My article posted on November 11 2017 created an amazing response: nearly 2000 people clicked through to The Sofia Globe from my LinkedIn posting. It was circulated within the Bulgarian Parliament, the Finance Ministry and the European Parliament. As a result I was contacted by an EU Commissioner and two of the most influential European Affairs journalists.
My thesis is that the Bulgarian government could be bolder, as it has substantial financial leeway – state debt is below 30 per cent of GDP (Germany has 68 per cent, EU average 90 per cent); and indeed it should be bolder as, on a purchasing power parity basis, Bulgaria’s income per head is still below 50 per cent of the EU average and catching up only slowly.
Since then, other reports have been published which strengthen my argument:
Bulgaria’s growth in GDP is lagging other CEE countries:
Bulgaria three per cent, Poland and Czech five per cent, Latvia six per cent, Romania eight per cent
The European Commission’s latest ‘State of Health in the EU’ report identified that Bulgaria is spending only 40 per cent of the EU average per head on healthcare.
Many people were surprised at the maths I set out: that the current budgetary model (delivering a surplus) will decrease the debt ratio – which almost no-one sees as a worthwhile objective. And there was surprise that if GDP growth was accelerated to five per cent by investing another eight billion euro in infrastructure projects – as I proposed – it would still leave the debt ratio at only 30 per cent mathematically after 10 years. Which means that the risk attached to being bolder is limited.
So why isn’t this opportunity being grabbed by the politicians?
People suggested memories of the 1997 crisis still linger – plus the whole EU zeitgeist is to reward balanced budgets, given the fiscal problems in several countries. However the precedent of Germany running a planned deficit to fund the integration of East Germany struck a chord with readers. My guess is that the EU would be responsive to such a plan, as it would be a tremendous success for the EU leaders to have the poorest country in the European Union catch up in a bolder, planned manner.
Is it not a noble plan to invest three billion euro into upgrading hospital infrastructure and a further three billion euro upgrading schools? Plus increasing state pensions and public sector salaries?
The private sector is already doing well in many sectors – automotive components, IT development and outsourcing, financial back-offices, real estate, aircraft maintenance etc – so boosting infrastructure in the public sector would be the new objective.
And yes, I do believe the investment could be well managed and properly spent, possibly with EU involvement and oversight.
Given that Bulgaria currently holds the Presidency of the European Council, the time for bold action is now.
Howard Rosen is writing in a personal capacity, having invested in Bulgaria for a decade as a partner of Cleves, the premier owner and operator of rental accommodation in Sofia www.cleves.bg.