Bulgaria's Difficult Steps towards the Eurozone

Novinite Insider » EXPERT VOICES | Author: Vladimir Shopov and Dimitar Bechev |April 6, 2011, Wednesday // 17:36
Bulgaria: Bulgaria's Difficult Steps towards the Eurozone

Vladimir Shopov (pictured right) is a founder and managing partner at the Sofia-based Sophia Analytica consultancy. Dimitar Bechev (pictured left) is the head of the Sofia Office of the European Council on Foreign Relations.


The fear of isolation is the birthmark of Bulgaria's EU membership. The risk of being left out has always been a burden for the Bulgarian governments, and shapes our diplomacy.

Clearly, though being formally member of the EU and NATO, Bulgaria remains on the margins of both. On the one hand, Europeanization always requires constant, utmost effort, and we are unlikely to see it as a fulfilled goal in the near future. On the other, Bulgarians still habitually perceive the EU as a force from outside, rather than as a partnership where we have our, however modest, share.

From Bulgaria's point of view, the Eurozone crisis gives rise to the threat of a "two-speed" Europe.

This dynamic is real and patent to whoever has followed the dramatic developments in the EU over the past year. Europe has decided to respond to the financial problems besetting the common currency with a reinvigorated push towards integration. The present changes set the framework of the overall EU politics for decades to come.

Bulgaria cannot afford to lag behind the EU core pushing ahead. The stake is clear: the modernization of the Bulgarian society, economy, and state institutions.

Yes, sometimes this proves costly. Bulgaria receives plenty from the EU, and this is precisely why it has to contribute its mite, including within the newly-instituted European Stability Mechanism.

It is perfectly normal to pose the question of costs, as a number of economists have done recently.

But it is at the same time not right to overlook the price Bulgaria is to pay if it chooses to stay outside the Eurozone and the policies that come along with it.

The price-tag for Bulgaria's participation is not at EUR 6bn. State institutions are fully aware of that fact and it is puzzling why they have kept silent.

The country is expected to contribute a total of EUR 350m in five installments, starting from 2013 or from the moment it is admitted into the Eurozone. This commitment gives Sofia a strong political argument as to why it should be let in.

Becoming part of the euro is clearly a matter of shared interest. Consider the favorable effect from the drop-down of interest rates to the levels charged by high-street banks in Germany and France. Bulgarian economist Georgi Ganev has recently calculated Bulgaria's potential benefit from adopting the euro at 15%-22% of the GDP over a 20-year period.

The trade-off between costs and benefits is actually present at every single step of Bulgaria's EU integration. Taking aboard business regulations we gain access to the EU's Single Market which is a key factor for exports, the influx of foreign direct investment, and hence economic growth.

The benefit from pricey investment into Schengen infrastructure is the abolition of border controls, and the deepening of the freedom of movement of people, goods, and even services (i.e. easier access for tourists). The payoff from EU environmental legislation, is the improved quality of life for Bulgarian citizens. Now Bulgaria's participation in the European Stability Mechanism is the key to the Eurozone's door.

Frankly, nobody can force us to go through this door. But let's ask ourselves what we will get by staying out, without having access even to the waiting room. The answers: close to nothing. The Bulgarian lev is pegged to the euro anyway but without full membership in the Eurozne we are signing up to obligations without reaping the benefits.

The cost is not just the prospective contribution to the common ESM fund. Bulgaria's participation to the Pact for the Euro (or "Euro-Plus-Pact") is a step towards the ultimate goal. Yes, certainly, the Pact for the Euro itself harbors risks. There will be pressure in one way or another to harmonize taxes, there will be monitoring of the growth rate of personal income, which, as we know, is the lowest in the EU 27. But there will also be a sufficient brake mechanism.

In its current form, the Pact for the Euro is based on national programs for its application and is not legally binding. In other words, every member state as the opportunity to provide well-founded arguments to demand exemption from or modification of some of its measures. No one is condemned to swallow measures seen as contrary to national interest. This is a political document and there are infringement procedures for the failure to implement this or that point. Its framework provides enough ground for a battle of ideas, positions, and interpretations. The Pact for the Euro even provides the opposition and civil society with the opportunity to block governmental plans for economic reforms.

And let's say it loud and clear: the Pact for the Euro is not the product of an anti-Bulgarian conspiracy.

Yes, it talks about outlining common rules of calculating the corporate tax base but there are also proposals for reducing the tax burden on salaries.

There is also a proposal for the so called "debt brake", which would check the enthusiasm of the politicians that are always tempted to up state spending.

There is a political commitment to completing the Single Market, which would benefit countries such as Bulgaria. For example, with respect to the automatic recognition of professional qualification in certain sectors by the other member states.

It also sets the question of breaking the ossified models of government-trade union relations, creating a more flexible labor market, facilitating entrepreneurship opportunities, restricting the endless early retirement programs, investment in education, etc.

The overarching conclusion is that instead of isolating ourselves and complaining to one another, Bulgaria just has to start functioning as a credible EU member state, and to beef up its European diplomacy. Actually, our major problem is the inability to use our opportunities, and this is where we need to focus our attention first and foremost.

If there is work to be done, it is primarily in Sofia, and only after that in Brussels. However, Bulgaria's behavior around the time of the adoption of the European Stability Mechanism and the Euro Plus Pact bears witness of the flaws in the present Bulgarian model of decision-making on EU policies. It is too bureaucratic and ignores stakeholders who subsequently have to apply EU regulations. The servile mentality continues to dominate, and there is no understanding of the need for a radical change and opening up to the public at large and the business sector.

The Council on EU Affairs at Bulgaria's Council of Ministers is among the least transparent institutions, and Bulgaria's positions presented in Brussels remain the privileged knowledge of bureaucrats. Bulgaria's EU membership continues to "happen" to us, and it is practically not controlled by us. This is gradually turning into the surest way to render it meaningless.

Unless this model is changed, euro-skeptic voices will resound ever louder in society. Today we are hearing more and more that Brussels is the new Kremlin.

Debates and critical thinking concerning the EU are more than welcome. But populist rhetoric is extremely harmful. Bulgaria's EU membership is no enslavement in the name of vague foreign interests, it is a real chance for Bulgaria to become a "normal country". Whether we will earn this, it's only up to us.

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Tags: ESM, European Council, Euro Pact, euro-plus-pact, euro zone, Euro Area, EU, Germany, France, euro, European Stability Mechanism, Council on EU Affairs, Council for European Affairs, Dimitar Bechev, Vladimir Shopov, Sophia Analytica, European Council on Foreign Affairs, ECFR

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