Oresharski 450 - the Freezing Point of Bulgaria's Economy, Society and Politics
Adelina Marini, May 31, 2013
"All countries can govern themselves very well, if only they listen to the European Commission recommendations". This is what European Commission President Jose Manuel Barroso said half-jokingly asked by Bulgarian journalist Georgi Gotev to comment on the Gunter Oettinger's statement that Bulgaria, Romania and Italy are "essentially ungovernable countries". And when it comes to the European Commission recommendations and Bulgaria, the conclusion is that the government in Sofia was deaf for them last year, too, and in Mr Barroso's logic this should be a proof that Bulgaria had failed governing itself well in the past year. Therefore, may be it is wonderful that the presentation of this year's country-specific recommendations coincided with the entering in office of the new government in Bulgaria, led by Prime Minister Plamen Oresharski.
In his very first statements, Mr Oresharski said he had read very carefully the Commission's recommendations and his cabinet's programme that leaked in the Dnevnik daily is in support of his claims. But will words be dressed in actions we are to see next year when the Commission will either warm up the same seven recommendations, just like this and last year, or will it come out of the vicious circle and the recommendations will be new and in another direction, proving that Bulgaria is well governed, meaning that it listens to Commission's pieces of advice.
The European Commission country-specific recommendations this year are seven, just like last year, and the differences between 2012 and 2013 are insignificant. Some recommendations are even a pure copy-paste from last year's report. In 2012, the Commission recommended Bulgaria to continue with the stable budget policy which was a major element of the boasting of Mr Boyko Borisov, the ex-prime minister and his government. In addition, the country was recommended to improve the quality of public spending, especially in the area of education and health care. Increasing revenues from taxation and generally drawing an overall and broad strategy to respect tax legislation, dealing with grey economy and improving the quality of the accounting system, are the other measures in the first recommendation of the Commission.
If we assume that the advice to maintain a stable budget position can be interpreted as just a mantra, not criticism that it is not being maintained, the novelty should be noted, compared to 2012, which is that in this year's recommendation number one the Commission does not simply want an overall tax strategy to be drawn to strengthen all aspects of tax legislation, but it also wants the establishment of an independent institution that will control the budget policy and prepare analyses and recommendations.
What Mr Oresharski promises in this aspect, is to direct the fiscal policy toward "maintaining broadly based budgets on a consolidated basis that take into account the phases of the economic cycle and contribute for the mitigation and neutralisation of potential macro economic imbalances". On the new prime minister's agenda, it is also foreseen to increase collection of budget revenues, cutting off smuggling channels, and borrowing will be allowed only to finance "productive public spending and programmes in support of the business". It is hard to say about Plamen Oresharski, who was a minister of finance in the previous government led by the socialists (2005-2009), that he is inclined toward unreasonable fiscal policy, but nonetheless this formulation needs to be clarified.
On the one hand, broadly balanced budgets could mean that a balanced budget will not be pursued at any cost and that deficits will be allowed with the aim to compensate low growth rates and to avoid further belt-tightening in the poorest EU member state. In the beginning of the crisis, Bulgaria was briefly under an excessive deficit procedure, but due to strict following of budget consolidation by the previous government, it managed to successfully exit the EDP. At the presentation of the country-specific recommendations, however, the European Commission announced an unprecedented belt-loosening for all countries that have excessive budget deficits (above 3% of GDP). All of them got 2-year extensions (only Belgium got just one) to correct their deficits. It is not impossible this decision to encourage governments to loosen the purse's strings in an attempt to boost economic growth. It is yet to become clear what stands behind "productive public spending" and what will be the programmes in support of the business.
This year, too, the Commission recommends Bulgaria to undertake measures to improve the adequacy of its pension system by levelling the retirement age for men and women. Besides, it was recommended the country to introduce stricter measures to control the allocation of invalidity pensions. It is not surprising given the fact that the previous government was everything but not a reformist one, that this year, too, the Commission is mentioning the deficiencies of the Bulgarian pension system. Bulgaria is required to remove the early retirement options, although it is allowed this to happen gradually, and, again, it is pointed out that the retirement age between men and women should be levelled. The call to control the allocation of invalidity pensions is again renewed in the 2013 recommendations.
Regarding the second recommendation, a conflict is emerging between Sofia and Brussels because from Mr Oresharski's agenda it becomes clear that the cabinet envisages to stop the rise of retirement age and plans restoring the Swiss rule for increasing pensions (planned as of 2014). In his first interview for the public television station BNT, in his capacity as prime minister, Plamen Oresharski acknowledged that in this area there is a contradiction between the Commission views and the government's, but he pointed out that all these things will be discussed with EC.
Youth employment is the third recommendation and it, too, did not suffer significant changes compared to last year. Bulgaria is among the countries with very high levels of youth unemployment in the EU - 28%. Higher are only the levels in Ireland - 30.4%; Greece - 55.3%; Spain - 53.2%; Italy - 35.3%; Portugal - 37.3%; Slovakia - 34%. Just like last year, this year, too, EC is recommending to ensure that the minimum thresholds for social security contributions do not discourage declaring labour. The difference is that this year the Commission is very detailed in its recommendation, demanding a review of the minimum thresholds in order to ensure that the system does not make hiring of low qualified workers too expensive. Also a novelty is the recommendation Roma people to be integrated in the national labour strategies. A synchronisation between demand and offering on the labour market, however, is not a new piece of advice.
The new government will aim to reduce youth unemployment by taking advantage of the new tool that was proposed in the last possible moment by the Commission and was included in the multiannual financial framework of the EU for the period 2014-2020 - the Youth Guarantee Scheme. Also envisaged is the development of production and activities that require labour force, mainly in the agriculture and processing industries. The cabinet's ambition is to create 250 000 new jobs by the end of its term.
Almost without a change have remained the recommendations to speed up the pace of the educational reform where it is explicitly pointed out that the School Education Law must be adopted; to ensure effective access to health care by in the same time improve the formation of prices for health services linking hospital funding with performance and developing out-patient care. The new government plans to act with a scope, judging from the agenda, which, however, lacks numbers. For instance, it is foreseen to introduce new standards, school programmes, plans and text books which in itself is a huge administrative and financial effort. The cabinet has an idea to introduce the dual system of professional education through professional internships.
Bulgaria this year, too, is expected to improve the business environment, to reduce bureaucracy, introduce e-government and to apply the legislation for overdue payments. Again is reiterated the need of an independent judiciary, the fight against corruption and to improve the access of small and medium enterprises to funding. What Oresharski promises is to launch an administrative reform, but only after a thorough analysis is made. Regarding e-government, what is enshrined in the agenda is not very encouraging because it is planned another four years to be spend on working on the legal framework. It is disappointing that in the programme of the new government the word 'corruption' is met only once and the already too boring phrase "judiciary reform' is difficult to discover.
This is not only disappointing, but perplexing too, given that Bulgaria is in its sixth year under the Cooperation and Verification Mechanism precisely in those areas and report is expected in the end of the year. The only signal that Premier Oresharski is aware of this mechanism is that he took on board the recent chief of the European Commission delegation in Sofia, Ms Zinaida Zlatanova, and appointed her as minister of justice. This is a move that aims to demonstrate that the government is not only willing to listen to Brussels's recommendations, but is also putting in the key ministerial seat a person who was "on the other side of the barricade" and is pretty aware of what needs to be done. Alas, the fist signals from Ms Zlatanova are also disappointing because shesaid that the reform cannot be performed by the minster, but rather by every single magistrate. She said this in her very first day on the job, so we are yet to witness how will her work set off. But it brings to thinking that for now the reform in the judiciary will only have a pretty face.
The sixth recommendation affects the EU funds absorption and requires "sound implementation of public procurement legislation by extending ex-ante control by the Public Procurement Agency to prevent irregularities". In this sense and in the spirit of the recent EU summit in Brussels dedicated on fighting tax fraud and offshore companies, yet as a candidate for prime minister Mr Oresharski made a very strong statement in which he pointed out that the necessary work will be done to limit the access of offshore companies to public procurement tenders. But in his working programme this text has been deleted. On BNT, he explained this saying that it is a very small detail, a subject to the daily operational governance. He promised amendments to the Public Procurement Legislation when this text will be included. It should be noted, however, that his promise was not firm. It was accompanied by words like 'most probably' and 'review'.
The seventh recommendation is also a huge challenge and will probably be the second issue on which Sofia and Brussels will exchange disagreements. In it, the Commission insists on the establishment of "a transparent wholesale market for electricity and natural gas". Unlike the painfully needed reform to eradicate corruption and organised crime under the already existing monitoring mechanism, the energy issue is much more broadly and in details outlined in the Plamen Oresharski's governance programme. It is envisaged energy to turn into a major industrial sector "creating significant added value, having at its disposal guaranteed internal market where our country has got proven comparative advantages". The three main priorities will be energy efficiency and renewables, national energy resources and nuclear energy.
Plamen Oresharski said he intended to conduct a new (another) research of the economic benefits from the construction of a second nuclear power plant Belene. On that issue, in the beginning of the year the first referendum in post-communist Bulgaria took place and the idea was rejected. He underscored that he looked at Belene in purely economic terms and called for the project to stop being reviewed politically. If its economic effectiveness is proved, then the government will embark on completing its construction by again trying to find a foreign investor to avoid burdening the taxpayers in the long run.
Beyond Mr Barroso's semi-joke that following EC's recommendations in itself will bring good governance in the member states, a compulsory precondition for good governance is continuity. Something which is entirely absent in Bulgarian politics and governance in the past decades. That is why we come to absurd first intentions to abolish the smoking ban in public spaces less than a year after the ban was imposed. It is typical for Bulgaria to first destroy and then talk about the many things that need to be built. The talking usually goes on by the end of the term, when the next rulers come, who first destroy the few built things and then begin their own construction works. And this has been going on for 23 years, during which Bulgaria was repeatedly depicted as the poorest and most corrupt member of the EU.
The slogan of the new government is "statehood, development, fairness". Mr Oresharski does not promise revolutionary changes. He does not promise in the end of his term people to become richer. On the contrary, he commits that if the circumstances are favourable, it is possible the minimum wage to be raised to 450 levs (circa 225 euros). This, however, will not bring the incomes neither in this term nor in the forthcoming terms close to the levels in countries like Germany, France or Britain, Oresharski said. It should also be noted that not only incomes, but administration, the judiciary system, infrastructure and everything else that fits into the category "high living standard" will not come any closer to any of those top countries.
And judging from the prime minister's agenda, in which conditionality is essential, it is impending Bulgaria to freeze at 450 levs after Oresharski in every possible aspect. That is why, it can boldly be predicted that the country-specific recommendations of the Commission next year will not be any different than this year's. But after all, good governance in Brussels is measured by experts, while in Bulgaria by voters.