Cause and Effect in European Politics and Law

Bulgaria is being taken out of the Excessive Deficit Procedure?

Adelina Marini, February 14, 2011

Two important news came up during the visit of the European Commissioner, responsible for the budget, Janusz Lewandowski, in Bulgaria. The first caused confusion with euinside, but after several clarifications it became clear that it was expected at the Council on Financial and Economic Affairs (Ecofin) on Tuesday (February 15th) Bulgaria to receive the approval of the ministers of finance of the member states of the EU to be taken out of the Excessive Deficit Procedure. I don't know how certain that is, but Mr Lewandowski was speaking of this as of something past. The second important news is that Bulgaria will insist during the negotiations on the next financial framework of the EU, its period to be kept at least 7 years, as it is now.

In fact, before telling you more details about these two news, I have to mention that Mr Lewandowski started his introductory remarks after his meeting with Deputy Prime Minister and Minister of Finance Simeon Djankov like this: "I came here in the decisive period in the European Union. We are now in the decisive moment of elaborating the vision of the European budget post-2013". It is no accident at all that he started his statement like that before the journalists, who had gathered in the Ministry of Finance, because, as the EU Commissioner explained, currently in Europe there were processes of cutting spending, of savings. He did not say it directly but we know this from the end of last year, that there was already unanimity among the leading powers in the EU the size of the budget for the next programming period to be frozen.

From that point of view Commissioner Lewandowski defended the new member states, where he himself came from (Poland), and said that indeed it would be important the budget of the Community to be for at least seven years for all countries that needed catching up like Poland, Bulgaria, Romania, Estonia and the rest. This is why in the end of June the Commission will come up with a communication on the issue, but in order the Commission to be able to defend a decent budget in an atmosphere of austerity, member states will have to present proof, including Bulgaria the Commissioner underscored, that EU funds absorption was reasonable and led to economic and social development.

And extremely important specification, especially against the backdrop of the only 10 per cent absorption capacity that Bulgaria has reached so far. Furthermore, "and this is not only about accelerating the pace of structural funding. I really need that evidence from Bulgaria but this is also about the ability to reconcile stabilisation of the public finances with the prospects of growth. 2011 should be the growth year for Bulgarian economy. This is never an easy job in Europe nowadays, but [...] that Bulgaria is free from the so called excessive deficit procedure which is a very important sign for the financial markets".

This is how Mr Lewandowski announced the news that Bulgaria was taken out the EDP, which the acountry was put into last year because of a budget deficit of 3.7% of GDP. Yet in the end of January euinside reported on the basis of the assessment of the European Commission, that the EDP was not removed, it was only recommended that no further actions needed to be taken within that procedure. The procedure itself can be removed only when the budget deficit falls to 3% of GDP. We still do not know what reasons Mr Lewandowski has to make such a statement but we shall wait for the conclusions from the Ecofin on February 15th to know more.

Anyway, the Commissioner on Budget was speaking in the context of the need to be guaranteed that Bulgaria would not only keep a good budgetary discipline, but that the country would accelerate EU funds absorption, which, however, should be combined by visible results. "It is important to understand the present situation in Europe. The taxpayers of rich countries transfer billions of euros for the benefit of Greece, Portugal, Ireland and the other countries. And now they have to transfer billions of euro for the rescue packages of the same countries. [...] I need arguments from our part of Europe about good consumption [absorption], good dynamic economy. The absorption at the level of 10%, which is so far for Bulgaria, is not very impressive, but what makes impression is that 2010 was the year of progress and I know, after the discussions with PM Borissov and Minister Djankov, there are a lot of projects to be done in 2011".

In other words, the EU Commissioner hinted that the negotiations on the next financial perspectives would depend to a large extent not only on the absorption capacity of member states but also on the condition of their economies. These very important messages forced euinside to ask several questions. About clarification whether the EDP had been indeed removed and about the possibility the Pact for Competitiveness, discussed during the European Council on February 4th, to have influence on the negotiations on the next budget.

To the first question Mr Lewandowski said that 23 out of 27 member states had received letters from the European Commission, saying that there was something wrong with their public finances. "Bulgaria is now distinguished from these by being free because of the progress in the public finances from the EDP. The majority of the countries are still in EDP". Further the Commissioner explained that this would have an important impact on Bulgaria's efforts to endorse the single currency. And here Janusz Lewandowski conveyed his next very important message regarding the idea of separation of the eurozone countries in a Pact for Competitiveness:

"Now we are almost on the crossroads to split Europe and the countries, like Bulgaria, that are making progress in the public finance, should try to keep open to be a part of the decision making machinery over the future of the eurozone. We shouldn't allow Europe after being in to be out again because the eurozone is constructing a sort of internal European Union. The road towards Europe was very difficult for the countries which were part of the former Soviet zone. I can understand fully all the challenges facing Bulgaria on this road, so we have to avoid the paradox that after the long way we are in and now we could be out of internal eurozone, which is really a future of Europe because the euro countries have to establish the so called economic governance and coordinate their politics. We, in our part of Europe, with the exception of Estonia and Slovakia, shouldn't be the second category members", the Commissioner added.

It is interesting to note that his host - Simeon Djankov - did not interact in this debate and even transferred a large part of the issues to his guest. Moreover, the deputy prime minister said that, aside from Bulgaria's position that the next programming period should not be less than 7 years, the government already had a clear vision which would be the main areas of funding. However, instead of saying them, the deputy prime minister sent the ball into Janusz Lewandowski's playground by saying that he, if he wanted, might say them. Something which the Commissioner did not do because this was not his business. After all, the priorities of a member states should be defined and announced by the state itself - not via the Commission.

Nonetheless, a little later it became clear that, again, a major priority for Bulgaria in the next programming period would be infrastructure. Something, which not that is not important, but definitely Bulgaria proved during the current period (2007-2013), that it was not doing good with absorbing money for infrastructure. And it will be better when the government decided to define the priorities for years to come, to do that after a broad public discussion, so that the government could go with a full mandate and defend Bulgaria's position during the negotiations.