Bulgarian MEP Andrey Kovatchev: Growth the Only Way to Exit Crisis
Andrey Kovatchev is member of the European Parliament from Bulgaria's ruling party GERB and chairman of the Bulgarian delegation in the European Peoples' Party (EPP) group.
The prospect of a Greek default has loomed for a year and a half as the economy has been stuck in recession. Will Europe allow Greece to default?
Today's world is based more and more on mutual interdependence. This is especially true in the European Union and in the eurozone, because our economies and markets are connected. This is especially true for the financial markets, where an earthquake in one country can be felt as a shockwave around the globe.
European leaders are strongly committed to creating and implementing appropriate set of measures to not allow the breakdown of euro zone. The latest European Council on 26 October made a big step towards this goal and its quick and successful implementation is on top of the agenda at the moment.
Greece is one of the countries with high external debt and unsustainable budget deficit caused by voluntary political decisions by both center-left and center-right political parties. It is important to go beyond this concrete example and focus on the approach of multi-faceted reform in economic governance. The European Parliament recently passed a package of measures (the six pack) which is an important pillar to prevent future crisis and boost EU's competitiveness. Responsible budgetary and macro-economic policies have to be better assured for all Member States and the supra-national bodies have to play a bigger role in this process. Those Member states that had the most prudent fiscal policies and growth strategies are now performing best. This is the proof that fiscal stability leads to growth and employment.
Unfortunately there are governments who fell victim to irresponsible spending and populist impulses without care for the long term sustainable economic development. I am very glad that in the last two and a half years Bulgaria has a government seriously committed to prudent economic and fiscal policies and political leadership who stand up in difficult moments and explains to the citizens that first we need reforms in order to create opportunities for growth and only then enjoy the benefits of this.
At the same time Bulgaria needs growth to boost not only the export but the internal market too. This can happen only when the trust in overcoming the crisis returns in both investors and consumers.
At the latest elections the citizens clearly voted for political stability, which is very needed in these times. I hope after this vote citizens will make the next step, regain trust in the market, and contribute for the internal consumption.
Should Bulgaria be wary that the rules on bank recapitalisation will allow regional subsidiaries to be drained of money and put its economy at risk?
Financial Stability is a priority for the EU. This is why the EU has elaborated a number of mechanisms to tackle misbalances and potential threats. The requirement for 9% capital adequacy is part of the latest package of measures agreed at the European Council on 26 October. This is necessary in order to create a protective fire wall for the banks and to avoid contagion. Bulgaria already has stricter requirements for capital adequacy which gives additional reasons for investors to trust Bulgarian banking system and the economy.
In this train of thought, I would like to commend the work of Bulgaria's government in preserving financial stability and in taking appropriate measures to increase the resilience of the country's fiscal policy and economy to external instability. It is not by chance that Bulgaria's credit rating was increased by international credit rating agency Moody's in July.
It is important that banks raise enough capital and increase their capacity to resist financial instability while at the same time do not shrink their portfolios and lending. Growth is the only way to exit from the crisis and reduce debt levels in the mid- and long run. To return to growth troubled economies need political will for economic reforms but also uninterrupted flow of money to finance these reforms.
Large parts of the banking sector in Romania, Hungary and Serbia is in French, Austrian or Greek hands. Do the regional subsidiaries there face the risk of being drained of money? If the state is forced to intervene to prop up the subsidiaries, do you think the International Monetary Fund should back the governments with financial aid?
There are a number of different options for stabilizing the euro, and more precisely the debt market. The various opportunities for cooperation with IMF, interventions of ECB and the capacity of the EFSF are being discussed as we speak.
The balance between markets and politics is a delicate issue and is hard to forecast, especially in the dynamic political and market environment of the last weeks. Practice shows so far that common European efforts after the outbreak of the sovereign bond crisis have been supported by the IMF. The scale of the current crisis once again confirms that no country can be on its own. Cooperation and solidarity are among the core European values and they can yield good results in times of prosperity and equally so in times of crisis.
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Common economic governance in the EU is a nice vision.
Unfortunately, the EU is divided into two regions. The nice guys living north of the Alps, and the wise guys living south of the Alps.
Fortunately, Bulgaria has taken her own road and performs more like one of the nice guys.
The time to come will probably demonstrate the true meaning of "survival of the fittest" seen in a financial context.
Bulgaria will survive, that's for sure. Being a member of the EU, or not. As Uncle B says: "Just get your fingers out and grow some potatoes!". He is right!