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A tale of what could have been for the EU's poorest country

A tale of what could have been for the EU's poorest country

by Bloomberg 5 min. 11.12.2017 From our online archive
A decade ago, Bulgarians flooded the streets in celebration of their ex-communist nation joining the European Union
Downtown Sofia, Bulgaria's capital (Shutterstock)

There was a light show in the skies above the capital. Then-Prime Minister Sergei Stanishev called it a "dream come true."

The euphoria wasn’t just about shaking off the country’s Eastern Bloc legacy. Accession carried the promise of bridging the wealth gap with Europe’s richer west. Membership would boost trade and bring billions of euros in infrastructure investments. For its part, Bulgaria would rebuild its political institutions, bringing them up to European standards.

Ten years later, as Bulgaria gears up to host the bloc’s six-month presidency for the first time, not all has gone to plan.

While exports have doubled and living standards have improved, wage growth has disappointed and workers have fled what’s still the EU’s poorest member. The bloc’s prolonged financial crisis didn’t help, particularly with troubled Greece right next door, but that’s not the whole story. Neighboring Romania, which joined at the same time and embraced reforms more enthusiastically, has notched more impressive gains. Bulgaria may have passed up a chance to advance.

"One can’t escape the impression that Bulgaria has missed out on economic growth opportunities," said Otilia Dhand, an analyst at Teneo Intelligence in London. "Given the level of economic development and given the level of wages in Bulgaria, it should still be outperforming everyone. But it’s not."

A major reason is corruption. Bulgaria ranks as the worst EU nation for graft, and the issue is at the heart of many of its challenges. Foreign investment has stagnated, the EU continues to monitor the judiciary and some members are reluctant to permit entry to the passport-free Schengen zone.

There’s a renewed push to tackle corruption before Bulgaria takes the helm of the EU presidency in January. But past initiatives have fallen flat, and analysts have little faith Boyko Borissov, prime minister for much of the past 10 years, will change much this time.

The seaside resort of Sozopol in Bulgaria (Shutterstock)
The seaside resort of Sozopol in Bulgaria (Shutterstock)

"I’m afraid there’s a lot of smoke being created right now that will ultimately lead nowhere," Daniel Kaddik, project director at the Friedrich Naumann Foundation in Sofia, said by phone. "Look at how many attempts we’ve had in the past years at both judicial and anti-corruption reforms. And nothing ever really happened."

Hristo Vassilev, a 48-year-old entrepreneur, can testify to that. He’s waging a three-year court battle to regain control of his real-estate company, Happy Lands, after a gang used fake documents to appropriate it. Vassilev is currently fighting an appeal by the perpetrators against reinstating his ownership.

"After all this time, no one’s been charged, even though prosecutors have a lot of evidence," he said by phone from the Black Sea port of Varna. "The case is too big, and it’s full of things no one wants to deal with."

Scandals have engulfed bigger businesses too, from the 2014 collapse of Bulgaria’s fourth-biggest bank to an aborted plan to build a 10 billion-euro nuclear plant with Russia’s Rosatom.

Corruption costs almost 15% of Bulgaria’s gross domestic product, the European Parliament estimates, and does nothing to stem an exodus of workers heading west in search of higher pay. The population has shrunk to 7 million from 8 million in the past 15 years. The logic for leaving is clear: at 544 euros a month, the average wage is a sixth of Germany’s.

"The decline in the active population, which in Bulgaria is dwindling as a result of emigration, is hindering the economy," Deputy Labor Minister Sultanka Petrova said in an interview. While GDP is rising for a fifth year, growth is forecast to continue trailing peers, reinforcing the departures.

It’s unclear where a solution will emerge. While Hristo Ivanov, a former justice minister, accuses the government of a "10-year imitation of reform," the anti-graft Yes Bulgaria party he founded this year failed to make it into parliament at elections in March.

The EU said last month that the "institutional set-up to fight corruption in Bulgaria remains fragmented and therefore largely ineffective." While also criticising Romania, whose judicial progress it monitors too, that country has been cracking down on graft for five years, jailing scores of officials and helping unseat a sitting prime minister.

Aerial view of downtown Sofia, Bulgaria (Shutterstock)
Aerial view of downtown Sofia, Bulgaria (Shutterstock)

Political will

Bulgaria’s parliament gave preliminary backing in October to an anti-corruption bill that would boost scrutiny of public officials and allow seizure of assets that exceed owners’ taxable incomes.

The law aims to meet EU recommendations and "show a clear political will to prevent corruption pressure," Tsvetan Tsvetanov, deputy leader of the ruling Gerb party, said by phone in November. Responding to emailed questions, the cabinet said it’s "working to overcome" poverty and corruption.

To be sure, Bulgaria has achieved a lot in the past 10 years. A construction boom has revitalised tourism in the Balkan country’s ski and Black Sea resorts. The government boasts one of the EU’s smallest debt-to-GDP ratios and a stable budget. Germany and France back the country’s efforts to join the euro.

S&P Global Ratings lifted Bulgaria’s credit rating to investment grade this month, lauding "sound government and external balance sheets." If there’s a problem, it’s that Bulgaria’s economy couldn’t surpass those of its peers since joining the EU, Deputy Prime Minister Tomislav Donchev said by email.

Venue controversy

Hosting the presidency, including an EU leaders’ summit in May, gives Bulgaria a platform to parade its corruption-busting credentials. But the venue where the main events will be held, the National Palace of Culture, has itself caused controversy as its former director fights charges he embezzled about 3 million lev (€1.5 million) earmarked for renovations.

Reflecting on the past decade, ex-Premier Stanishev, 51, says Bulgaria’s achievements shouldn’t be underestimated. But he acknowledges the zest for reform has sometimes been lacking.

"We didn’t use all our opportunities effectively," Stanishev, who lost an election to Borissov in 2009, said in an interview. "Very often we didn’t have enough political will to address the problems we faced."