By Elizabeth Konstantinova in Sofia

Bloomberg

Bulgaria's Socialist Party, which placed second in May 12 early elections, has an opportunity to return to power after four years as the winning Gerb party struggles to find allies willing to join the next government.

The European Union's poorest country faces a higher "risk of political and social instability" when Cabinet talks begin after no party won an outright majority in May 12 elections, James Goundry, an analyst at IHS Global Insight in London, said in an e-mailed note yesterday.

Bulgaria's political turmoil started when the Gerb-led Cabinet of former Premier Boyko Borissov lost power in February because of anti-austerity protests. Squabbles with rival parties including the Socialists, who want former Finance Minister Plamen Oresharski as premier, over curing the economic slump, boosting tax revenue and building a 10 billion-euro ( billion) nuclear power plant raises concern Bulgarians will be forced back to the ballot box this or next year.

"It will be very difficult to forge a coalition government, and the Socialists have a better chance than Gerb," Daniel Smilov, a political analyst at the Center for Liberal Strategies in Sofia, said in a phone interview. The new government will "be vulnerable, it will lack confidence and won't inspire any enthusiasm. It won't be able to remain in power for more than a year."

Bulgarian Markets

The yield on Eurobonds maturing in July 2017 rose one basis point, or 0.01 percentage point to 1.74 percent at 2:30 p.m. in Sofia, according to data compiled by Bloomberg.

The cost to insure Bulgaria's debt against non-payment for five years using credit-default swaps rose 1 basis point to 99, data compiled by Bloomberg show. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower renege. The Sofix stock index fell 0.69 percent to 404.41 today.

Gerb, which stands for Citizens for the European Development of Bulgaria, took 30.53 percent of the weekend vote, compared with 27.65 percent for the Bulgarian Socialist Party, according to preliminary results based on 100 percent of the ballots counted, the Central Electoral Commission said on its website today. The results don't include voting abroad, it said. Turnout was 51.33 percent.

Borissov's party is set to get about 98 seats in the 240-member Parliament, with about 86 seats going to the Socialists, according to the electoral commission. Gerb controlled 117 seats in the previous legislation, while the Socialists had 40 seats.

Smaller Parties

The Movement for Rights and Freedoms, which represents the ethnic Turks in the Balkan country, won 11.22 percent and may control 34 seats, while the radical nationalist Attack party got 7.3 percent with 22 lawmakers, the Central Electoral Commission said.

The Socialists and the Movement for Rights and Freedoms said they are prepared to form a coalition Cabinet, while Attack said that no government can be formed with the composition of the new Parliament. The Movement ruled out a coalition with Gerb.

"Given the possible final parliamentary arithmetic, coupled with the parties' historical animosities, all attempts to form a stable government could easily fail," said IHS's Goundry. "A Gerb-led government looks unlikely, unless Attack changes its mind and agrees to be a government partner, or at the very least, support a defined Gerb program in Parliament."

Most probable is a Socialist-ethnic Turk coalition, Goundry said, though that linkup may fall short of the 121 seats needed for a majority. A Socialist-led coalition may try to govern with the support of Attack on an issue-by-issue basis, he said.

'Colonial Rule'

Attack leader Volen Siderov said he will only support a government that would "free Bulgaria of the colonial rule of international monopolies."

Borissov was the only political leader who hasn't held a press conference since the election. He will announce his plans after the Central Electoral Commission releases final official results on Thursday, the Pressa newspaper reported today, citing unidentified Gerb officials.

Even if parties overcome policy differences, "they will have difficulty convincing their supporters that they will preserve their political identity in such a coalition," Smilov said.

The Socialists and Attack want to scrap Bulgaria's current 10 percent flat tax on personal and corporate income and resume building the Belene nuclear power plant by Russia's Rosatom Corp. Borissov canceled the project because of a lack of funds and investors. The Movement wants to keep the flat tax and are neutral on Belene's construction.

'Free Fall'

Oresharski, speaking to reporters last night, said the "economy and finances are in a free fall" and the most urgent measures would be to boost budget revenue by curbing contraband and lifting administrative pressure on businesses.

The Organization for Security and Cooperation in Europe and the Party of European Socialists were among the seven international and 19 local organizations that stationed election monitors at polling stations following reports of vote buying during presidential elections in October.

Bulgarian police found 350,000 ballots in excess of the amount ordered by the government in the Multiprint printing house in the town of Kostinbrod near Sofia, the Central Election Commission said on its website on May 12. The extra ballots were placed under police protection.

"The authorities made real steps to uphold the integrity of the election, but scandals and the recent discovery of additional ballot papers without proper explanation undermined people's faith in the political system," the OSCE said in a statement yesterday. "When you look at the mistrust that exists between political parties, and at the current economic difficulties, this is a negative development."

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