy Guidelines.

     In order to urgently address the deep-seated structural problems in the labour market, Poland is in
     particular recommended to:

     1.       increase the flexibility of the wage-setting process to ensure that wages better reflect
              differences in productivity across skills, firms and regions (GL 5).

     2.       lower the tax burden on labour, together with efforts to widen the tax base on labour and to
              improve the efficiency of the tax collection and enforcement system, and reform the tax and
              benefit systems to eliminate financial disincentives to work, in particular high inactivity traps
              for married couples, and to increase the efficiency of social spending (GL 4).

     3.       strengthen labour supply by pursuing efforts to better adapt the qualifications of the
              workforce to the requirements of the labour market and by removing obstacles to regional
              mobility, especially through reforms of the housing market and improvements in transport
              infrastructure (GL 7 and 13).

     In order to ensure a reduction of the general government deficit on a sustainable basis and the long-
     term sustainability of public finances, Poland is recommended to:

     4.       reduce the general government deficit in a credible and sustainable way within a multi-
              annual framework in line with the decisions to be taken by the Council in the context of the
              forthcoming budgetary surveillance exercise (GL 1 and 2).

     5.       monitor the reform of the pension system to counter the expected increase in the old-age
              dependency ratio, and take measures to reduce the fiscal risk stemming from the rising stock
              of contingent liabilities (GL 15 and 16).

     In order to improve conditions for increasing productivity, Poland is recommended to:

     6.       pursue and reinforce efforts to improve the efficiency and quality of the education and
              training system and its responsiveness to changing skills requirements (GL 13).

     7.       promote R&D and innovation, in particular in the business sector, and support the transfer of
              knowledge through FDI (GL 13).

     In order to speed up the restructuring of the economy and accelerate privatisation in industry, Poland
     is recommended to:

MT                                                      42                                                        MT
 ---pagebreak---      8.       reduce the overall level of State aids, whilst reorienting aid towards horizontal objectives
              (GL 9 and 14).

     9.       encourage market entry and effective competition in network industries while pursuing a
              greater connectivity of national markets (GL 9).

     In order to improve the business environment, Poland is recommended to:

     10.      continue reducing administrative burden, simplifying regulation and supporting the growth
              of SMEs, in particular, by improving access to finance (GL 11).

MT                                                   43                                                      MT
 ---pagebreak---      24.      Is-Slovakkja

     After a stabilisation-induced slowdown in 1998, Slovakia’s real GDP growth has steadily accelerated
     and exceeded 4 per cent in 2003, for the second year in a row. Nevertheless, output has not yet fully
     reached its estimated potential.

     The growth performance has been underpinned by intensified structural reforms. Prime examples were
     the restructuring and privatisation in the banking and non-financial sectors. However, this did not
     come without cost: the unemployment rate ratcheted up to more than 19 per cent in 2001 and still
     amounts to around 17 per cent. A broad array of structural shortcomings in the labour market –
     notably a lack of regional mobility, disincentives from the benefit systems, wage inflexibilities, and
     skill mismatches – have been hampering its re-absorption capacity and are only being tackled now.

     Public finance reforms have been very limited until recently as well and the general government
     deficit surged to more than 7 per cent of GDP in the election year of 2002. The expansionary fiscal
     stance contributed to a domestic demand boom and an increasingly consumption-driven widening of
     the current account deficit to more than 8 per cent of GDP. The government in office since 2002 has
     started to tackle the root causes of the fiscal deficit, thus supporting a significant narrowing of the
     current account deficit in 2003.

     Policies in Slovakia should aim at achieving a high degree of sustainable convergence, in particular as
     regards the consolidation of public finances. Both the further consolidation of public finances and
     solutions to the under-utilisation of Slovakia’s human resources need to be supported by policies
     which assist in perpetuating the strong growth performance into the medium and long term. This
     requires in particular a strengthening and diversification of the growth and employment base by
     fostering the entrepreneurial climate through an improved legal framework and judicial and
     administrative capacity building. Furthermore, the productivity level needs to be raised and Slovakia
     should prepare itself for its eventual transition to a knowledge-based economy. Against this
     background, Slovakia faces four major challenges:

     • Ensure a further reduction of the general government deficit on a sustainable basis,

     • Continue to address the deep-seated structural problems in the labour market,

     • Improve the business environment and support entrepreneurship,

     • Improve conditions for increasing productivity.

     Ensure a further reduction of the general government deficit on a sustainable basis

     The general government deficit decreased from 7.2 per cent of GDP in 2002 to an estimated 5 per cent
     of GDP in 2003, thereby supporting a significant narrowing of the current account deficit. The major
     part of a comprehensive agenda of public finance reforms has already been passed. These reforms will
     support further deficit reductions and assist in keeping the current account deficit in sustainable
     territory if private net saving should become less favourable again. The scope and speed of reforms
     have been remarkable. However, they also lead to non-negligible uncertainties with respect to the
     budget execution in 2004 and beyond. Risks stem in particular from the fundamental nature of the tax
     reforms, notably the introduction of a flat income tax rate of 19 per cent for corporates and
     individuals. These reforms make revenue forecasts relatively uncertain. Uncertainties also remain on
     the expenditure side, including with respect to further health reform measures. Moreover, a substantial

MT                                                     44                                                      MT
 ---pagebreak---      part of the planned expenditure reduction relies on projected lower interest outlays based on smooth
     nominal convergence.

     Continue to address the deep-seated structural problems in the labour market

     Slovakia has one of the lowest employment rates (around 57 per cent) and the second highest
     unemployment rate (currently around 17 per cent) in the acceding countries. Employment is
     particularly low in the age group over 55. Unemployment is concentrated among the young (below 24)
     and the low skilled. Regional disparities are high. The underlying structural deficiencies of the labour
     market are multi-faceted and are now being addressed more decisively.

     Incentives to work and to leave the informal sector are being strengthened by social benefit and
     pension reforms, including an increase of the retirement age to a still relatively low level of 62.
     Regional mobility is being enhanced by financial support for commuters and housing benefits but
     continues to be limited as the transport infrastructure and the functioning of the housing market
     improve only gradually. Skill mismatches hinder in particular the reintegration of the long-term
     unemployed, although retraining measures are being intensified. A still low alignment of the education
     system with the requirements of a market economy contributes to persistent youth unemployment.

     Job creation has been fostered by recent amendments to the labour code, which allow more flexible
     work relationships. However, the wage setting mechanism is not yet flexible enough and does not
     sufficiently cater for enterprise-specific conditions. In particular, the possibility of administrative
     extensions of collective wage agreements to enterprises that have not participated in the negotiations
     runs counter to this goal. In addition, minimum wages may have negative effects on labour demand
     and may insufficiently reflect local labour market conditions.

     Slovakia’s far-reaching income tax reform, effective since the beginning of 2004, will strengthen both
     job creation and the willingness to work. In contrast, the combined health and social contribution rates
     have only been lowered to a still very high level of almost 48 per cent of gross salary.

     Improve the business environment and support entrepreneurship

     Over the recent years, the government has introduced a number of measures aimed at improving the
     business environment. The procedure for setting up a new business has been significantly simplified
     and shortened. New bankruptcy legislation is being prepared that should replace the current system
     under which bankruptcy proceedings last excessively long and allow virtually no scope for the
     restructuring of troubled companies. The business environment was further strengthened by, for
     example, the substantial acceleration in price liberalisations in 2003 and the introduction of a new
     collateral law.

     Despite these improvements, there still seem to be important barriers to entrepreneurship in Slovakia.
     The gross-birth rate of new enterprises is relatively low. According to business surveys, the degree of
     legal uncertainty remains a fundamental weakness. This stems from the often insufficient and unstable
     legislative framework and, in particular, weak legal enforcement, which frequently suffers from lack
     of quality, timeliness and transparency.

     Improve conditions for increasing productivity

     While retaining relatively high labour productivity growth, the level of productivity is still low
     (around 58 per cent of the EU average in 2003). Factors contributing to this situation are the lack of

MT                                                     45                                                       MT
 ---pagebreak---      flexibility of the education system, coupled with low education expenditures and the weak R&D and
     innovation activity.

     The education system does not seem to respond appropriately to the labour market needs. This is
     particularly the case for secondary schooling which often produces graduates with obsolete skills.
     Moreover, the share of tertiary graduates is very low. The high share of long-term unemployed poses
     an additional challenge for the vocational and training programmes. Furthermore, expenditure on
     education has dropped to one of the lowest levels among the new Member States in 2001. Responding
     to these problems, the government has taken first steps towards rationalising the system, improving its
     efficiency and increasing the sources of financing.

     In 2002, the expenditures on R&D accounted for only 0.59 per cent of GDP, less than in most of the
     acceding countries. Innovation activity, as measured by the number of patent applications, is very low.
     The government has undertaken some measures to improve the situation regarding R&D (e.g. by
     improving the legislative framework for R&D), and is committed to increasing the public resources
     available for R&D support.

     Country specific recommendations to Slovakia

     Meeting the challenges outlined above requires broad structural reforms as they are laid down in the
     general guidelines (GL) in Part I of the Broad Economic Policy Guidelines.

     In order to ensure a further reduction of the general government deficit on a sustainable basis,
     Slovakia is recommended to:

     1.       reduce the general government deficit in a credible and sustainable way within a
              multi-annual framework in line with the decisions to be taken by the Council in the
              context of the forthcoming budgetary surveillance exercise (GL 1).

     In order to urgently continue to address the deep-seated structural problems in the labour market,
     Slovakia is in particular recommended to:

     2.       strengthen labour supply by removing obstacles to regional mobility and by reducing
              skill mismatches, whilst ensuring the efficiency of retraining measures and other
              active labour market policies (GL 4, 7 and 8).

     3.       generate additional labour demand by allowing for more flexibility in the wage
              setting mechanism (GL 5 and 18).

     4.       lower the very high combined health and social contribution rates, while observing
              the overall budgetary consolidation constraints, in particular by additional health
              system reform measures and by considering additional adjustments in the pay-as-
              you-go pillar of the pension system, in particular a further increase of the retirement
              age (GL 4 and 16).

     In order to improve the business environment and support entrepreneurship, Slovakia is recommended
     to:

MT                                                      46                                                     MT
 ---pagebreak---      5.       strengthen the legislative framework supportive to entrepreneurship and improve its
              enforceability by, in particular, adopting the new bankruptcy legislation and
              increasing the capacity and transparency of the judicial system (GL 11 and 12).

     In order to improve conditions for increasing productivity, Slovakia is recommended to:

     6.       improve the efficiency and quality of the education and training system and its
              responsiveness to changing skills requirements (GL 13).

     7.       encourage R&D and innovation and support the transfer of knowledge through FDI
              (GL 13).

MT                                                    47                                            MT
 ---pagebreak---      25.      Is-Slovenja

     Over the last decade, Slovenia has exhibited stable growth; real GDP has grown steadily at 3-5 per
     cent since 1993. After a recent slow-down, GDP growth is expected to pick up and gradually draw
     closer to the potential output growth, estimated at around 4 per cent.

     Despite a broadly sound economy and commendable achievements in many policy areas, certain
     weaknesses remain. While having declined steeply in the last two years, relatively high inflation
     (5.7 per cent in 2003) is still a cause of some concern and has been recognised as a key policy
     challenge. The government designed an apt policy to lower inflation in a sustainable way, aiming to
     create conditions for a successful EU accession. It has pursued structural reforms with the objective to
     facilitate price liberalisation. Currently, administered prices represent 16 per cent of the CPI – the
     lowest share of all the acceding countries. However, given ineffective competition in the utilities, and
     insufficient flexibility in both in the financial sector and the labour market a sustainable reduction of
     inflation still needs to be confirmed.

     The restructuring process of the economy has negatively affected the situation on the labour market;
     employment in manufacturing industry fell markedly over the period 1996-2000. A shift of labour
     from this sector to the service sector buffered the economic and social distress, while early retirements
     were used to attenuate a rise in total unemployment. Although the overall picture concerning the
     labour market in Slovenia is positive, structural unemployment problems persist. The proportion of
     long-term unemployment is high, in particular amongst older, low-skilled persons. Furthermore, the
     low employment rate of workers over 55 years of age is a cause of concern, especially with regard to
     the challenges stemming from an ageing population.

     In order to create the necessary job opportunities and facilitate participation in the labour market,
     leading in turn to a further improved economic performance in the future, continued efforts to promote
     entrepreneurship, to stimulate the innovative capacity of the business sector and to enforce effective
     competition in all segments of the economy are required. Policies in Slovenia should aim at achieving
     a high degree of sustainable convergence. Against this background, Slovenia faces four major
     challenges:

     • Lower inflation in a sustainable way,

     • Increase employment rates, especially for older workers,

     • Improve conditions for sustained productivity growth,

     • Promote the development of effective competition in all segments of the economy, notably in
       network industries.

     Lower inflation in a sustainable way

     Although decreasing, inflation remains relatively high. For 2003, the rate of inflation stood at 5.7 per
     cent, down from 7.5 per cent a year before. The ongoing decline is an encouraging development,
     although it seems partly attributable to special factors – related to ceilings on administered price rises
     and indirect taxes as well as frequent adjustments of excise duties on oil. Inflationary pressure
     continues to be fed by lack of competition in various sectors, inflexible labour markets, and still
     widespread indexation mechanisms. Furthermore, other important factors contribute to inflation’s
     perseverance; an accommodating monetary policy and a steady, but now slowing, depreciation of the
     currency, in particular, add to inflation inertia.

MT                                                      48                                                        MT
 ---pagebreak---      In the run-up to EU accession, the government made inflation a policy priority and adopted a co-
     ordinated anti-inflation policy measures accordingly. A comprehensive price control plan was
     enforced, regulating the administered price rises and tax changes in a way not to exceed the inflation
     rate at the end of the year. As regards the objective of proceeding towards a generalised de-indexation
     of the economy, a step forward was made in 2003 with the official abolition of interest rate indexation
     (the ‘basic interest rate’ or TOM) and the social agreement on a new wage adjustment method. A
     forward-looking indexation has already been introduced for public sector wages, taking effect in July
     2004, whereas for the private sector such a policy yet needs to be negotiated. Moreover, the public
     finance stance needs to be adjusted flexibly. Also, a more swift implementation of structural reforms is
     necessary for a sustained disinflation and an improved economic performance.

     Increase employment rates, especially for older workers

     The employment rate in Slovenia – with 63.4 per cent in 2002, close to the EU average – is one of the
     highest among the acceding countries. Also, the unemployment rate – decreasing steadily since 1998
     to have reached 6.0 per cent in 2002 – ranks amongst the lowest in the group. Nevertheless, its long-
     term component is high at around 60 per cent, principally among older, low-skilled workers over 55
     years of age. With other structural imbalances present in the labour market (youth unemployment,
     unemployment of disabled persons, gender unemployment gap, low educational level of the
     unemployed, high regional disparities) to increase employment of elderly has been identified as a
     particular important challenge. In 2002, the unemployment rate for persons aged 55-64 was 3 per cent,
     while the employment rate stood at 24.5 per cent, a figure very low compared to the EU average of
     40.1 per cent. This is a consequence of the low retirement age, which in 2001 averaged only 57 years.
     The restructuring of the economy has pushed relatively young individuals into retirement (or
     unemployment). As a result of the pension reform introduced in 2000, the retirement age has already
     slightly increased. However, the impact of this reform will only gradually be reflected in a higher
     employment rate for older persons. A large gap between the employment rates for older workers in
     Slovenia and the EU is expected to persist.

     The main orientation of the employment policy is thus to address the problems of unemployment for
     elderly people and to stimulate active forms of increasing their employability. This is particularly
     important in view of the growing risks of financial unsustainability resulting from unfavourable
     demographic developments. The old-age dependency ratio is expected to rise from 20 per cent in 2000
     to 38 per cent in 2025 and 66 per cent in 2050. Furthermore, the promotion of work and active
     working life is the necessary precondition for combating poverty and social exclusion.

     Improve conditions for a sustained productivity growth

     The level of productivity, while the second highest amongst the new Member States, remains well
     below the EU-15 average (69.5 per cent in 2003). Labour productivity growth in Slovenia was
     relatively rapid over the period 1995-1999, with an average annual rise of 4.8 per cent. However, it
     decelerated thereafter (2 per cent on average in 1999-2002), placing Slovenia amongst the least
     performing acceding countries in this period of time. Two elements may hamper a more rapid
     development in productivity:

     First, the entrepreneurial activity of the active population remains relatively low, notably because the
     administrative burdens affecting both business creation and existing businesses are still high. Efforts
     have already been made to simplify procedures for start-ups. However, the business legislation and
     administrative environment could be further improved since bureaucratic and lengthy procedures as
     well as difficulties in buying land for industrial use still persist.

MT                                                     49                                                       MT
 ---pagebreak---      Second, there is a lack of effectiveness of R&D expenditure in terms of transfer of know-how to the
     business sector, of patenting and of product or process innovation. With R&D expenditures reaching
     1.6 per cent of GDP in 2001, Slovenia ranks first amongst the new Member States but still remains
     below the EU average. Slovenia also ranks first amongst the new Member States in terms of patent
     applications with the European Patent Office, but its performances in this field (41 per million
     inhabitants in 2001) are well below the EU average. In addition, the share of researchers employed in
     the business sector is low as compared to the public sector (one-third and two third respectively) and
     innovative activity appears to be weak in the high tech sector.

     Promote the development of effective competition in all segments of the economy, notably
     in network industries.

     Slovenia has proceeded towards increasing liberalisation in product markets and in network industries,
     but effective competition needs to be enhanced. In particular, while the Competition Protection Office
     is mandated with adequate powers to exercise control over restrictive agreements and any abuse of
     dominant position and mergers, its administrative capacities both in terms of financial and human
     resources are insufficient to ensure its proper functioning. Moreover, the current legislation does not
     allow it to set deterrent fines on anti-competitive behaviour.

     In recent years, Slovenia has started liberalising its network industries. In telecommunications, legal
     market opening was introduced in 2001 and an independent regulatory agency was created in 2002.
     However, effective competition has not yet appeared in fixed telephony for inland calls where the
     incumbent still holds 100 per cent of market share. The high price of network interconnections
     together with regulated low price levels for both local and national calls are the main barriers to the
     entry of new operators in fixed telephony. As regards the energy sector, large electricity customers
     (66 per cent of electricity consumption in Slovenia) are free to choose their supplier and since 2002
     the largest ones are allowed to purchase electricity from abroad. However, the scope of international
     exchanges is limited to a maximum of 20 per cent of total electricity consumption. In gas, the largest
     consumers are since 1 January 2003 free to choose their own supplier (accounting for 50 per cent of
     gas consumption in Slovenia), but in practice they can not switch to another supplier because of long-
     term contracts up to 2007 with the incumbent.

     Country specific recommendations to Slovenia

     Meeting the challenges outlined above requires broad structural reforms as they are laid down in the
     general guidelines (GL) in Part I of the Broad Economic Policy Guidelines.

     In order to lower inflation in a sustainable way, Slovenia is recommended to:

     1.       step-up structural reforms aimed at liberalising administered prices and advance further with
              de-indexation, in particular of the wage setting mechanism (GL 5).

     In order to increase employment rates, especially for older workers, Slovenia is recommended to:

     2.       review the tax and benefit systems, with a focus on labour market participation of older
              workers, and reassess the measures promoting active ageing by means of lifelong learning
              activities, as well as address the imbalance between temporary and permanent work
              conditions (GL 4, 8).

     In order to improve conditions for sustained productivity growth, Slovenia is recommended
     to:

     3.       further reduce the time and costs necessary to set up a new company and simplify the
              administrative procedures affecting businesses (GL 11).

MT                                                     50                                                      MT
 ---pagebreak---      4.      promote R&D and innovation in the business sector and improve the quality of the
             tertiary level education system (GL 13).

     In order to promote the development of effective competition in all segments of the economy,
              notably in network industries Slovenia is recommended to:

     5.      strengthen the administrative capacity of the Competition Protection Office, ease the
             entry of new competitors in network industries, and facilitate the purchase of lands
             for industrial use (GL 9).

MT                                               51                                                  MT