Cause and Effect in European Politics and Law

EC Has Too Specific Recommendations to Bulgaria for Too Serious Problems

Adelina Marini, May 18, 2016

A heavy sentence was read on government in Bulgaria with this year’s package of documents on the European semester, whose culmination came on May 18th with the presentation of the country-specific recommendations for every single member state. The European Commission is attempting to reform the semester and make the recommendations much more focused and specific, so for the second year in a row they are nominally less. The problem in the document on Bulgaria, however, is that a conspicuous contradiction appears between the accompanying analysis of the state of the economy and the recommendations – they are too specific and the problems are too large-scale. Most problems are not new, but this year, for the first time, they are articulated very clearly, which shows that there is nothing that the European Commission does not know about the situation in Bulgaria. A very straightforward connection is being made between the state of the economy and corruption. 

According to the analysis, Bulgarian healthcare is facing some very serious challenges, including limited accessibility, low funding, and poor health outcomes. Tax collection is also weak, shadow economy continues to be a significant factor, as are undeclared labour, avoiding social security contributions and concealment of actual remuneration. The cases of “imprudent business practises” in the financial sector, combined with inefficient supervision have created an environment for accumulating imbalances, thinks the EC. Corporate Commercial Bank is not mentioned explicitly in the analysis, but “imprudent business practises” means exactly this, if one is to judge by the quite more in-depth analysis of the Bulgarian economy on the procedure for macroeconomic imbalances, published in February. 

One more year in a row, the EC finds a problem with the setting of the minimum wage, which has grown significantly since 2011, but there is a lack of objective criteria for setting it, which, the EC believes, creates insecurity. “Bulgaria still has no clear guidelines or transparent criteria for minimum wage setting that take into account its impact on job creation, social conditions and competitiveness”. An issue that has been lingering in the documents on Bulgaria since the start of the European semester over five years ago. Another problem, which is constantly present in the analyses on Bulgaria is the extremely high risk of poverty and social exclusion, as well as inequality levels. The lack of progress is due to a great degree to the failure to integrate the Roma in the labour market.

Another fundamental and persistent problem is the system of public procurement, which came to the attention of the European Commission for the first time in the report on the Cooperation and Verification Mechanism back in 2010. At that time Prime Minister Boyko Borissov (GERB, EPP) was again in power. “The public procurement system in Bulgaria continues to suffer from structural weaknesses, including systematic irregularities in procurement procedures, lack of administrative capacity and deficient control mechanisms, combined with systematic court appeals that often delay works on the ground”, says the EC report. The transition towards e-public procurement has not solved the problem in the least. This is the exact reason for ceasing payments and financial corrections on the European programmes, thinks the EC, which in turn affects the business environment.

The in-depth analysis from February pays special attention to the slow-down in absorption, with this same issue being discussed in the spring economic forecast as well. It is only in this document, however, that the real reason for this slow-down is mentioned. The overall conclusion of the EC is that the unstable policies and lack of trust in public institutions, with a special accent on the judiciary, are the reasons for the lack of investments in the Bulgarian economy. Administrative reforms are being done very slow, and there is no progress in the improvement of the investment climate either. Another very serious and persistent problem is seen in the frequent legislation changes, which create uncertainty and have a direct reflection on the business environment. 

The merciless analysis shows that corruption remains a “significant concern” and the reply of national authorities continues to be fragmented and impotent institutions. The EC believes that the problem is essential to the overall business environment. This conclusion differs considerably from the views of PM Borissov, who was among the participants in the anti-corruption summit in London last week. It was evident from his statement in front of a Bulgarian National Television journalist that he reduces corruption in Bulgaria to fighting smuggling, directly placing a sign of equality between the two. 

To the background of these fundamental problems, some of which remain unresolved since the beginning of Bulgaria’s EU membership back in 2007, despite having the country under special monitoring, the EC recommendations in the European semester sound completely alien to the overall analysis. The first one traditionally deals with keeping fiscal discipline. The Bulgarian government is advised to achieve an annual fiscal adjustment of 0.5% of GDP. The EC thinks Bulgaria will need additional fiscal consolidation measures, for the ones included in the national reforms programme are not specific enough. The spring economic forecast for this year provides for a budget deficit of -2.0% and -1.6% for next year. 

The EC further recommends improving tax collection and lowering the share of shadow economy. An asset quality review and stress test of the banks should be done by the end of the year, says the second recommendation. The third one is dedicated to the integration of social services and the development of active labour market policies, in particular for the long-term unemployed and young people. It includes the recommendation for improving access to the healthcare system and improving its financing. 

Recommendation number three also includes the issue of setting the minimum wage. Right on the day of the presentation of the report came the appointment of the new minister of labour and social policy, after the former minister resigned. The fourth EC recommendation is for a reform of the legal framework for insolvency to accelerate recovery and resolution procedures. The lack of such legislation is a major obstacle to solving the problem of high corporate debt. An improvement of the public procurement system is expected as well. 

The EC reminds that the recommendations on dealing with corruption and organised crime are thoroughly laid out in this year’s report on the Cooperation and Verification Mechanism. The analysis accompanying this year’s package of country-specific recommendations reveals that problems run so deep in Bulgaria, that they cannot be solved by specific recommendations. Solving these problems requires broad political will, determination, and strong popular support. Last but not least, it requires a common view on what corruption is and how can it be tackled, especially along the high corridors of power. 

Translated by Stanimir Stoev