A lack of stable government, rising inflation, concerns regarding corruption and ongoing disinformation campaigns have all played their part in shaking confidence among the public and investors alike.
After a turbulent year of political uncertainty, Bulgarians will face 2023 with yet another political challenge. This April, the country is headed towards its fifth election in three years as it prepares to adop the EU’s common currency. Successive Bulgarian governments have been committed to entering the eurozone ever since the country joined the Union in 2007 and its entry into ERM II in 2020 was an important sign of progress, but there is rising uncertainty surrounding the target date of January 2024.
- Bulgaria’s election merry-go-round continues to spin
- Corruption is no longer a tenable dividing line between East and West
- Papers, please
The lack of a stable leadership, rising inflation, concerns regarding corruption and ongoing disinformation campaigns have all played their part in shaking confidence among the public and investors alike. Despite this, the National Euro Changeover Plan under the interim government of Prime Minister Galab Donev indicates that the euro’s adoption will move along according to the current timetable, but many remain unconvinced.
A study conducted by Alpha Research in November 2022 found that, while the vast majority of businesses had a positive view of the euro and were widely prepared for its adoption, the general population was much less enthusiastic with more than half of Bulgarians feeling underinformed on the effects entering the Eurozone will have on the country. The same study found that only 32.8 per cent of Bulgarians fully or mostly approved of adopting the currency.
Even if policymakers and economists manage to somehow win over the trust of the electorate, the economic challenges remain. For months, Bulgaria has seen some of the highest inflation rates in the EU, averaging a staggering 13 per cent across 2022 with little hope of dropping to satisfactory levels. The country’s energy sector is particularly vulnerable as it has historically been tied to Russian supplies and investments which have been greatly affected by recent sanctions.
Political instability has also resulted in low confidence among investors with most rating agencies giving the country a “BBB” investment grade. Both Standard & Poor’s and Fitch have noted that entry into the Eurozone would benefit its credit rating.
According to the Governor of the Bulgarian National Bank Dimitar Radev, the political situations has negatively impacted the country’s readiness to join the euro, but it remains a priority.
“The ongoing political crisis puts into question both political and legislative actions in support of the accession process.” he says.
One sacrifice too many
While the current entry date is undoubtedly ambitious, coalition talks in recent months were marked by the emergence of a seemingly pro-European bloc of parties even with a disjointed National Assembly. Ex-PM Boyko Borisov remarked that questions like Bulgaria’s entry into the eurozone had the support of an “enormous majority” and that “there is a high chance of creating a government based on these majorities”.
This changed drastically in late January when five out of seven parliamentary groups failed to attend the Economic Committee to vote on amendments to the Insurance Codex – effectively sabotaging it. This assortment of eurosceptic parties was joined by the pro-western GERB party of Mr Borisov and historic allies, the Movement for Rights and Freedoms (DPS), putting into question just how committed both parties are to the country’s EU integration.
The controversy stems from long-awaited reforms to the codex surrounding the non-payment of civil liability car insurance abroad. For years, Bulgarian insurance companies avoided paying their obligations within the international “Green Card” system governing civil liability, citing systemic insurance fraud as the reason. In 2018, the obligations owed by the Bulgarian Green Card Bureau reached 19.6 million euros. European institutions have been pressuring Bulgaria to resolve the issue before entering the Eurozone – an unprecedented requirement for an unprecedented situation.
On the political side of things, the reformist bloc of We Continue the Change (PP) and Democratic Bulgaria (DB) have accused GERB of prioritising private interests. The focus is on the personal connections between Borisov and Alexey Petrov, the alleged owner Lev Ins, the market leader in civil liability. The chairman of the Economic Committee, Martin Dimitrov from DB, has said that “Sabotaging [the entry into] the eurozone and saying you are for the eurozone is demagoguery.”
A referendum in sight?
The euro will be a major theme in Bulgarian politics this year and one which the nationalist eurosceptic Revival party will not let go to waste. In January 2023, the party officially began its campaign to hold a referendum on the country’s adoption of the Euro and “save the lev”.
The Revival party has been an outspoken critic of Bulgaria’s westward orientation and has called for the country to leave the European Union. Following the October 2022 elections, the party held just over 10 per cent of seats in the National Assembly – its best result to date. Its leader Kostadin Kostadinov is widely regarded as a promoter of Russian interests in Bulgaria.
During a meeting in November 2022, President Rumen Radev noted that “holding a referendum on issues already settled in already ratified international treaties is impossible” and questioned the legitimacy of Revival’s campaign. Kostadinov, in turn, stated that “Bulgaria’s entry into the eurozone will bring more damage than benefits,” hence the need for a referendum.
While Kostadinov’s efforts might not garner much success, Bulgaria’s entry into the eurozone remains an open-ended question. The issue is likely to shape the upcoming April elections as both the reformist PP-DB coalition and GERB claim to stand for the country’s further integration into the EU. The ongoing economic challenged, however, will not be solved without a stable government – a feat which the elections are unlikely to produce.
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