Bulgaria: below expectations

Bulgaria’s admission into the EU was somewhat conditional – Bulgaria had not met all the requirements, but the Union’s officials hoped that the admission to the community will provide an impulse to quickly fix the situation. Today, Bulgaria fares better economically than before 2007, but the biggest issues remain unresolved.
Bulgaria: below expectations

(CC By-NC-Karen-Horton)

When joining the European Union in 2007, Bulgaria and Romania undertook to fight corruption and organized crime. While Bucharest has had some achievements in those fields, Bulgaria is a disappointment.

Bulgarian corruption has its roots in the previous political system and is difficult to combat – many corrupt politicians and businessmen continue to hide under the protective umbrella provided by powerful friends or behind the parliamentary immunity. Also, lack of political stability, including changes in the government as often as every few months means that individual ministers have neither the time nor the opportunity to tackle the problem. Sheer acts of corruption as well as hard-to-explain appointments, dismissals and decisions are observed even at the top levels of government, in plain sight of all the citizens – and that indeed is out of order.

Unclear relationships

Meet an almost archetypical villain, whose involvement in the events of recent years is difficult to explain, yet vital to the understanding of the backstage realities and forces shaping the events in this country. His name is Delyan Peevski, a media magnate. The sources of Peevski’s wealth are obscure. In June 2013, he was appointed the chief of the State Agency for National Security.). His rise to such a high position had not been impeded by the fact that there was a pending case against him, related to accepting financial benefits (the proceedings were discontinued a few days after the announcement of the appointment). Such a controversial appointment hardly pleased the Bulgarians, who took to the streets, demanding not only the removal of Peevski from office, but also the resignation of the government led by the financier Plamen Oresharski. The former was forced to relinquish his post but the head of the government despite his tainted image, held the position for over another year.

At the moment, Bulgaria is getting ready for early elections (due on 5 of October). At the beginning of August, the president issued a decree dissolving the National Assembly elected in 2013, and Oresharski handed over power to his successor, Professor Georgi Bliznashki. There were several causes of this turn of events, one being  the dissolution of the governing coalition created by the Bulgarian Socialist Party (BSP) and the Movement for Rights and Freedoms (DPS).

An analysis published at the end of August 2014 by the Center for the Study of Democracy, which has studied the phenomenon for over 20 years, says that in 2014 corruption in Bulgaria reached its peak of the last 15 years, and that the Bulgarians themselves, whilst condemning it, were ready to offer sweeteners if necessary to speed up a bureaucratic procedure or to avoid inconvenience. As many as 70 percent of citizens are willing to pay bribes.

Black PR aimed at banks

The situation in Bulgaria is unstable and government changes are not uncommon, so the European media did not cover the resignation of the parliament very extensively. A fair amount of attention was given, however, to the destabilization of the Bulgarian banking system in the summer. In June 2014, attacks began on the fourth biggest bank – the Corporate Commercial Bank (KTB). A masterful defamatory campaign was conducted. Within a short period of time, hundreds of people received mails and text messages informing the recipients about the poor condition of the bank; some papers and information services released similar-sounding messages. Long, artificial queues formed in front of the bank branches, which was supposed to add to the feeling that its stability was in jeopardy. Panic spread among the bank’s clients (justified by the fact that many people still remembered the experience of 1996, when 14 banks went bankrupt and their clients lost all of the deposits placed). To remedy the situation, the central bank took KTB under special supervision. Finally, after identifying irregularities in the management of the bank, its license was revoked. It is worth noting that KTB was a state bank and maintained accounts of many state institutions.

The First Investment Bank (PIB) shared a similar fate not much later. Due to panic, clients withdrew 400 million euro in one day alone.

Enter again Delyan Peevski. It was his media group that started to spread negative (and not always true) information about KTB. There is every indication that this happened in the aftermath of a dispute between Peevski and his many-year business partner, Tsvetan Vasilev.

In order to prevent the paralysis of the banking system, the government has injected 1 billion euro in the sector. The prosecutor’s office has sprung to action as well. On the one hand, it is investigating who is behind the black PR. On the other hand, it is checking whether the supervision of the banks was conducted by the book. It is well known that state authorities were interested in the actions (and possible inaction) of the chairman of the Bulgarian supervision institution, Tsvetan Gunchev. Is it true that both him and the head of the central bank were corrupted by KTB and therefore turned a blind eye on the irregularities in this institution? Perhaps the current investigation will establish that. One way or another, private intrigues have shaken the entire national banking sector, causing huge slumps on the stock market (for example, on Friday, 20 June 2014, PIB shares lost 17 percent of their value on the Sophia stock exchange), forced the state to take immediate (and costly) steps and finally to some degree have contributed to the fall of the government.

The Bulgarian economy, however, is doing quite well. On his resignation, Prime Minister Oresharski reminded the public that his office had worked under strain, and yet managed to succeed: it reinforced financial stability and improved investment climate.

“We leave financial reserves of 8.5 billion leva (about 4.25 billion euro). These funds guarantee the payment of installments and interest on the debt due at the end of the current accounting period and in January next year”, said the Prime Minister.

Bulgarians do no work in Bulgaria

Unemployment, which reached 13.1 percent at the beginning of 2014, must be considered an unresolved problem. Among young people, unemployment reaches the alarming level of 30 percent.

It seemed that with the accession to the EU, the problem of joblessness would become history – in 2008, unemployment was historically low at 5.6 percent (it had been decreasing steadily since 2003). The turmoil in the global markets caused that trend to reverse and now Bulgaria is ranked seventh among the EU countries in terms of unemployment. Its distribution, however, is uneven.

Most of the unemployed belong to unskilled Roma and Turkish populations, living mainly in the north-west and north-east of the country. In big cities the situation is much better, but with the average salary of a mere EUR 350 (the lowest in the EU), it is difficult to view those who have a job as particularly blessed. Low wages contribute to the scale of the other adverse phenomenon that plagues the country – emigration.

At the beginning of 2014, data were published which show that more Bulgarian citizens work abroad than in Bulgaria (2.2 million in the country against 2.5 million abroad, mainly in Germany and the UK). The concern of the authorities, which organized campaigns in major cities in Western Europe to encourage people to return and set up businesses in Bulgaria, is mainly due to the fact that the emigrants are predominantly educated people, such as doctors, IT specialists, or engineers. Although the Investment Agency officials tried to convince emigrants that upon return, they will be able to benefit from a special tax break for entrepreneurs as well as consultancy assistance, no wave of returns did materialize. To the contrary, 17 percent of people aged 15-55 (400 thousand persons) want to emigrate.

(infografika Dariusz Gąszczyk/bułgaria CC BY-NC-SA Julie)

(infografika Dariusz Gąszczyk/bułgaria CC BY-NC-SA Julie)

Relationship with Russia

Bulgaria is one of the EU countries most dependent on Russian gas supplies flowing through Ukraine (86 percent of the demand). If supplies were halted today, the country could function independently for another three months.

Bulgarian tourism, which accounts for about 14 percent of its GDP, is oriented mainly towards tourists from Russia. In 2013, the country was visited by over 700 thousand Russians and 300 thousand Ukrainians. Data for this year’s holidays are not yet available, however there were fewer visitors. It is interesting that the imposition of retaliatory sanctions by Russia on the EU will harm Bulgaria much less than the decrease in the number of tourists. This is because Bulgarian goods, especially agricultural produce, had problems with access to the Russian market anyway and could not withstand competition with Turkish and Serbian products, which benefited from more favourable export conditions.

Meanwhile, Bulgaria, which does not play a leading role on the world’s stage, may succeed in what could not be achieved by any other country: thwarting the Russian dreams of accelerated gas expansion in Europe. How? Because, in connection with the controversy regarding the construction of the South Stream pipeline (in the opinion of the European Commission, the agreements entered into by Bulgaria and other countries involved with Gazprom are incompatible with EU law), the government has decided to suspend all work on this project. The initial decision was made in June and it is not yet known when the works will resume.

Bulgaria is a key element of the entire project. For now, no one expects it to completely withdraw from participation, especially as it enjoys the support of all the major political parties. However, in the extreme case – that is, if for any reason, no section of the South Stream pipeline ran through the territory of Bulgaria, would its construction make sense for Russia? Many analysts believe that even in today’s scenario the pipeline does not make sense from an economic point of view and is an investment implemented only for political reasons and prestige. Bulgaria’s complete withdrawal would certainly boost the cost of construction, as it would be necessary to create new plans; in addition, the agreements concluded with other countries might have to be amended. Right now, the big question is the feasibility of starting the gas transfers within the scheduled deadline, i.e. in 2016.

The fact that nothing is happening at the construction site does not mean that the project has been abandoned. A few days ago a European Commissioner for Energy, Günther Oettinger, issued a statement in which he announced that Brussels was ready to start talks with the authorities in Sofia to adapt the project to the EU requirements. The Minister of Economy, Vasyl Shtonov, expects the agreement to be concluded before the end of the year.

(CC By-NC-Karen-Horton)
(infografika Dariusz Gąszczyk/bułgaria CC BY-NC-SA Julie)

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