Cause and Effect in European Politics and Law

Bulgaria Does Not Give Money to the IMF Because It Failed to Tackle the Crisis

Ralitsa Kovacheva, December 22, 2011

The eurozone countries have confirmed their commitment from the European Council on 9 December, to provide 150 billion euros from a total of 200 billion euros additional resources to the IMF in the form of bilateral loans. The remaining 50 billion euros are to be provided by countries outside the euro area. The amounts are defined on a quota basis, as Germany will pay the largest contribution (41.5 bn euros), France (41.4 bn euros), Italy (23.5 bn euros), etc.

On 19 December, the EU finance ministers held a conference call, from which it became clear that the Czech Republic, Denmark, Poland and Sweden, which are not members of the euro area, had also expressed willingness to make financial contributions. According to The Wall Street Journal the sums are as follows: the Czech Republic (3.3 bn euro), Denmark (5.3 bn euro), Poland (6.3 bn euro) and Sweden (6.8 bn euro). The UK has officially announced that it will determine the size of its contribution early next year in the G20 framework. According to The Wall Street Journal, Britain's contribution amounted to nearly 31 billion euros.

In a statement, released before the conference call, the Bulgarian Ministry of Finance announced that "Bulgaria will confirm its principled position that it will not participate in the financing of programmes that assist financially undisciplined countries." At a press conference after the conference call, as a reason for Bulgaria's refusal to give money to the IMF, the finance minister pointed out that the fund "has not played a good role in overcoming the financial crisis." Another reason, often brought forward by the Bulgarian government, was that it was not right financially disciplined countries, such as Bulgaria, to support financially undisciplined ones.

According to the Bulgarian minister of finance, Poland and Denmark are involved in collecting the funds, because the first country is still holding the EU presidency and the second will assume the presidency in 2012. According to Bulgarian media, Simeon Djankov had no explanation about the behaviour of the Czech Republic, but he promised to ask.

Ivaylo Kalfin MEP (Socialist and Democrats) criticised the Bulgarian position, arguing that "it is not about specific amounts and spending money we do not have. This is about respect for European principles and for putting reserve funds and guarantees, which will remain liquid and low-risk assets of the country." Moreover, Bulgaria owes solidarity to European taxpayers:

"Taxpayers in other countries are devoting resources in order Bulgaria to develop faster and the Bulgarian agriculture to be subsidised. Solidarity implies joint participation in solving problems - everyone according to their capabilities. Otherwise, the Germans, the Dutch and others can say, 'Well, you should have developed your country like we've done, you should have not ruined your companies, you should have not devastated your agriculture, you should have invested in infrastructure and competitive businesses - as we've done. Or at least - as other countries in Eastern Europe have done, that have outrun you significantly for the last 20 years.'"

Above all, Bulgaria is interested in resolving the crisis in the euro area: "These are not spent money - they are owned by the state and can provide us with much greater resources if necessary. This is an investment in the stability of the euro area and the EU, and thus in Bulgarian stability."

As to the arguments of the Bulgarian position, it was not the first time the finance minister to blame the IMF for the crisis in Europe. Even on 14 October in an interview with BGNES news agency Djankov said: "Because we saw who are the biggest culprits in this crisis - the IMF and the big mistake they made two years ago, and now we all suffer." The mistake he has in mind is the rescue of Greece, organised by the EU and the IMF.

In the same interview Djankov says: "I think the future of Bulgaria is in the eurozone. But what happened in the last two years has changed the speed at which we would like to enter the eurozone. While in 2009 I came as a new finance minister, I saw that the faster the better, just to lower interest rates in Bulgaria. Now we are in a waiting position, simply because the euro area is now in a worse financial and fiscal situation, than we are, as well as some other countries such as Sweden and the Czech Republic. It is better to wait and see what will be the new financial peace, which will be settled in the eurozone and when. Lately, I have to admit that the situation in the euro area is getting worse and worse by the day." In the critical days before the European Council on 9 December, the Bulgarian finance minister has even "bet" that there was a 60% probability the eurozone to break apart. For comparison, Poland, which is not a member of the eurozone, advocated a radically different position - we will help because we want the eurozone to solve its problems, because we want to join and prosper.

Further on in the same interview, the minister says that the Euro Plus Pact was "outdated and hardly anyone will return to it." I must recall that the Euro Plus Pact was adopted in March 2011 and it was joined by the eurozone countries and 6 more EU member states, including Bulgaria. And then, as it is now, there was no public debate on the Bulgarian position, so a good decision, in essence, remained unfounded and strongly criticised. But anyway, under the Euro Plus Pact the countries have committed to undertake certain measures in terms of competitiveness, employment, public finances and financial stability, beyond what was agreed at European level.

Simeon Djankov's argument to "write off" the Euro Plus Pact is that, at that time, the discussions on the Fiscal Compact, agreed by the European Council on 9 December have already started. But his claim is more than strange, because the draft of the same fiscal compact stipulates that "the Contracting Parties undertake to work jointly towards an economic policy fostering growth through enhanced convergence and competitiveness and improving the functioning of the economic and monetary union. To this aim, they will take all necessary actions, including through the Euro Plus Pact." The commitments under the Euro Plus Pact must be reflected in the National Reform Programmes and the Convergence Programmes (for the euro area - the Stability Programmes) and to be assessed by the European Commission and the Council within the European semester. At European level there are continuous discussions on how the commitments of the member states under the Euro Plus Pact to be made more specific and more binding. Frankly, it hardly sounds like something outdated.

I recall all this just to make it clear that the Bulgarian position in this case reflects not just the empty state coffers, but the lack of any relation to Europe and the EU by the government, apart from EU funding. The Bulgarian ruling party GERB, while claiming to be a centre-right party, supports certain positions at the European level only because these are ordered by the EPP headquarters. The Bulgarian public is presented with cheap populist and eurocritical statements that will surely appeal to pensioners with frozen pensions and to the unemployed.

But not only to them, as it seems, since the first reaction of local politicians and economists after the decisions from 9 December was precisely this - just do not give money to the IMF! The incident reminded me strongly of the case, when, after long haggling Boyko Borissov agreed Bulgaria to participate in the fund to help poor countries around the world to fight climate change with 20 000 euros per year. And if it is difficult to find sound enough economic arguments why Bulgaria should pay so the poorest countries in the world not to be erased from the earth because of the increasing global sea levels, drought or famine, in the case of saving the eurozone our country has a real economic interest.

Saving taxpayers' money is commendable. But what about businesses that trade with the euro area? And is taxpayers' money really being saved? What is better - to transfer money to the IMF to rescuing the euro or to the budget of the Interior Ministry?