The week: What a Big Mac can tell us about the future of Sofia

Take food. I won't go into unnecessary arguments whether the retail chains here are more expensive than in Western Europe (they mostly are), or whether the food is healthier and therefore more expensive (it isn't). Let's do a simpler check: the Big Mac index. The Economist devised it in the 80s to find out whether a currency is over or undervalued. It is also a useful marker for the food chain, as McDonald's claim they mostly use local products where available.

I have good and bad news.

The good news is that the Bulgarian Lev is neither over nor undervalued - according to the index it is almost exactly matched against the euro and the dollar. The median price of a Big Mac in the euro zone is 5.39 euro, in the US - 5.69 $ and in Bulgaria - 10.40 levs.

The bad news is that Bulgarians will soon have a hard time affording their own currency. Just go to the website and see for yourself: in the Czech Republic, the cost of a Big Mac is a little over 8 levs. In Hungary - a little under 7 lv, in Romania - a little over 6. In Singapore (a tiny island where you have to basically import everything), the cost is a little under 9 levs. What's more - the same burger cost 6.52 in Sofia just a year ago, while it almost didn't move in Romania and Hungary!

This is not a small problem. Bulgaria is a catching-up economy, so higher inflation is understandable, yet what happened in cities like Sofia and Plovdiv with some of the prices is simply mind-boggling. In another Economist index - of the most expensive cities, Sofia is now ahead of Budapest and Bucharest, not to mention Moscow and St.Petersburg which are obviously sliding down.

This has implications for the labor and real estate sector (see economy). And it also means two things for Sofia. First, the capital is on its way to becoming forbiddingly expensive for some of its citizens. Second, the social contract here was that the city was not a great place, but it was relatively cheap, and rules can be bent. Now the only remaining part of that contract is the rule-bending. If you ask me, life in the capital is not going to get better and will probably worsen in the next few years.

This newsletter is helped by

Martin Dimitrov, Monika Varbanova, Mary Ivanova and Evgeni Ahmadzai

1. Politics this week:

The majority in parliament and the government have been signing secretive memorandums with Kyiv and preparing to send "our husbands, our fathers, our children and our sons to become cannon fodder in this war" (as per the leader of the Socialists' Kornelia Ninova).

Or at least that is what many Bulgarians would have believed from Thursday's debate in Parliament. It was sparked by the misguided speech of French President Emmanuel Macron during the conference in support of Ukraine in Paris this week, in which he did not discount the idea of the EU and NATO sending boots on the ground. Unfortunately for the government, this coincided with the visit of a delegation to Kyiv, which signed a long list of agreements for joint cooperation, including between state military factories.

The two events were enough to cause pro-Kremlin forces to claim Bulgaria is being dragged into the war by the nefarious Collective West. PM Denkov reiterated several times that they will not send any troops to Ukraine. Besides, the final word on any deployment of Bulgarian troops abroad would have to come from Parliament itself.

But even if they wanted could they?

Let's play Devil's advocate for a moment and accept the fear-mongering of the pro-Russian parties as justifiable. How will the soldiers get there? If you remember from last week, the Defense Ministry and the Internal Ministry still can't agree on who is responsible for the fact that, 3 months after the final decision by the MPs to send Ukraine 100-odd old armored troop carriers, they haven't even left the country. How's that for a logistical capability?

And that's not even the main thing BSP has to worry about: a more pressing question is whether there will be anyone to send anyway. Last week, Bulgarian generals, Defense Minister Todor Tagarev and the President agreed that the personnel question is the biggest problem that the army faces today. A few weeks ago Tagarev officially admitted that there is a shortage of 6,000 men, or about 1/5 of the official size of the army.

No small worry

To a certain degree, this has been helped by the disinformation campaigns spread by the likes of Vazrazhdane and BSP, who have been claiming for several years now that Bulgarians would be sent to war in Ukraine. In short, the pro-Russian elites should not worry about sending troops to Ukraine - their fear-mongering has already contributed to the sorry state of the Bulgarian military at a time of war in the region.

Quo Vadis, Assemblage?

On the threshold of the rotation of Prime Minister Nikolay Denkov with his deputy and Foreign Minister Mariya Gabriel, which ought to take place within the next week, the partners of the ruling majority in parliament GERB (supported by MRF) and WCC-DB engaged in a positional war. Boyko Borissov came up with a counter-proposal to the memorandum presented by WCC-DB last week. The partners would sign a coalition agreement to split the ministerial seats in the new cabinet and practically divide the regulators between each other, too. WCC-DB declined their partner's proposal.

Look who's talking

The exchange of blows below the waist comes at a time of frozen communications between the two factions - the leaders of the "partners" don't even talk over the phone, according to internal sources, and make their offers through the mediation of the media. All these movements should be seen as an attempt by both sides to position themselves in such a way that they can make certain concessions when the actual talks start, which will likely happen between 6-8 March.

Peevski gets a leadership. Half of it

It happened: the third largest Bulgarian party, which also claims to have liberal and ethnic-Turkish credentials, has been officially captured by mogul Delyan Peevski, a person who has been sanctioned for high-level corruption under the Magnitsky act by the US, as well as by the UK.

He will share the party power at the top of the movement together with MP Dzhevdzhet Chakarov. The two were elected unanimously at the MRF national conference held on Saturday, 24 February, in Sofia.

The appointment of the duo was voted in-block by the delegates, due to fears that Peevski might try to demonstrate strength by getting significantly more votes than Chakarov, given the unofficial influence the chair of the Parliamentary group of the MRF exerts over the local structures of the party which has been feeding off his hand for years now.

The elephant in the room

The most amusing part of Peevski's appointment was the international reaction, both from Turkey and from the liberal European family, where the MRF has put down deep roots. In a video conference, Turkish President Recep Tayyp Erdogan expressed satisfaction that the MRF is one of the cornerstones of Bulgarian politics and democracy and wished success to the co-chairs, but did not name them. Just a few years ago though, Turkey banned Dogan, Peevski and other senior party functionaries from entering the country in 2016 over the expulsion of former MRF chairman Lyutvi Mestan.

Is ALDE going to be sanctioned by the US?

And while this sort of attitude suits an authoritarian leader with geopolitical goals in mind, the same could not be said for the EU liberal family of which MRF is part. The representatives of the Alliance of Liberals and Democrats for Europe (ALDE) and the Liberal International who attended the ceremony Roman Jakic and Hakima El Haite wholeheartedly cheered for Chakarov, but did not say a word about Peevski, as if he did not exist. Probably because they don't want their bank accounts frozen.

2. Economy:

According to the most recent BNB data, there were 430 mln.levs in new mortgages in January of this year, which is almost 40 % growth in a year. Most economists seem to agree this is not normal - in a eurozone recession and amidst signs of deceleration all over Europe and in the Bulgarian economy, for the real estate market to boom like that is unnatural.

I agree, yet would like to point out two caveats. First - I refer you to the beginning of this newsletter. People are witnessing devastating inflation in some of their expenses. In a country where a low-cost burger can jump 40% in a year and cost a whopping 10 leva, isn't it understandable why many people would prefer to lock their money into something more tangible like brics and mortar?

Or maybe it's catching up

Which leads me to my second point: as we've pointed out, the big mystery in the Bulgarian real estate market is the lack of mortgages. People with enough money seem to be buying property in droves, paying out of pocket. So now that we are seeing diminishing deals, but growing amounts of mortgages, could it be that we're seeing a flock of people with less cash to the market, spurred by inflation worries?

Half of labor force works in only 5 cities

We've talked already about the big cities and prices. Now let me offer some more statistics, coming from the Institute of Market Economy. Half of all the labor force in the country - a little over 1.16 mln people, work in only 5 municipalities - Sofia, Plovdiv, Varna, Ruse and Burgas. The rest is scattered amongst the other 260 places.

Migration under cover

The municipalities that gained a working-age population are mostly close to big centers - Rhodope and Maritza to Plovdiv, Bozhurishte to Sofia. So that's a labor-migration by another name.

Figures:

The average increase of the most common bank fees according to National Bank data for 2023

3. Business

The joint-venture between the Bulgarian-owned AG Capital and South-African Old Mutual Property, has just received a huge boost from the International Financial Corporation (IFC), a World-Bank corporation. The IFC has provided a €150m investment to the commercial property platform in Bulgaria and Romania. The facility includes a convertible instrument and a syndicated loan. Lion's Head owns two office buildings in Sofa and three in Bucharest.

Telecom

Despite an avalanche of complaints by its main competitors that the merger would create a dominant player on the satellite TV market, the acquisition of Bulsatcom by the owner of Vivacom is now complete.

4. Energy

On July 1 this year, all households in Bulgaria will stop benefiting from regulated electricity prices and jump into the free market zone. Long story short, they will not pay their electricity bills at a fixed rate, as before. Make no mistake - this is causing waves of uproar in the popular sphere.

There are already steps that have been proposed by the energy regulator which were published for public consultation days ago and will soon be voted on.

In order to switch to the new gear, serious reforms are being made in the hitherto known model, as the public supplier - the National Electric Company (NEK), will be taken out of the equation. However, the state will keep the option to subsidize the households at least for the first few months and avoid political setbacks from the major transition.

5. Brussels:

#Safe drive - The European Parliament backs updates to EU rules on driving licences to improve road safety. Mobile driving licences, self-assessment of fitness to drive and better awareness of pedestrians are some of the changes agreed by the MEPs on Wednesday.

#Did you pay your rent? - Short-term rentals represent around 25% of tourist accommodation in the EU, however divergent local rules lead to fragmentation of the internal market. The Parliament voted this week on new rules for a responsible and transparent short-term rental sector. The rules aim to reveal the actual impact of short-term rental services and enable local authorities in response to develop appropriate policies.

#Suing Google - Over 30 European news media companies (among which a Bulgarian one) filed a EUR 2.1 billion damages claim against Google in relation to its practices in ad tech. Google's conduct was found to be an abuse of dominance by the French competition authority in June 2021. Following this, the European Commission opened proceedings against Google and issued a statement of objections in June 2023. Now, more than 30 large and medium-sized European news media companies are suing Google for damages suffered as a result of Google's abuses. The case was filed in the District Court of Amsterdam on 28 February 2024.

6. Watch out for:

The Special Prosecutor appointed to investigate the General Prosecutor has been active for the first time ever, probing the links Borislav Sarafov might have with the "Eight Dwarfs" network of influence in the judiciary (read more on these competing informal networks in our article from this week). A day later Yavor Serafimov, Director of the General Directorate for Combating Organized Crime, said in an interview with Nova TV that there is evidence proving that Sarafov and Petrov were indeed close - something everyone already knew from the pictures the Anti-Corruption Fund watchdog published of the two years ago. It's all in the hands of Taleva, it seems, which is fortunate, because it was two women who saved Romania from corruption.

Vassil Bozhkov

The disgruntled oligarch and lottery owner announced his second attempt at forming a party (after the Bulgarian Summer project he stood behind while exiled in Dubai flopped). It's called Center and it was presented on Thursday in Sofia, with Bozhkov leaving his house arrest for a bit to talk at its inauguration. Can you guess his first promise? Of course, banning the lottery.

Institution:

The deadline set by GERB leader Boyko Borissov for the end of the rotation negotiations between his party and WCC-DB. If the two sides don't settle for a compromise by then, he threatened to trigger new, 2-in-1 elections alongside the EU vote in June.