Bulgaria feels victimised by Greek financial mess

Despite its bad image, Bulgaria is on track to introduce the euro. The problems in neighbouring Greece force it to shelve its aspirations.

For years, the Bulgarians have worked to join the eurozone. Now their Greek neighbours are ruining the party, is the sentiment in Bulgaria. The chances of joining quickly are negligible, prime minister Bojko Borisov said recently on the popular TV talk show Panorama. "You can hardly imagine the fear, the stress caused by Greece in the EU," he said, raising his hands and leaning back in defeat. German chancellor Angela Merkel, French president Nicolas Sarkozy and the European Central Bank had all dissuaded him from requesting permission now, Borisov told viewers. Despite the fact that the country is well on its way to meeting all the convergence criteria to introduce the European currency.

Reports about Bulgaria usually focus on corruption, badly spent EU subsidies, fatal shootings and failure to tackle organised crime. Just last month, Bulgaria had to withdraw its candidate for the European Commission based on an alleged conflict of interest.

The image the country has in Europe is so bad that even some Bulgarians seem to believe in it. Until recently, they saw Greece as their example. It may also be 'Balkan' - a geographical word with negative connotations - but of a successful kind. Greece may have similar problems when it comes to corruption, but they seemed to weigh less heavily on the country than they did on Bulgaria. Its appeal as a tourist destination enriched Greece’s population at a time when Bulgaria was still beginning to reform its failed planned economy to adapt to capitalism.

'Greece out, us in'

The visible differences are still significant. Bulgaria's roads are in poor shape, residential areas are dominated by grey apartment blocks and gypsy slums. In Sofia, the capital, a 'made in the USSR' metro connects the city's two extremes: the centre full of fancy cars and designer shops and the neighbourhoods without sewer systems, where residents keep dogs to protect their chickens from thieves.

But the Bulgarians actually do some things better than their neighbours. "Greece out, us in," economist Georgi Angelov said jokingly about the future of the eurozone. Angelov works for the Open Society Institute, a foundation committed to improving democracy in Bulgaria.

"There is too much focus on Greece," agreed Levon Hampartzoumian, chief executive officer of the UniCredit Bulbank, Bulgaria's largest bank. According to him, decision makers in Brussels are obsessed with Greece. They threaten to contaminate much healthier Bulgaria by keeping it outside of the European exchange rate mechanism, the final step before adoption of the euro. "That would be unfair," Hampartzoumian said.

Greece has a huge budget deficit and high national debt, while Bulgaria doesn't. Greece can only borrow money on the capital markets at extreme interest rates and has had to call for assistance from fellow euro-nations, unlike Bulgaria. And unlike practically all eurozone countries, Bulgaria's budget deficit has not exceeded the limit of three percent of GDP. It stood at 0.8 percent in 2009. The country has balanced its budget for 2010.

"By the end of 2010, we will be the only EU country that meets all the criteria of the Maastricht Treaty," said finance minister Simeon Djankov, referring to the 1992 treaty that set the standards for the single currency. He believes this example should be rewarded, but he is concerned it will not be. "This government, which has been in place for six months, has the difficult task of convincing Europe we can be trusted."

Currency paradox

Billboards in Sofia offer loans in euros against better rates that those in levs. The Bulgarian lev currency has long been pegged to (the Deutsche mark and later) the euro. The exchange rate is fixed and mortgages are offered in euros, while wages are still paid in levs. Why adopt the currency completely, if the exchange rate is already fixed?

"The current paradox does not serve economic development in the country," banker Hampartzoumian said. The current recession leaves Bulgaria with the worst of both worlds: it doesn't have the safety net of being part of the eurozone, but neither can it devaluate the lev to soften the effects of the crisis. Hampartzoumian said credit rating agencies and investment banks see this ambiguity as a risk. "It is hard to understand, we're neither here nor there," the banker said.

Everyone who has been shocked by how lax the eurozone rules have proved to be, seems to forget that aspiring members have committed to introducing the currency. "If you tamper with that, the euro will never be a global currency," Hampartzoumian said.

Finance minister Djankov, who spent half of his life working abroad, was amazed when he returned to Bulgaria six months ago. He noticed how much influence Russia still has on the country, especially in the energy sector. "The EU must want to reduce that," Djankov said. To do so, Bulgaria needs to become part of the eurozone. "Bulgaria has been a member of the EU since 2007, but to really be a part of it, we need to take the next economic step."

The minister admitted Bulgaria still had some reforms to make before that day, but the EU has to stick to its own rules and not exclude the country because of problems elsewhere, he said. "Not doing so would be hypocritical."