Bloomberg

By Elizabeth Konstantinova

Bulgaria's Gerb party of former Prime Minister Boyko Borissov and the rival Socialist Party are neck-and-neck before early elections, raising concern about the next administration's ability to extend an austerity program.

Gerb, which gave up control of the government on Feb. 20 following street protests, would take 33.1 percent in the May 12 vote, according to a May 2-7 survey of 1,200 people by Sova Harris, published yesterday. The Socialists would get 32.3 percent. A Gallup poll today shows Gerb at 24 percent and the Socialists at 23.6 percent. The two polls' margin of error of 2.8 percent and 3 percent respectively implies a virtual tie.

Bulgaria, the European Union's poorest member by per-capita gross domestic product, was thrown into political turmoil in February by anti-austerity protests that echoed unrest across Europe. The next Cabinet needs to cobble together a coalition willing to continue budget cuts to survive Europe's credit crisis after unemployment rose to an eight-year high and violent rallies against poverty, graft and high utility bills forced Borissov out of office.

"The election is likely to result in a fragmented Parliament," Nicholas Spiro, the managing director of Spiro Sovereign Strategy Ltd. in London, said in an e-mailed note yesterday. "Political risk in Bulgaria is increasing markedly."

The yield on Eurobonds maturing in July 2017 rose 13 basis points, or 0.13 percentage point, to 1.6363 percent at 9 a.m. in Sofia today.

CDS Prices

The cost of insuring the country's debt with credit-default swaps fell 0.4 percent to 93, after falling 8 percent on May 8, the lowest intraday level since Jan. 8, according to data compiled by Bloomberg. The Sofix stock index opened at 409.54 today, the highest value since Feb. 14, according to data compiled by Bloomberg.

"Bulgaria's problem is not a lack of confidence on the part of the markets, it's a lack of confidence on the part of its own citizens," said Spiro.

A second poll today, by Alpha Research, put Gerb at 33 percent and the Socialists at 28 percent, with no margin of error given.

The final Sova Harris survey indicates a late-campaign erosion for Borissov, who was replaced by interim Premier Marin Raikov until new elections, initially set for July, take place.

Gerb had been steadily gaining ground since February, with an April 27-28 survey by MBMD showing its biggest lead yet during the campaign, 28.3 percent versus 18.7 percent for the Socialists. The last time the two sides were within 1 percentage point was on March 23, when Sova Harris had Gerb at 19 percent and the Socialists at 18.7 percent.

Unstable Outlook

"The outcome of the election is uncertain and the government that emerges is likely to be less stable," the Economist Intelligence Unit said in a report yesterday. "The EU will demand more tangible results in the fight against corruption and organized crime."

Borissov, a former bodyguard of Bulgaria's last communist dictator Todor Zhivkov and later of the former king and ex-Prime Minister Simeon Saxe-Coburg-Gotha, will be unable to muster the 39.7 percent support he won in 2009, according to the latest opinion polls.

Borissov's support eroded as he was unable to turn around the living standards for Bulgarians, who have lived under strict fiscal and financial rules since 1997, when a crisis closed one-third of the country's banks.

The European Commission cut Bulgaria's 2013 growth forecast on May 3 to 0.9 percent from 1.4 percent on Feb. 22, citing a "weak labor market" and "fragile external environment." GDP expanded 0.8 percent in 2012 and unemployment was at 11.8 percent in March, just under the eight-year high of 12 percent reached in February.

Low Debt

Still, government debt was 18.5 percent of GDP for all of 2012, the EU's second-lowest behind Estonia, compared with the 27-nation bloc's average of 86.9 percent in the same period, according to Eurostat. This year's budget deficit is forecast by the European Commission to widen to 1.3 percent of GDP from 0.8 percent last year.

A coalition government led by either Gerb or the Socialist Party would have to include the Movement for Rights and Freedoms and perhaps other smaller parties, the EIU said.

The Movement for Rights and Freedoms, which represents ethnic Turks, has the backing of 8.3 percent and the nationalist Attack party has 6.3 percent in the final Sova Harris survey.

A new party set up by former EU Commissioner Meglena Kouneva, the Movement of Bulgaria's Citizens, has 4 percent support, the minimum needed to enter Parliament.

Gerb has focused its campaign on keeping the flat 10 percent tax rate on personal and corporate income and freeing the energy market to reduce utility prices.

Socialist Platform

The Socialists want to scrap the flat tax and resume the construction of a 10 billion-euro ($13.1 billion) nuclear power plant at Belene by Russia's Rosatom Corp., which Borissov's administration canceled because of a lack of funds and investors.

Borissov was named in a two-week-old wire-tapping scandal involving tapes leaked to most Bulgarian media, including the Capital and Presa newspapers.

The tapes were allegedly of a conversation between Borissov, Sofia City Prosecutor Nikolai Kokinov and former Agriculture Minister Miroslav Naidenov on interference with an abuse-of-power probe against Naidenov. Kokinov resigned on April 27, a day after tape transcripts were published.

Source Dispute

While none of the three have denied the authenticity of the tapes, Borissov questioned the source, saying it was unlikely a police officer, as reported by media, but rather a member of the Socialist Party.

Public outrage over the state of the economy and spending cuts spilled over into energy policy initiating prosecutor's investigations of CEZ AS, the biggest Czech utility, Austria's EVN AG (EVN) and Prague-based Energy-Pro, which control Bulgaria's power distributors.

Bulgaria's energy regulator moved to cancel CEZ's power distribution license on Feb. 20, gave CEZ the option to fix the suspected 21 violations and will rule on the license in June after additional checks.

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