The week: The year ends on a high with a Budget and a Constitution, A ship company in trouble, and Russia gets slapped twice

The week: The year ends on a high with a Budget and a Constitution, A ship company in trouble, and Russia gets slapped twice

K Insights Newsletter 22/12


Well, it's been a helluva a year. We started with a caretaker government under Rumen Radev, leading a country perceived as forlorn on the international stage, with a divided parliament, Ivan Geshev on the loose as Prosecutor-General, and a raid on a crypto bank (NEXO) because of political connections. We were also budget-less, and we nursed fears of a cold gasless winter in the shadow of the Russian Empire.

We end on a high: a brand new budget and Constitution, a promise to enter Schengen, an end to Russian oil derogation and a prosecution service which has visibly calmed down and crawled back into its lair. Things have changed so much that the week even saw pure censorship regarding a radio interview with the Russian ambassador (not a good thing). More on those topics - in a moment.

So has Bulgaria begun to normalize?

Well, if you ask a thousand Bulgarians, as Trend agency did, it certainly seems so. For the first time since 2019 there is an uptick in people believing the past year was a good one for the country. Even though only 28% believe so, compared with 57% who think otherwise, this is still massively better than last year when it was 12% as opposed to 79%. There is also an uptick in people feeling happy over this last year - 64% said they were happy overall, which is even better than 2019. The Eurobarometer also notices this - the financial situation is deemed good, although the government is not to be trusted.

I know you've read a bunch of statistics about how unhappy Bulgarians are in the EU Happiness index, but discount them for now: first, the year of data is 2022 and it was a very different year and second, there are various long-term factors at play there which I promise I'm going to delve into next year and explain why it looks the way it does (some of them mentioned here).

I think Trend's findings are mostly due to two reasons. First, many people do indeed have a better standard of living. Salaries are increasing, unemployment is at a record low, travel is widely available, COVID no longer looms large, and even though there are now 2 wars raging not too far from us, this is amplifying in a strange way Bulgaria's feeling of well-being. Because, you see, unhappiness is always relative. Others around us are suffering immensely - from wars and from the wrath of climate change - which makes us more able to appreciate things we usually take for granted. Like living in a building which is not going to be bombed tonight.

And second, we stopped paying attention to political charades. We might have been glued to our TV's and news-sites over the past 2 years to understand where are we going and who is going to lead us, but we've grown weary and people barely notice Parliament anymore. They just want it to work and produce a reasonably stable environment. This is why they don't particularly like the current non-coalition, but neither do they actively object to it.

Yet those two pillars of normality will be shaken in the months to come. There is a silent recession in Europe and this is going to be felt here. Companies in Plovdiv have already started shedding their workforce. IT companies are beginning to cut expenses and staff too. So on the economic front things are going to be a bit shaky.

And then there's politics. If you meet anyone today who tells you he/she knows how long this government will last, raise an eyebrow. For I doubt even the participants know. "We've delivered our part," said Boyko Borissov this week after GERB voted in the constitutional changes. Are they now going to step back and let this government fall? Are WCC-DB going to pull out?

So here is my Christmas bet: it's probably going to muddle through until March, its new-old lodestars being the Eurozone, Schengen and judicial appointments. There must have been a deal made somewhere, under someone's guise, to absolve Borissov and this would have included the recent handling of the corruption allegations. Peevski's role is not finished: they voted on requiring a constitutional majority to change the regulators. All in all, the state will function because it really needs just a little push in order to progress slowly (a faster one would require more ambition, and we're not there yet).

It's not going to be a walk in the park. It's a muddy road and it stinks. The whole thing might also fall apart at any moment. It's not a Christmas gift but a camera obscura which seems to produce some results. Yet as Bismarck famously said, politics is "the art of the possible - the art of the next best".

So here's to the first Christmas season in a while when you won't have to be glued to your phones all the time. And let's pray for peace.

This is the last newsletter of 2023 and is helped by

Martin Dimitrov and Monika Varbanova

Politics this week:

The Constitution has been changed!

After 8 years of muddling through, pressure from the EU and several high-ranking politicians placed under US and UK sanctions, the Bulgarian parliament finally made its first step towards meaningful judicial reform.

During the past three days, MPs from the non-coalition of WCC-DB, GERB and MRF passed amendments to the Constitution designed to strengthen the rule of law in the country, empower independent judges and, most crucially - weaken the dominant status of the State Prosecution.

As a side note, but not less crucially, they closed the loophole allowing unchecked Presidential rule during times of political crisis like in the last two years. We've walked through this before but here it is again (leaving aside the battle for the Regulators, which is going to flare up after the holidays)

In brief, the changes can be divided into two categories:

Stronger judges, weaker Prosecutor General

The Supreme Judicial Council (SJC) will now be divided into two, with the judges outnumbering prosecutors and investigators 15 to 10. Until now, the two groups were equally represented, which gave a disproportionately large influence to the Prosecutor General, who dominated his subordinates almost indisputably. But that's not the only way the PG's power would be curbed - his or her mandate is cut to five years from seven. Even more important, they will be losing the ability to "supervise for legality" each individual pre-trial proceeding, which used to be their biggest lever for influencing individual cases.

No more presidential cabinets

The second part of the amendments targets the ability of the president to dominate the executive during a time of political impasse (like in the past two years). According to the changes, the National Assembly will no longer be dissolved by the President if it fails to elect a cabinet and PM, and will sit until a new one is elected.

The caretaker PM will still be selected by the Head of State, but they will have to choose between several individuals, including the president of the National Assembly, the president of the Supreme Court of Cassation, the governor or sub-governor of the Bulgarian National Bank, the president or vice-president of the Court of Auditors and the ombudsman or their deputy.

Additionally, double citizens will now be allowed to run for office and become ministers.

Does a non-coalition produce a non-Constitution?

There is a possibility that the amendments are voted anti-constitutional by the Constitutional court. President Rumen Radev (who otherwise called for changes to the basic law, but never published his proposals) warned he'd send them to the court. But even if this test is passed, there would need to be new judges and prosecutors elected, hopefully - without political interference. And this is the coming fight for next year.

Economy:

Habemus budget!

After 2 years of working with delayed checks and without a clear framework, the state and the regional authorities can breathe a sigh of relief. The state budget has been passed, days before Christmas, as promised by the non-coalition.

Here is what you need to know:

The state will spend 81.3 billion levs, or almost 40% of GDP next year.

It factors in 3.2 % GDP growth and 4.8% inflation for next year

3% budget deficit, which puts us straight on target for eurozone entry in 2025

8.4 billion levs in new debt

10 billion levs are going in capital expenditure, and for the first time ever, the budget stipulates the precise projects at national and local level, which will be financed next year.

50% indexation

Will be factored in on some infrastructure projects which have been procured before this year. Some is the key word here as it means money will surely go out to a handful of selected companies. This raised serious protests in Parliament, as the law allows for only up to 20% indexation due to high inflation.

And yes, 2 billion from Russian gas tax are out

That's because Hungary threatened to veto our Schengen entry because of it. But then again, I highly doubt Vassilev really ever thought this would happen.

Maximum insurance base raised to 3,750 levs (1875 euro)

The budget of the State Social Security for 2024 has also been approved. One of the most important changes is the hike in maximum insurance income - from 3,400 to 3,750 levs. This affects mainly employers, as they will have to raise the social payments towards the system, in order not to cut salaries. The IT sector, which is one of the most affected by the measure, protested the change.

Parliament voted to increase the minimum insurance income for the self-insured to match the minimum wage for next year - 933 levs.

Figures:

67%

Of Bulgarian Chamber of Commerce's annual poll respondents said they expect to raise salaries in the following year.

1.2 billion euro

Have been approved by the European Commission under the EU's Just Transition Fund for the coal regions of Stara Zagora, Kyustendil and Pernik.

1.95 billion euro

are the e-sales in Bulgaria for 2023, which is a 19% year-on-year increase and more than double compared to 2019.

72,000 tonnes

The amount of manganese (metal) exported by Bulgaria over the past 3,5 years, despite the fact that the only producer in the country is bankrupt. The case is interesting because manganese was included in the European Commission's latest list of critical materials.

Business:

Energy

ESO

The Electricity System Operator (ESO) recorded a significant increase in its profit for the first three quarters of the year - 185.9 million levs compared to 87.4 million a year earlier.

Metallurgy

Aurubis Bulgaria

The country's largest company by revenue reported a 290 levs million result for the financial year to the end of September, which is a 36% decrease year-on-year, signifying troubled waters ahead for the European economy.

VC

Fund of Funds

The state-owned entity is looking to hire managers of three funds that will be distributing a total of 100 million euro - two worth 30 million euro and one that will manage 40 million euro. They are meant to fund startups at different stages of their development - from idea, through product, to growth. The teams, as in the first round in 2019, will be selected by public procurement, so if you want to help the local startup ecosystem grow, send the Fund a CV (and find yourself a private investor) by the end of the application process in February of next year.

Energy:

Parliament terminates Russian Oil derogation (terms and conditions apply)

The National Assembly finally approved on Monday in a fast-track procedure the early termination of the Bulgarian derogation on Russian oil imports that the country received from the EU when the Ukraine war started. According to the decision, Bulgaria will join the EU embargo on the import of Russian oil and petroleum products from 1 March 2024 and will, consecutively, impose a ban on the export of fuels processed from Russian oil on 1 January 2024.

There are strange loopholes left by the MPs, however. First, they allowed the continuation of "specially permitted" exports of products refined from Russian oil, such as low-octane gasoline A92, in 2024. Furthermore, the Russian company will be allowed to recover 400 million levs in advance profit tax due to the state allowing the company to continue purchasing Russian crude oil at higher prices than the established USD 60 per barrel cap, the experts warn.

More money for Bulgargaz

The European Commission approved a budget measure of 120 million euros in support of the public supplier of natural gas in Bulgaria in the context of the Russian invasion of Ukraine. The aid was approved under the Temporary Framework for State aid in crisis and transition, adopted by the Commission on 9 March 2023 and amended on 20 November 2023. The aim is to overcome the liquidity shortage.

And If you missed it: Evgeni Ahmadzai's story on the completion of the Serbian gas interconnector and why it matters for the Balkans.

Brussels:

#Migration - The EC has a new Migration pact that provides for increased screening of migrants arriving in the EU, closed centers near borders to speed up the return of those who are not eligible for asylum and a mandatory solidarity mechanism between member states in favor of those under migratory pressure. Basically, it's what Bulgaria now mostly does with illegal migrants - throw them in camps before returning most of them to Turkey.

#Fiscal rules - The EU finance ministers agreed on Wednesday the latest reform of the bloc's two-decade-old fiscal rules, allowing more time to cut public debt and creating incentives for public investment even during budget consolidation. The reform comes after national debt levels were pushed to record highs by pandemic recovery programs and with the region needing to embark on new spending to keep its climate, industrial policy and security goals on track.

#Football - The Court of Justice of the European Union ruled on Thursday that UEFA's rules for the approval of football competitions such as the Super League, a spin-off of the Champions League, violate competition law. This opens the way for a brand new tournament.

Watch out for:

Person:

Eleonora Mitrofanova

The Russian ambassador still managed to make headlines with an interview taken off-air by the Bulgarian National Radio. The interview was given to the host of the Politically Incorrect show Peter Volgin after which the MP (and so much more) Delyan Peevski described the radio station as a Russian propaganda machine. BNR promptly decided not to air the interview. Let's call this out for what it is: censorship. A journalist's job is to ask the right questions and be prepared for lies, not to silence someone altogether. Of course, we don't know if Volgin achieved this with his questions.

Institution

Bulgarian Development Bank

The state-owned Bank seems to be on a roll to get rid of real estate. First, its board members came to Plovdiv to try and sell back to the municipality the pedestrian bridge over Maritza river (which ended up in BDB in a rather strange twist, but that's a different story). They want 5 million for it and will probably manage to get it.

Then, back in Sofia, they sold the jewel bought in the midst of the pandemic - the ex-BNP Paribas building right in front of the Palace, in the dead center of Sofia. The bank acquired it for 21.5 million levs and is now selling it to the Constitutional court.

Date

1 January

The first date with curtails on the Russian oil exports and a big question mark over whether the internal market is going to handle this ok.

Place:

Ireland

Where the Bulgarian ship "Verila" has been detained with more than 500 kg of cocaine on board. All the sailors (most of them Bulgarians) have been detained. It's a tough hit for the owner - "Navigation Maritime Bulgare" or NAVIBULGAR, which has borne the brunt of geopolitical crises these last months. First its "Rojen" ship got detained for months in Chornomorsk, because of the war in Ukraine, then the same ship got stuck in the Israeli port of Ashdod because of the war in Gaza. Last week another ship of NAVIBULGAR - "Ruen" was kidnapped by Somali pirates.

Zen of the week:

The court has stopped the dismemberment of the Red Army monument. But the internet can't be stopped.

Well, it's been a helluva a year. We started with a caretaker government under Rumen Radev, leading a country perceived as forlorn on the international stage, with a divided parliament, Ivan Geshev on the loose as Prosecutor-General, and a raid on a crypto bank (NEXO) because of political connections. We were also budget-less, and we nursed fears of a cold gasless winter in the shadow of the Russian Empire.

We end on a high: a brand new budget and Constitution, a promise to enter Schengen, an end to Russian oil derogation and a prosecution service which has visibly calmed down and crawled back into its lair. Things have changed so much that the week even saw pure censorship regarding a radio interview with the Russian ambassador (not a good thing). More on those topics - in a moment.

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