Onthewindingroadtostability

FT SPECIAL REPORT Bulgaria Wednesday December 5 2012 www.ft.com/reports | twitter.com/ftreports On the winding road to stability Inside » New flows Investment is shifting from A sense of progress is evident despite slow post-crisis growth and the need to rein in public finances, writes Neil Buckley property to production ompare what is happening and began to transform its business Page 2 in Bulgaria with the state of environment. Like other new EU affairs in countries around members, it had seen in the years it – economic crisis in before the 2008 financial crisis a flood Roads to Greece, surging unemploy- of foreign investment, which had Cment in parts of former Yugoslavia, fuelled rapid growth. But not enough recovery political troubles in Romania – and went into factories and too much into Car industry one phrase recurs: “We are”, says the non-tradable sectors such as real country’s president, Rosen Plevneliev, estate. This inflated a bubble which – suppliers make “an absolute island of stability”. as in Ireland and Spain, if with a comeback The claim, repeated by many senior slightly less force – burst after Leh- Bulgarians, has substance. Though man Brothers went bankrupt. Page 2 the economy shrank by 5.5 per cent in Bulgaria remains the EU’s poorest the 2009 global recession, unlike country, with the lowest average neighbouring Serbia, Romania and wage. Helped by EU funding, which Exit strategy Greece, Bulgaria required no interna- the country has become more adept at tional bailout. It has since had 13 con- managing, the government has pre- Attempts to end secutive quarters of growth, even if served some sense of progress despite energy reliance this has been anaemic. With among slow post-crisis growth and the need the lowest budget deficit and govern- to rein in public finances. It has built on Russia are high ment debt figures in the European a metro in Sofia and started to con- on the agenda Union, it is one of only three coun- struct motorways and upgrade rail- tries, alongside Finland and Denmark, ways. Under Vejdi Rashidov, a Page 3 that fully meet the Maastricht criteria renowned sculptor brought in by Mr for euro membership. Borisov to be culture minister, the There have been no mass street country, for the first time since the Toast to a rich demonstrations against austerity, 1980s, has even modernised theatres though occasional protests on specific and opened new museums. legacy of wine issues have flared. Support for pre- “We have started delivering on Bul- Band of boutique mier Boyko Borisov’s government has garians’ dreams” for better roads and waned since it came to power on an infrastructure, says Mr Borisov. “We producers leads an anti-corruption platform in 2009. But did it in Sofia,” where he was mayor important revival polls suggest in parliamentary elec- from 2005 to 2009, he adds, “and now tions due next June or July it may be we have done it for the rest of Bul- Page 4 the first in Bulgaria’s post-communist garia.” Yet the country has long bat- history to win re-election. tled perceptions in western Europe “You can’t underestimate his cha- that it, like neighbouring Romania, Dream works risma,” says Ognian Shentov, director is still to be done in the battle with rency, the lev, lost 90 per cent of its Ancient and modern: the was admitted to the EU before it had of the Centre for the Study of Democ- graft and organised crime and the value in the year before it was pegged Roman theatre in Plovdiv, done enough to tackle corruption and Infrastructure racy, a think-tank, of Mr Borisov, a need for deep reforms to enhance in 1997 to the German mark, and later which was rediscovered and organised crime. It has had to live projects reveal a square-jawed former police chief and growth prospects. Such complexities the euro, in a currency board arrange- restored 35 years ago with continued EU monitoring of karate black belt. “His approval rat- of today’s Bulgaria reflect an often ment that remains an economic Alamy progress in those areas, which Brus- fresh culture of ing is high. People trust him.” rocky post-communist transition. anchor. sels says remains inadequate. efficiency Beneath the surface of stability, After faltering early reforms, it slid After a period of more effective Perhaps more unsettling are accusa- however, lurks disquiet: about the into an economic and banking crisis reforms and privatisations, Bulgaria tions that the country has slipped Page 4 state of democracy, about how much and hyperinflation in 1996-97. The cur- joined Nato in 2004 and the EU in 2007 Continued on Page 2 Policy makers carry the fight to escape from Europe’s shadows Bulgarian minority. All this organised crime and reform court cases had started, it Governance leaves Bulgaria with a its judicial system justifies said. Moreover, Commission sense that it is ploughing a the nation’s continued officials regularly received Path to satisfying lonely furrow in a corner exclusion from Schengen. complaints from Bulgarian demands of Brussels of Europe that is relatively The origins of these fail- citizens and foreign inves- neglected and, on account ings lie in the political, eco- tors about judicial inaction is an arduous one, of Greece’s debt crisis, rife nomic and legal chaos that and alleged collusion with writes Tony Barber with economic uncertainty. accompanied Bulgaria’s organised crime at a local Bulgaria is nevertheless emergence from commu- level. Sergei Stanishev, aware of its EU responsi- nism in the 1990s. Even leader of the socialist oppo- Almost six years after Bul- bilities. In its public Boyko Borisov, the centre- sition and a former prime garia’s entry into the EU, finances it is one of the right premier who came to minister, said the EU report an occasional cloud of dis- bloc’s most disciplined power in 2009 vowing to “lifted a curtain hiding a appointment drifts over member-states. Unlike the root out corruption, has dark reality”. Sofia as Bulgarians contem- UK and Czech Republic, For his part, Mr Borisov plate the gap between the Bulgaria did not refuse to says he accepts the need for promised advantages of sign this year’s “fiscal com- the EU to issue regular membership and the con- pact” treaty, a cornerstone ‘I never guessed reports on Bulgaria’s per- crete gains made. The mood of future European eco- when we joined [the formance. But in a FT inter- is reciprocated in some EU nomic governance. view in Sofia he adds: “If by capitals, especially in west- After much hard work EU] in 2007 we December next year we’ve ern Europe, where it is com- Bulgaria has also met all done our homework right, mon to hear the view that the technical demands would have such there’ll be no more need for Bulgaria was granted imposed by the EU as a con- a slow take-off’ such reports.” admission too soon and that dition of joining the bloc’s The EU authorities also its progress towards EU border-free Schengen travel express impatience with standards of governance regime. Bulgaria is active in found it hard to satisfy his Bulgaria for its inability to continues to falter. the EU’s fight against drug EU partners that his gov- make full use of the gener- “It was expected that trafficking and illegal immi- ernment is making enough ous regional aid funds and things would get better and gration. Yet, like Romania, progress. other programmes on offer better, but I never guessed Bulgaria is being kept out “Few important organised since 2007. Bulgarian offi- when we joined in 2007 that of Schengen because of crime cases have resulted cials say, however, that the the country would have Dutch, German and Finnish in sentences, and there absorption of EU funds is such a slow take-off,” says opposition. A compromise have been several acquit- improving rapidly. Meglena Kuneva, who nego- under which passport-free tals in important cases According to Professor tiated Bulgaria’s EU mem- travel would be permitted where evidence in the Venelin Tsachevsky, a lead- bership and was its first through Bulgarian airports public domain raised expec- ing authority on EU-Bulgar- commissioner in Brussels. and sea ports is not yet tations of convictions,” the ian relations, Bulgaria in its Next to Nato member- within reach. European Commission said first five years of membership, a place in the EU was The northern European in a report last July. ship managed to use only an essential requirement argument is that Bulgaria’s Out of 33 contract killings 30 per cent, or €3.9bn, of the for Bulgaria after its geo- inability to stamp out cor- monitored by the Commis- total financial resources political vulnerability was ruption, crack down on sion since 2006, only four available to it through the exposed by the collapse of EU. Yet, during this period, communism in eastern Bulgaria made a financial Europe in 1989 and wars in contribution to the EU neighbouring Yugoslavia. that amounted to about In 2007 EU membership €1.9bn. quickly proved its worth As a result, the net finan- when Bulgaria’s new cial benefit to Bulgaria European partners secured from EU membership the release of five Bulgarian between 2007 and 2011 nurses sentenced to death turned out to be €400m a in Libya on groundless year – useful, but not charges of deliberately transformational. infecting children with HIV. Bulgaria is, understanda- With its vital interest in bly, anxious to increase its Balkan stability, Bulgaria aid levels in the EU’s next keenly supports the EU’s seven-year budget cycle.

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