Radev’s revenge, the looming deficit and a frog

We've had 4 weeks of almost complete turnaround from the previous government: in energy, infrastructure, transport, and even in appointments in state-owned enterprises. More on that below.

There have been various rumors as to why that is. One theory is that Radev has cozied up to the former ruling party GERB and wants to use them against his former BFFs - BSP and We Continue the Change (WCC). Another is that he is (and always has been) a pro-Russian puppet and the moment has arrived for him to show it. And a third is that he is simply very, very disappointed with BSP and WCC and is trying to do everything to get back at them.

Personally, I'm in favor of the last theory, sprinkled with a little bit of the rest. What I think is that the President is a very self-centered person (probably resulting from his career as a fighter-jet pilot and Air Force General), who hates being crossed. And since the last government, which he helped get elected, neglected his opinion on various issues - from North Macedonia to Russian diplomats and energy, Radev sees this as his chance to impose his view about Bulgaria. And he believes many Bulgarians will side with him.

In order to achieve that goal, he uses all kinds of levers - from GERB loyalists to Russian gas, and relies on shady, conspirative advisors. From what I can gather, this will probably end badly and Radev's view will suffer a defeat at the ballot box with him being disenfranchised from the top two parties (GERB and WCC), yet I would refrain from grandiose statements like "Bulgaria is turning to Russia". What Bulgaria is turning into, is a constant merry-go-ride with the inability to formulate long-term solutions and a playground where US and Russian interests intersect.

This, if you ask me, is an even bigger concern.

This newsletter was helped by

Martin Dimitrov and Evgeni Ahmadzai

1. Politics this week:

2 October is coming fast

It's election time once again and parties are already on the road, making promises and (mostly) bashing their opponents. Whoever tells you something about the polling, let them know you think they are probably off the mark. The reason: this will probably be one of the lowest voter turnout in living memory. People are damn tired of elections (this will be the fourth vote for members of parliament since April last year) and want having nothing to do with them.

So hardcore electorates are the game in town. On Thursday, the Trend polling agency published its projection for the polling intentions a month before the snap vote:

With just over half (52 percent) of people saying they'd take to the polls, GERB will win the election with 24.4 percent of the vote, followed by WCC, which currently lags behind by 5 percentage points. MRF and radical Vazrazhdane fight for the third place with about 10.5 percent each, while BSP falls down to number five (8.6 percent declared support). Democratic Bulgaria is the last party certain to pass the 4% threshold with just over 7 percent of the vote.

Stefan Yanev's Bulgarian Rise party remains on the threshold with 4.5 percent and Slavi Trifonov's TISP (which was the biggest party in Parliament around this time last year) now is projected to only get 3.9 percent.

For a fuller analysis of the upcoming elections - and the role of the President in them - read our weekly analysis here.

Caretaker cabinet plans to stay a while

The Galab Donev caretaker cabinet, which has been in power for a month now, has turned out to be very active - so much so, it looks as if it plans to stay for more than a few months. So far, it has practically attempted to carry out its own energy and regional policy, and change cadres everywhere. Various state regulators and companies got new heads, including the Kozloduy NPP, Bulgargaz and the State Consolidation Company, as well as the military-industrial complex. It has to be said - previous caretaker governments have been doing some of that and been playing politics also. Yet this time the scale seems bigger and the direction is a bit worrying.

150 tip-offs from Bulgaria

Have been received in the new European prosecution service, justice minister Krum Zarkov announced. This is, in his words, the biggest flow of signals received from any EU country. Not exactly surprising, since we are probably the only country in the Union without a functioning prosecution service.

More important stories from last month that you might have missed:

2. Economy:

While every forecast out there is promising a hard winter, Bulgarian economy keeps on registering healthy stats. The latest figures show 4.8% growth in the second quarter in annual terms, and 1.1% growth over the previous quarter, which is better than the 0.3% expansion forecasted by the European Commission in July. The main driver is consumption spending though, which promises to shrink in winter months.

Yet deficit grows, too

Calculations of the Ministry of Finance project 6.8% budget deficit for next year. This is a record-high number and will probably throw the Bulgarian bid for the eurozone entry off track. If nothing changes, this will be the case for each of the next several years until 2025, claimed the caretaker government. The reason? In the past 3 years, every government promised everything to everyone and distributed VAT cuts across the board and pay hikes to the vast army of state employees.

ECHR: CorpBank was not given a chance to defend itself from bankruptcy

On Wednesday, the European Court of Human Rights (ECHR) announced that when Bulgaria's central bank revoked the license of local Corporate Commercial Bank (CCB, also known as KTB under its Bulgarian acronym) in 2014, the lender was not given the opportunity for a fair judicial process and adequate protection of property rights.

The case was raised before the Strasbourg-based court by the former executive directors of KTB and was rooted in the fact that, despite all attempts, Bulgaria's Supreme Administrative Court did not allow either them or the bank's shareholders to challenge the central bank's decision as interested parties.

The ECHR's ruling will not resurrect the bank, but if the Bulgarian court accepts their arguments, the plaintiffs will be able to claim compensation. This is the third such case in which Bulgaria has been convicted without taking action to change its legislation on the matter.

Figures:

Is the inflation in July on an annual comparison basis. This is the biggest jump in consumer prices since 1998.

1730 levs or 865 euro

Is the median salary in the country, according to the latest NSI data. This represents an increase of more than 13% since last year. 2022 is the latest year in a row in which salaries register double-digit growth.

1.2 billion levs or 600 million euro

Is the profit of the banking system in July. This is more than 50% growth in annual terms.

12.5%

More companies are registered in Bulgaria since 10 years ago. There are 2.1 million employees in them.

3. Business:

The second largest dairy producer in Bulgaria plans to acquire the biggest one - United Milk Company (UMC). Both are Greek-owned: Tyrbul is a Hellenic Dairies' subsidiary, while UMC is Delta Food's unit. There is no price announced, but it shouldn't be less than 80 million levs, given the UMC's EBITDA of some 10 million levs for 2021.

Software

The Ukrainian company opens an office in Sofia. Plans are for 50 people to be hired in the first year. This is their second office in Bulgaria - the first one is in Burgas and it was opened mainly to host specialists escaping from the war.

Apparel

The Polish company opens stores in Bulgaria. It will be represented by a Bulgarian franchise headed by Pavel Panov. The first two stores are going to be in Sofia malls.

4. Energy

The Pandora box of gas has been opened

• Gazprom is once again the main focus of Bulgarian energy politics. The caretaker energy minister Rossen Hristov declared several times that renewing negotiations with the Kremlin's natural gas puppet is "inevitable". What Hristov declined to say, is that he had a role to play in making that inevitable. Out of the three pre-booked liquefied natural gas (LNG) cargoes from the US booked by the previous government which were supposed to cover Bulgaria's needs by the end of the year, only one has been confirmed by Hristov. The others were canceled for the lack of slots at Turkish and Greek LNG terminals, and for being "too expensive".
• This will play in Russian hands. Bulgaria is not only losing the ability to diversify amidst a winter gas-shortage in the EU, but will probably end up paying a lot more and will have to count on a untrustworthy supplier. This could also prove a costly mistake in a future arbitration between the two parties over the cut-off of gas deliveries in April. If Gazprom proves that Bulgaria was able to keep receiving them but declined to do so, Bulgaria would have to pay damages.
• The gas interconnector (IGB) bridging Bulgaria and Greece was finished but was administratively blocked. Soon after, the caretaker government unblocked it but announced there is still some work to be done before commissioning. For now, the opening date for the long-awaited pipeline (14 years in the making) is October 1st.

Read more about it in this month's energy analysis

5. Watch out for:

People:

Jim O'Brie - the US official who coordinates all sanctions imposed by the US arrived in Bulgaria on Thursday. His first meeting was with President Rumen Radev. Those visits are never publicized and have always had interesting consequences.

Hristo Alexiev - the caretaker Minister of Transport in 3 of Radev caretaker cabinets who served as head of national railway infrastructure company NKZI during GERB's reign. He's not a big fan of new fast trains and is not famous for fast procurement (the main railway between Burgas and Sofia is in its 14th year in the making), but will oversee the procurement of new trains under the Recovery and Resilience plan.

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