Bulgaria economy

Bulgaria will have to conjure its fifth government in less than two years from its most fragmented parliament since the fall of Communism, after the country’s snap election on October 5.

Over the past 20 months, the EU’s poorest member state has experienced street protests against successive governments, a banking crisis, severe flooding and the loss of Brussels funding through maladministration. It has also been caught in a squeeze between its EU responsibilities and the baleful influence of long-time ally Russia, on which it has heavy energy dependence. The new government will have its hands full – once it is pieced together from the fractious groupings that made it into parliament. 

Bulgaria’s under-fire central bank has turned to the European Central Bank to oversee the country’s financial system days after it announced that it would allow the country’s fourth-biggest lender to collapse.

Bulgaria’s banking system as a whole remains well-capitalised. But the Bulgarian National Bank’s decision to enter talks with the ECB about joining the joining the European Single Supervisory Mechanism (SSM), even though Bulgaria is not in the eurozone, is an admission of draining confidence in the country’s financial and political authorities. 

Bulgaria’s central bank issued a dramatically-worded statement on Friday warning of “an attempt to destabilise the state through an organised attack against Bulgarian banks” after the country saw its second bank run in a week.

While the banking sector as a whole is well-capitalised, the manner in which two major financial institutions have been hit raises serious concerns about the country and poses risks to its economy. 

Controversial Bulgarian tycoon Tzvetan Vassilev blamed Sofia’s state prosecution service and media attacks for sparking a run on his Corporate Commercial Bank (KTB) as shareholders declined to rescue the country’s fourth largest lender, raising the prospect of nationalisation.

Speaking to beyondbrics, Vassilev said the run on KTB last week was “triggered by absurd speculations of certain factions of the Bulgarian prosecution service, which were blown out of proportion by Bulgarian media”. The run came after a controversial MP, Delyan Peevski, accused Vassilev of ordering his assassination, following which the state prosecutor detained three of Vassilev’s associates. 

Bulgaria’s central bank on Friday froze the operations of the Corporate Commercial Bank (KTB), suspended its directors and put the country’s fourth largest lender under special supervision following a bank run that had raised risks of insolvency.

Tsvetan Vassilev, KTB’s largest shareholder and one of Bulgaria’s wealthiest and most influential figures, said in a statement to the FT late on Friday that “the events that have been taking place since last week are the visible part of a carefully prepared and planned scenario aimed at destabilizing Corporate Commercial Bank”.

Vassilev did not say who he believed was behind the alleged attempt to destabilise KTB, but he did say that “more than 20 per cent of the financial institution’s assets were withdrawn in less than a week”. This, he added, would “have made any bank collapse within two or three days” but KTB had been able to withstand it, proving its “outstanding management”. 

Bulgaria will hold an early election in the autumn, with the beleaguered government set to step down after barely a year in power characterised by street protests, accusations of links to nefarious business interests and strong criticism from the European Union.

President Rosen Plevneliev said on Tuesday that the country’s leading political parties had agreed to an election between September 28 and October 12. It comes after a junior coalition partner withdrew from the government led by the Bulgarian Socialist Party (BSP), which suffered a damaging defeat in the European elections. 

Economic growth in emerging Europe surged in the first quarter as Germany’s dynamism drove manufacturing output and fears of that the Ukraine crisis would exert a damping did not materialise, data announced on Thursday showed.

“In spite of fears of spillovers from the crisis in Ukraine, there are no signs (so far a least) that this has affected the recovery in Central and South Eastern Europe,” said William Jackson, emerging markets economist at Capital Economics in London.

Four out of six emerging European countries to report preliminary GDP growth data showed a significant expansion in the first quarter year-on-year (see chart). Hungary, Poland, Slovakia and the Czech Republic posted an acceleration in GDP growth, while Romania and Bulgaria slipped back. 

Ask people to name one famous Bulgarian and the answer would probably not be Vasil Levski, freedom fighter and the country’s foremost hero. Nor would it be Tsar Simeon, who ruled over the Bulgarian empire that famously touched three seas.

 

No – the Bulgarian name most likely to glitter in the popular imagination is Hristo Stoichkov, a volatile and brilliant association football forward who fired the national team to a historic fourth place at the 1994 FIFA World Cup in the USA, leading the tournament’s top scorers chart along the way. 

Bulgaria’s government has been besieged by protesters for six months, and oversees an economy that has averaged growth of just 1 per cent since 2010. Those were the main factors behind Standard & Poor’s recent decision to revise its outlook for the country to “negative” from “stable”.

The change may be unwelcome, but merely reflects the difficult economic and political situation. Will it affect Bulgaria’s fledgling recovery? 

The government besieged, protesters and police packing the streets, an ongoing air of uncertainty over the country’s future – name the country. Not Turkey, or Egypt, but Bulgaria. But while demonstrators rage against the newly-appointed prime minister, the Balkan country has received a remarkably upbeat report from the International Monetary Fund, which praised the country’s economic stability and policies.

At the end of a regular staff visit on July 3, Michele Shannon, IMF Mission Chief for Bulgaria issued a statement that may give a fledgling, fragile and beleaguered government some succour. 

Five hundred years of Ottoman rule, 45 years of Communism and the past two decades of democracy tainted by corruption and economic failure have given Bulgarians a substantial dose of disrespect for their rulers. The latest government, which tiptoed over the line into office in a parliamentary vote on Wednesday, presides over a country that is as sceptical – even cynical – as ever. It also faces a sluggish, if stable, economy with the EU’s lowest incomes. 

Stanishev (left), Borisov (right)

“Too many grannies mean an unfed child” is the Bulgarian equivalent of “too many cooks spoil the broth”.

There are lots of fussy Balkan grannies competing in Sunday’s election – and they are likely to squabble for sometime afterwards about who gets to look after the feeble Bulgarian economy. 

Romania averted recession in the last quarter of 2012, but can only look forward to a long and slow slog this year as external and internal problems weigh heavy.

GDP crept forwards at a seasonally-adjusted rate of 0.1 per cent from the third quarter, and an unadjusted 0.3 per cent from the fourth quarter of 2011, the National Statistics Institute (INS) announced on Wednesday, giving details of figures published last month. 

The Bulgarian government resigned on Wednesday, throwing the country into political uncertainty and compounding concerns about the faltering economy.

Prime Minister Boyko Borisov announced the move on morning television, after days of street protests, including bloody clashes between police and demonstrators outside parliament on Tuesday night. Borisov said: “Every drop of blood is a shame for us.”

A snap election and change of government are now on the cards. 

Those (few)Bulgarians who made it to the polls in Sunday’s referendum on nuclear power have voted in favour of further development.

The vote was a political exercise which is unlikely to lead to the building of new atomic plants any time soon. But it was an unusual show of support for the much-criticised industry. How many other European Union countries would have voted in favour?