This week's newsletter comes to you amidst a snowstorm in Cluj-Napoca. I was originally planning to share with you my (somewhat mixed) impressions of this interesting Romanian city and how it compares to Bulgaria's Plovdiv. But yet another disaster seems to be unfolding in Sofia and it merits closer examination and explanation.
I'm speaking, of course, about the Finance Ministry's report on fiscal stability which, if you read any of the screaming headlines, promises doom & gloom for Bulgaria's economy and even the failure of the currency board. It all started with a leaked document to a news website (which is often used for such leaks in order to paint them politically). It soon gathered such momentum that the Finance Minister herself called a press conference to explain.
The report, Velkova said, presents future scenarios if the current trend regarding deficits continues for several years.
The budget is on track for a record 7% deficit this year, due to a number of political decisions in recent years: the hiking of salaries and lowering VAT for a number of sectors, pension corrections, and other record spending, set also against the background of a shortage in revenues.
This follows on from the constant instability of the pre-election campaign, where everyone promises everything and no one is held to account. The Finance Ministry, however, is bound to explore even the most extreme scenarios, in order to have a plan for them. This is where the report inexorably leads - it states that if continued, this trend will lead to a procedure for excessive deficit, troubles on the international bond markets and eventually - an indefinite delay to Eurozone entry.
But none of this is either imminent, or even probable. In fact, the report was probably created to scare the next Parliament into voting for a stricter budget in order to rein in the deficit.
This should have been the end of it. Yet it wasn't and the reasons for that are entirely political.
Boyko Borissov & co used this to blow everything out of proportion. The state is bankrupt, claimed the former PM, clearly not caring or understanding the damage such irresponsible talk can wreak in a year where Bulgaria will go to the debt markets.
The Finance Minister herself went full throttle in describing the crisis. Amidst an election campaign, and in a week when banks were failing in the US and Europe, she chose not to state clearly with figures that the Bulgarian economy is stable, but opted for short-term benefits. So she announced that the Treasury wants VAT discounts abolished, ministries' spending reined in and a one-off tax on companies' "excessive profits". Understandably, this created an even bigger mess. I had people messaging me about the definition of "excessive profits", while others worried about the currency board.
Those were, mind you, suggestions to a Parliament which hasn't even convened yet.
None of this had to happen.
Everyone has their own conspiracy theory to explain all this. My favorite is that the President (who is de-facto ruling the country) wanted to deflect attention away from the visit of the European industry commissioner Thierry Breton to Bulgarian ammunition factories. Breton was here to ensure Bulgaria will ramp up production in order to help Ukraine (through third countries, of course). This clashes with the President's public statements and will undermine his image.
But then again, it might have been pure stupidity. You never know for sure. Bulgaria has managed to achieve 3 things in the past 2 decades: EU and NATO entry, and fiscal stability. If you ask me to cite the safest of the three achievements, I'd point to the latter. While people like to travel, work and study abroad, and they really don't want to be in Ukraine or Moldova, there are always political gains to be made from ranting against the EU and NATO (even outside the 10-15% who usually vote for parties like Vazhrazdane).
But no one I know wants to return to the hyperinflation of the 90s. So it makes it all the more stupid to self-inflict such wounds.
This newsletter is helped by
Martin Dimitrov & Evgeni Ahmadzai
1. Politics this week:Speaking of which: guns are coming
Bulgarian plants will continue selling to EU armies and fill up their stockpiles, which are already being donated to Ukraine. "The countries which have stockpiles will be able to give them to Ukraine, and the producers will be able to increase their production to refill those stocks. It was very important for me to have this guarantee," Mr Breton told Politico on Wednesday.
He underlined that "it was time to move from plans to action, to identify the factories that could rapidly increase production". Allegedly, one of the three ammo plants (formally classified) is VMZ-Sopot, which was visited by the Commissioner. "Bulgaria has a good capacity to significantly increase production," he told the Brussels-based outlet.
Romania sides with Bulgaria on Schengen after Austria's blow
On Wednesday, Romanian President Klaus Iohannis arrived in Bulgaria on a working visit. He was invited by the Bulgarian President to strengthen bilateral ties and get "concrete results." Unfortunately, there was nothing substantial about future cross-border projects in the declaration after their meeting, only an outline of topics discussed: energy, economic and transport connectivity, as well as the common prospect of joining Schengen.
The last topic was not included in the document the heads of state signed. However, it was important for Romania to officially confirm its position on joint entry into Schengen. In the last attempt to join the two countries, many Romanian politicians repeatedly stated their readiness to separate from Bulgaria if it proved to be a brake on the EU free travel area because of Dutch objections. It seems Romania is now abandoning this idea in exchange for a united front after the hypocrisy of Austria.
Your weekly dose of polling
Brought to you by pollsters from Trend this time around: Not much change, WCC-Democratic Bulgaria has a narrow lead with 26.5% against GERB's 25.6%, MRF remains ahead of Vazrazhdane (13.6 versus 12.9%) and BSP lags at the bottom with 7.6%, which is 1.5% lower than their result in Trend's February poll. Apparently the declaration of war against "gender ideology" is not cutting it for Socialist leader Kornelia Ninova.
More from this More from this week:Mazars Bulgaria: New ESG standards will change big business in Bulgaria in 18 months
2. Economy:Exports continue to grow by double-digit numbers at the start of 2023
After a year of record results, Bulgarian exports continue to grow at double-digit rates in early 2023, although they show signs of slowing down. In January, the value of Bulgarian goods sold outside the country was 7.7 billion levs, or 22.8% more than in the same month last year, National Statistics (NSI) data show. Institutions expect the strong performance to gradually fade in the coming months amid weakening foreign demand. Exports ended 2022 with a record 36.6% growth, which has been revised down slightly from preliminary estimates.
One newcomer: Ukraine
The data also show once again that Ukraine has become the second largest export destination for Bulgaria outside the EU after Turkey. For the whole of 2022, exports to the invaded country totaled 2.25 billion levs, up 183% year-on-year. And the result is mainly due to fuel sales, which were worth more than 1.5 billion levs as of last November.
Treasury proposes experimental crypto asset legislation
The Ministry of Finance has proposed the introduction of experimental legislation on the management of crypto-assets, which are to be considered financial instruments from now on.
The Financial Supervision Commission (FSC) will now be responsible for the supervision of these market infrastructures.
The rate of inflation slowed down in February. Food prices rose by 2.4% in February alone - the fastest monthly pace since last April, but the overall 0.7% drop is due to falling prices in almost all other product and service groups, with transport having the biggest effect.
3. Business:Manufacturing M+S Hydraulic
Kazanlak-based hydraulic systems manufacturer M+S Hydraulic has completed the acquisition of 90% of its largest distributor, the Italian Oleotecno Hydraulic Components for EUR 12.15 million euro.
The Kostinbrod-based PVC and wooden windows firm finalized its 110 million leva expansion that began in 2008. Now the factory occupies a total of 40 thousand square meters of floor space and has a production capacity of 2000 square meters of window frames per day.
4. EnergyThe change is coming from Brussels
The European Commission proposed new and substantial changes to the EU electricity market that aim to speed up the integration of renewables and introduce a mechanism for long-term contracts in member states to protect businesses from future market volatility. Such contracts exist now, but they are not standardized and institutionalized; for example, so-called contracts for difference (CFDs) cannot be concluded on the Bulgarian market and long-term power purchase agreements (PPA's) are a real rarity. Read more on this next week in KInsights.
of Bulgarian electricity came from solar at noon on 13 March. In the hours around midday, solar energy reached a share of 25% of total production and 30% of domestic consumption in the country. This is a historical record for the Bulgarian market. Coal, for its part, generated as much as solar.
5. Watch out for:People: Karo ("Къро")
The name of a slightly forgotten 1990s shadow business figure and alleged drug dealer Krassimir Kamenov resurfaced after decades in which the authorities have ignored all of his potential transgressions in a bizarre press-conference by the Prosecution on Thursday. In it, he was put in the epicenter of a huge conspiracy that included WCC-DB, the Bobokovi brothers, exiled banker Tsvetan Vassilev and various other people PG Ivan Geshev has a beef with that aimed to kill him and attempt a coup. Don't ask us about the details, it was very hard to follow.
The esteemed Bulgarian author's novel Time Shelter (translated by Angela Rodel) has made it to the shortlist of the EBRD Literature prize 2023, together with Orhan Pamuk and Olga Tockarczuk. The same novel is also in the longlist of nominations for the Booker Prize, marking the first time that a work by a Bulgarian author has been considered for this prestigious international award.
The Bulgarian-British investigative journalist and his team won an Oscar for his documentary about jailed Russian dissident Alexei Navalny. Grozev was the leading figure in the investigation that discovered Russia's GRU team, which poisoned Navalny. The award divided Bulgaria, with Grozev being lauded as a hero by Putin's opponents and branded an American spy by Russophiles.
The editor of the small regional media website Sakar News has become the most recent Bulgarian journalist to be targeted by institutions in a controversial investigation that, officially, has nothing to do with his work, but strangely coincides with the publication of pieces critical of the local authorities in Southeastern Bulgaria.
This week Eurostat published its annual summary of life expectancy in the EU for 2021. Unsurprisingly, all four of the lowest-ranked regions are in Bulgaria and three of them are the three Northern regions, which have around 10 years shorter life expectancy compared to the EU average of 80.1 years - 69.7 for the Northwest and 71 for the central and Northeastern.
On Wednesday, businessman Nickolay Malinov was elected chairman of the International Russophile Movement (MRM) at a ceremony in Russia's capital. Mr Malinov, who currently stands accused of espionage in favor of Russia and is sanctioned by the Magnitsky Act, is also aiming to become a Bulgarian MP as part of the "Neutral Bulgaria" coalition.
Is the name under which this traditional pressed, raw-cured meat product made from fresh ground beef in a horseshoe shape will be registered in the EU as a regionally specific food.
Weekly moment of zen:The downing of an US Reaper drone over the Black Sea by a Russian jet on Tuesday highlighted the risk of the Ukraine conflict escalating near the Bulgarian coastline. Here is the moment of contact.
Zlaten Gyol ("The golden puddle")
This week, the Minister of Agriculture Yavor Gechev announced the end of the "golden puddle" era, in which a private company with shady interests was allowed to collect millions on behalf of the state in order to carry out the disinfection of vehicles entering from Turkey at the border crossings of Kapitan Andreevo, Lesovo and Malko Tarnovo. For hauliers and for all those crossing in cars this means lower unnecessary fees and less waiting time at the border. The "golden puddle", or "zlatnata lokva" as it became popularly known in Bulgaria, was one of the controversies that shook the Kiril Petkov government in the summer of 2022.