The inestimable Edward Hugh wrote over the weekend that Bulgaria’s major political crisis is really the fact of its depopulation – he identifies the loss of 1.5 million Bulgarians as the primary policy problem facing Bulgaria (and much of Eastern Europe and the economic periphery of Europe) in the coming years, cautioning that we should be pessimistic about rosy GDP growth estimates for Bulgaria of 3% or 4% after 2014:
It is hard to see how you can get serious retail sales growth in a population that is shrinking so rapidly. The end result is that the economy grew steadily into the global crisis, and subsequently has stagnated. This stagnation isn’t simply conjunctural anymore, it has become structural, as the decline in domestic demand associated with ongoing deleveraging and population ageing and shrinkage precisely offsets the positive impact of all that export growth.
So as we think about the recent resignation of Bulgaria’s government in advance of what were supposed to be summer elections (now more likely to be spring elections — Borissov has been unable to convince opposition parties to support a short-term interim coalition government), it’s important to keep that aspect in mind, especially in light of an electorate that seems incredibly disengaged by either the left or the right in Bulgaria. His government now returned his mandate to form a new government, and the center-left opposition is expected to follow suit, precipitating what is very likely to be springtime parliamentary elections in Bulgaria, a country of 7.5 million people bordering Turkey, Greece and the Black Sea on Europe’s peripheral southeast.
Boyko Borissov (Бойко Борисов) came to office nearly four years ago following a rout by his center-right Citizens for European Development of Bulgaria (GERB, Граждани за европейско развитие на България), a relatively new iteration of Bulgaria’s major conservative party that won nearly 40% of the vote and took 117 seats in Bulgaria’s 240-seat, unicameral National Assembly (Народно събрание). Borissov (pictured above) and GERB defeated the center-left Bulgarian Socialist Party (BSP, Българска социалистическа партия), led both then and now by Sergei Stanishev, Borissov’s predecessor as prime minister from 2005 to 2009.
Borissov, a former mayor of Bulgaria’s capital Sofia, was once seen as an earthy and decisive leader that Bulgarians turned to in hopes he would reduce corruption and jumpstart the economy. Stanishev, for his part, was once praised for his role in bringing Bulgaria into the European Union in 2007. But like many countries in Europe following the 2008-09 global financial crisis and subsequent eurozone crisis, the country has now suffered through both a center-right and center-left government, each of which has been relatively powerless to reinvigorate growth. The result is that Bulgarians are disillusioned with both Borissov and Stanishev.
Bulgaria’s unemployment rate stands at 12.4%, and its GDP growth has been tepid for the past five years — 1.7% in 2011, an estimated 0.5% in 2012, and is estimated to grow just 1.4% in 2013.
Unlike in many countries, Bulgaria doesn’t have huge public debt issues — its budget deficit was just 1% of GDP in 2012 — as Hugh notes:
Having said that, the country’s government debt at under 14% of GDP is incredibly low, so there is room for flexibility, if it wasn’t populist flexibility. The real issue is that simply spending more this year, or next, won’t fix the underlying problem, and that problem is unlikely to be addressed until it is recognized as a problem by the institutions responsible for economic policy formulation.
That means, in the short-term, Bulgaria seems insulated from the need to institute incredibly deep austerity measures that could crimp domestic aggregate demand, thereby exacerbating Bulgarian growth, though Borissov’s government has implemented all-too-familiar wage and pension freezes as well as tax increases.
More immediately, the cause of the latest government crisis has been protests over higher fuel costs, prompting popular calls for the nationalization of the electricity industry in Bulgaria, and prompting Borissov to pick nationalist, populist fights with the Czech Republic (tiny Bulgaria can hardly pick a fight with Russia, for example, from which it imports 90% of its natural gas). With a GDP per capita of around $14,000, it routinely competes with its northern neighbor Romania as the poorest member of the European Union.
Borissov has advocated imposing penalty fees upon ČEZ Group, the Czech company that’s also the largest utility in Central and Eastern Europe, which has already sparked a diplomatic tussle between Prague and Sofia, and which could sound alarm bells for potential investors in Bulgaria:
If pushed through, the fines for ČEZ and two other foreign-owned firms will not encourage other investors in Bulgaria, who already have to navigate complicated bureaucracy and widespread corruption and organised crime to take advantage of Bulgaria’s 10-percent flat tax rate.
Albania, which remains outside of the European Union, last month revoked ČEZ’s permits to distribute energy, and a fair share of Bulgarians would like to follow Albania’s lead.
In a Mediana poll released on February 15, both GERB and the Bulgarian Socialists seem to have slumped: the Bulgarian Socialists lead with an anemic 22.5%, and GERB would win 19.3%, with a significant number of voters undecided. Both Borissov and Stanishev have approval ratings of just 29%, underlining just how unpopular both options are to rank-and-file Bulgarians.
Hugh’s solution is supranational.
In light of the people drain in Bulgaria and throughout Europe’s periphery, he argues that budget deficits will become easier to manage in those places to where Europeans relocate for work, and deficits will become even more difficult in those areas Europeans are deserting, thereby making social welfare obligations ever more difficult to uphold — the peripheral countries losing citizens, even ones like Bulgaria with solid finances today, are certain to lose the budget fight in the future as more Bulgarians leave Plovdiv and Varna for Stuttgart and Lyon. His answer is a pan-European health care and pension system that would distribute the costs of health care and retirement evenly.
It seems to me that’s an inevitable result of the single market, the single currency (though Bulgaria’s not a eurozone member) and free borders in Europe, and also a result of the rapidly unfolding fiscal union shaping up in the European Union, though that step certainly seems quite a far way off as a matter of political feasibility in European policymaking.
In the meanwhile, it’s certainly nothing either Borissov or Stanishev can promise in their platforms leading up to the next election.
In addition to the two major center-right and center-left parties, there are a handful of smaller parties, but none of them seem incredibly well equipped to supplant either Borissov or Stanishev:
- The Movement for Rights and Freedoms, (DPS: Движение за права и свободи) is an economically liberal party devoted to the interests of ethnic Turks (and all Muslims) in Bulgaria. Although it’s steadily increased its share of to vote from around 5% to around 14% in the 2009 elections, and it currently holds 37 seats, just three less than the Bulgarian Socialists, there’s not much of a chance it could win a majority in its own right. If it sounds familiar, it’s because its founder and longtime leader Ahmed Dogan (Ахмед Доган), who is stepping down, was subject to a weird fake assassination stunt in January at the party’s congress.
- The Blue Coalition (Синята коалиция) is another center-right coalition of small parties — it won 6.8% and 15 seats in the 2009 election.
- Attack (Политическа партия Атака) is a far-right populist party — it’s Bulgaria’s answer to Greece’s Golden Dawn or Vladimir Zhirinovsky’s Liberal Democratic Party in Russia. It opposes Bulgaria’s NATO and European Union membership and you can imagine how the party’s members feel about Jews, Turks, the Roma and other minorities. It won a concerningly high 9.5% in the 2009 election, up from 8.1% in the 2005 election. In both elections, it won exactly 21 seats. Its leader, Volen Siderov (Волен Сидеров) placed second in the 2006 presidential election, but was handily defeated in the runoff, and won less than 4% in the subsequent 2011 presidential election.
In the Feb. 15 poll, the DPS won third place with 6.8%, the Blue Coalition 5.9% and Attack 3.6%.
The majority of seats (209) are awarded on the basis of proportional representation, with a 4% threshold for entering the National Assembly, while 31 seats are selected on a first-past-the-post basis.