The Globe 2013: Business as usual
The economy, both in Bulgaria and the world as a whole, has defied the worst predictions of the doom brigade for 2012 – the euro zone is still around (with Greece still a member), a few European banks required a helping hand (but no major bankruptcies to shake the sector), recovery may be slow but it is progressing nevertheless.
That is not to say that most businesses had a great year, only that, as it generally tends to happen, the year 2012 played out better than one’s worst fears, but worse than one’s best hopes.
Nor is there any reason to believe that 2013 will be any different – depending on whom one asks, 2013 could be the year that brings the economy back down or brings it back to life, which is why this piece is not a forecast, rather a far-from-exhaustive list of unfinished business carrying over from this year into the next.
The economy will be in the spotlight from the first day of the New Year, as the US goes over the “fiscal cliff”, the simultaneous tax hikes and spending cuts that, economists fear, may push the US economy (which has been growing at a faster pace than expected recently), back into recession.
Legislative gridlock has scuppered any chance of a deal being struck before the end of the year, but there appears to be no consensus among economists how long will it take for the repercussions of falling off the cliff to be felt, nor how painful these may be.
In the grand scheme of things, the goings-on in US have little direct impact on Bulgaria, but they do on the euro zone, Bulgaria’s largest trading partner by leaps and bounds, so an adverse market reaction to the latest US crisis would eventually be felt here too – trickle-down economics at work, albeit not in the usual sense of the phrase.
Speaking of the euro zone, the ambitious plans from mid-2012, when the Greek woes seemed to push the EU ever closer to a political union, seem to have been put on indefinite halt now that calmer markets have pushed borrowing costs down for Europe’s more distressed economies, largely thanks to European Central Bank assurances that it was ready to spend whatever it takes to prop the euro.
Closer economic integration of the euro zone remains on track, with the “fiscal compact” – a treaty meant to strengthen fiscal discipline by imposing balanced budgets using an “automatic correction mechanism” – entering into force on January 1. The banking union, which will create a centralised banking supervisor, is not due to be created until 2014, but despite the occasional grumbling from different quarters, there appears to be no reason to doubt it would become operational on schedule.
Talk of political integration – with the implicit repercussions on economic policy instruments available to individual governments – has been pushed to the backburner for the time being, at least until after the German elections in autumn. Whether such talk resumes after those elections, given the British opposition to such moves and talk of leaving the EU, remains to be seen.
But even without discussions on closer political union, one can safely assume that Britain will still find itself at odds with the EU establishment when negotiations resume on the EU budget framework for 2014-2020. Britain has been the most outspoken proponent of spending cuts, although by no means the only one, but in addition to the European Commission, the budget hawks also face strong opposition from the massed ranks of southern and eastern European countries, who will not want to see a cut in EU funding available to them.
Bulgaria, as part of the Friends of Cohesion group, has insisted that the least of the spending cuts should affect the Cohesion Policy, proposing instead that the EU focuses instead on the large and expensive projects such as Galileo and Connecting Europe, among others, and by cost-cutting at European institutions. A safe bet is that whatever the outcome of Bulgaria’s parliamentary elections in summer and the composition of the new cabinet, that position will not change.
Speaking of elections, with about six months to go, the country’s major political parties are still to formulate their economic policy proposals. Sluggish growth and economic uncertainty, the result of similar processes in the EU as a whole, has dented approval for the current Government, although it is hard to see how any other party could have done better given the circumstances.
Whoever emerges the winner in the election, the same pattern of waiting for global trends to shift in a more favourable direction can be expected, with moderate growth at best, the Budget deficit small, unemployment firmly in the double-digits and wages stagnant.
A possible change, though not necessarily for the better, may come about should the socialists return to government and immediately resurrect the plans to build the expensive (and controversial) Belene nuclear power plant, as well as commit funding to the construction of the South Stream gas pipeline (under the current terms, Gazprom will fund all work, to be paid back using transit fees revenue.)
The future of South Stream – Moscow’s ambitious undertaking, estimated to cost as much as 27 billion euro, meant to bypass Ukraine as a transit country – remains firmly in doubt despite Gazprom’s optimistic forecasts that Europe will rediscover the joy of buying overpriced Russian gas. In part, the reason is that Ukraine could yet decide to let Gazprom acquire an ownership stake in its gas grid, thus eliminating the need for the costly bypass, but also because the European Commission remains decidedly not persuaded by Gazprom’s assurances that all is well, pointing out that environmental impact assessments for the pipeline’s underwater and land sections are yet to be completed.
The EU refuses to exempt South Stream from its Third energy package regulations, meaning that Gazprom would have to grant other companies access to its pipeline, and is separately investigating the gas company on allegations that it may have used its monopoly position in a number of countries, Bulgaria included, to distort competition.
The investigation, made more difficult by a new decree that require the consent of Russian president Vladimir Putin for Russian companies to disclose information to bodies outside Russia, may yet linger on beyond 2013, but it hardly bodes well for the prospects of actual construction on the pipeline happening next year, possibly leaving yet more unfinished business for 2014.
(Top photo, of a sinking euro coin, by Pedro Moura Pinheiro/flickr.com)