EC Deems Bulgaria's Euro Convergence Program Successful

Business » FINANCE | April 16, 2010, Friday // 18:51
Bulgaria: EC Deems Bulgaria's Euro Convergence Program Successful Bulgaria's Finance Minister Djankov (left) during the informal EU finance ministers meeting in Madrid. Photo by Finance Ministry

The European Commission has evaluated the Convergence Program of submitted by the Bulgarian government under the Stability and Growth Pact as “adequate.”

This has been announced by Finance Minister Simeon Djankov after the first session of the informal meeting of EU finance ministers in the Spanish capital Madrid, which took place on Friday, as cited by the Bulgarian Finance Ministry.

The EU Stability and Growth Pact (SGP) pertains to the third stage of economic and monetary union (EMU), which began on 1 January 1999, and is intended to ensure that the member states maintain budgetary discipline after the single currency has been introduced. States such as Bulgaria which are aspiring to the third stage of EMU (i.e. those that have not adopted the euro yet), are required to submit regularly a convergence program.

As nine of the 27 EU finance ministers failed to make it to the Madrid meeting because of canceled flights over the ash clouds caused by a volcano eruption in Iceland, the final review of the convergence programs of the respective EU member states has been put off until next week; in the meantime, the countries will not be able to make any changes in them, the Bulgarian Finance Ministry said.

“The general conclusion of the European Commission on Bulgaria’s convergence program under the Stability Pact is that the program goal for maintaining a stable budget policy can be considered adequate in the present economic situation, and with respect to the need to curb internal imbalances,” Finance Minister Simeon Djankov is quoted as saying.

Even at the cost of delaying the payment of state debt to private businesses at the end of 2009, Djankov has struggled to keep Bulgaria’s 2009 budget deficit as low as possible in order to comply with the convergence criteria of the Stability and Growth Pact so that Bulgaria could apply to the Eurozone waiting room, the ERM II, in the spring of 2010.

At the beginning of April, however, Bulgaria’s Borisov government announced it had discovered “hidden” contracts and annexes made by the previous Cabinet of which it had been unaware, and which doubled Bulgaria’s 2009 deficit from 1.8% to 3.7%.

The Borisov government said this placed in a position similar to that of Greece since it had unwillingly “lied” to the EU institutions by submitting to them factually untrue financial data; the Finance Minister had made it clear that with the submission of the new data after the “discovery” of the “hidden” contracts, Bulgaria might have to put off its Eurozone bid by at least one year.

“The consolidation measures of the Bulgarian government are a political commitment for improving the fiscal discipline,” says the EC conclusion quoted by the Bulgarian Finance Ministry.

“In other words, the European Commission is approving and deems adequate our Convergence Program. This gives us an opportunity in the following weeks to talk to our EC partners, whom we have invited to visit Sofia at the beginning of May to examine Bulgaria’s situation and to decide if we are going to get into a “hyper-deficit” procedure, or if we can avoid that,” Djankov commented.

“The EC assessment of our Convergence Program says that everything that Bulgaria’s new government has done is adequate to the situation,” he elaborated.

Djankov pointed out that the EC has invited Bulgaria to continue to apply strict fiscal discipline, and to keep exerting its efforts to reach its 2010 convergence program goals.

“This part refers to the recently discovered problems with the 50 hidden annexes of public procurement contracts,” he said adding that the Commission allowed the Bulgarian government to discuss the situation and to consider the need for additional measures.

“In order to improve the efficiency of Bulgaria’s public spending through the strict adherence to planned reforms, the government needs to carry out reforms in state administration, healthcare, education, and pension system,” reads the statement of the EC on Bulgaria’s Convergence Program, as cited by the Finance Ministry, which also pointed out that Djankov has informed the EC of Thursday’s adoption of the Higher Education Act.

“The European Commission has estimated that thanks to the measures adopted by our government from August 2009 till January 2010, we have managed to reduce Bulgaria’s budget deficit by 2.3% of the GDP. But this is before we discovered that the Bulgaria state owes additional BGN 2 B because of the hidden contracts that we discovered recently,” the Finance Minister explained.

“Given the newest forecasts and level of the Bulgarian state debt, the medium-term budget goal is a more than adequate reflection of the goals of the Stability Pact. It can be accepted that in accordance with the requirements of the Stability Pact, the budget strategy of Bulgaria’s program contributes to the preservation of macroeconomic stability and the trust of foreign investors in the Bulgarian economy,” says also the statement of the European Commission. This has been described by Minister Djankov as “the greatest recognition.”

Bulgaria is expecting a mission of EC in May 2010, which is going to give a final evaluation of the country's fitness to apply for joining the ERM II, the Eurozone waiting room. Bulgaria will have to put off its euro bid till 2011 if the mission gives a negative assessment.

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Tags: EC, European Commission, finance minister, Simeon Djankov, Convergence Program, Eurozone, ERM II

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