The EU Finance Ministers have decided to set Bulgaria under the excessive deficit procedure, a program to reduce its budget deficit below the 3% threshold required by the Stability and Growth Pact.

During Tuesday’s meeting of ECOFIN, the Council of the EU Finance Ministers, a decision was made to press Bulgaria, Denmark, Cyprus, and Finland to cut their budget deficit gaps.

ECOFIN’s statement said financial figures showed Bulgaria and Cyprus had budget deficits in 2009 surpassing the limit of 3% of the GDP, while the deficits of Denmark and Finland are also expected to exceed the 3% threshold.

With respect to Cyprus and Denmark, the Finance Ministers of the EU decided that the deficits resulted from “special circumstances” related to the global economic crisis. Thus, Cyprus is asked to bring its deficit below 3% by 2012, and Denmark – by 2013.

At the same time, in the cases of Bulgaria and Finland, ECOFIN has demanded that the two countries rectify their budget deficits according to the standard timetable

"Thus, in its recommendations the Council called on Bulgaria and Finland to bring their deficits below the 3% of GDP threshold by 2011, on Cyprus to do so by 2012 and on Denmark to do so by 2013. For all four member states, it set 13 January 2011 as the deadline for taking corrective measures," said the Council statement.

With Tuesday’s decision of ECOFIN, only Luxembourg, Sweden, and Estonia, that is, three out of a total of 27 EU member states are left out of the list countries that broke the 3% budget deficit requirement of the Stability and Growth Pact.

Bulgaria was first slated to be set under the EU excessive deficit procedure in early May when the convergence report of the European Commission concluded that it, together with seven other EU member states, did not meet all the conditions for the adoption of the euro.

Subsequently, the Commission proposed to the Council of the EU Finance Ministers that it consider setting Bulgaria, together with Cyprus, Denmark and Finland under the so called excessive deficit procedure to ensure that they will reduce swiftly their state spending.

The European Union sets a cap on budget overspends at 3% of gross domestic product, and Bulgaria reached a general government deficit of 3.9% in 2009, according to latest data revealed in April 2010. Likewise, Cyprus breached its budget by 6.1%, Denmark is projecting a 5.4% shortfall this year, while Finland expects its deficit to reach 4.1%.

A total of 21 countries had already been subjected to the EDPs, with Bulgaria, Cyprus, Denmark, and Finland now added to the list. Estonia, Luxembourg and Sweden are currently the only EU countries within the debt and deficit limits.

The European Commission’s raising the issue of placing Bulgaria under the excessive deficit procedure came after in the spring of 2010 the European Union's official statistics agency Eurostat said the Bulgarian budget deficit in 2009 was wider than the government had estimated and exceeded the 3% ceiling.

In the first of its twice-yearly reviews of government finances in the 27-member bloc, Eurostat said the Bulgarian government's budget deficit was 3.9% of gross domestic product last year, which is up by 0.2% over the government's revised figure of 3.7%.

Bulgaria's center-right government announced earlier in April a larger than expected 2009 deficit allegedly caused by arrears and unaccounted procurement deals, signed by the previous Socialist-led cabinet. The previously undiscovered expenses increased the 2009 gap to 3.7% of gross domestic product (GDP) from an initial 1.9% under the EU rules, the cabinet said.

Prime Minister Boyko Borisov has blamed the increase on extra spending due to annexes to public procurement deals the previous government had signed with some 150 contractors at the end of its term. Borisov said his ministers were kept in the dark about the additional costs to the treasury.

Bulgaria's Finance Minister Simeon Djankov had orignally hoped to be able to submit an application for joining the euro zone waiting room, the ERM II in the spring of 2010, in order for Bulgaria to be able to adopt the euro in 2013. With the budget issues the Bulgarian government is now facing, experts say the earliest remotely possible date that Bulgaria could hope to join the euro zone is 2014.  

Last week Bulgaria adopted the 2010 Revised Budget Act, the first revision of the country’s annual state budget since 1997, providing for a deficit of 4.8% on cash base, and of 3.8% according to EU accounting rules.

The original 2010 State Budget Act adopted in the fall of 2009 provided for a deficit of 0.7% at the end of 2010.

Bulgaria's Finance Minister Simeon Djankov said over the past weekend that the draft 2011 state budget will project a 2.7% budget deficit for next year.

The EC convergence report from May 2010 slating Bulgaria to be set under the excessive deficit procedure READ HERE

Detailed information about the country-specific procedures by the EC is available HERE

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