Cause and Effect in European Politics and Law

European Commission doesn`t know why the Bulgarian government has revised the budget

Ralitsa Kovacheva, June 14, 2010

“The Commission lacks information why Bulgaria has revised its plan 2010 budget from a balanced budget to deficit estimated at 3.8%."

This explanation gave the spokesman of the EU Economic and Monetary Affairs Commissioner Olli Rehn, asked why the commissioner had surprisingly expressed doubts in Bulgarian statistics. According to the Commission, it is also disturbing that this change comes only weeks after the revision of Budget 2009 and the following "recognition" of a deficit of 3.9 percent for last year. Moreover, the significant upward adjustment of the deficit is difficult to explain, given the macroeconomic scenario remains unchanged, even improved - doubts euinside, other colleague-journalists and some economists had expressed repeatedly and which apparently were shared by the European institutions.

Announcing the budgetary revision, Bulgarian Prime Minister Boyko Borissov has assured that Brussels will not be angry with our deficit. Turns out, however, worse - Brussels is not angry, but has doubts about Sofia. The European Commission is suspicious in terms of the revision of Budget 2010, and also in terms of the reasons for the sharp jump of the deficit last year. It was announced by the government shortly before the final assessment of the Convergence Programme of Bulgaria and was explained with mysterious unsecured contracts concluded by the previous government.These contracts are still a secret for Bulgarian society, but apparently these are secret for Brussels too. However, the European authorities have already requested information on that issue.

As the spokesman of Commissioner Rehn - Amadeu Altafaj explained, the planned Eurostat mission in Bulgaria for the second half of 2010 will not address the differences concerning 2010 outlooks, but the 2009 Budget data under the excessive deficit procedure. As to concerns about revised budget plans for 2010, it is not a statistical issue, but something that is being dealt with by the Ministry of Finance, Directorate General ECFIN and the Commission, the spokesman noted.

That means, the issue is a political one. In order to have arguments and mechanisms for influence, however, the Commission wants to make the check after new auditing powers of Eurostat are finally approved. And also it intends to send its representatives to verify facts on the ground. Asked whether the problem was with the methodology used by the Bulgarian statistics or there was manipulation of the data, Amadeu Altafaj replied that this would be exactly the purpose of the mission - "to see if the methods complied to come to a conclusions, to provide the data to the European Commission are carried out in line with European standards”.

Mariana Kotseva, President of the National Institute of Statistics (NSI), explained for bTV the procedure of collection of fiscal data.The budget is based on an estimate that is being made by the Ministry of Finance. Throughout the year, it observes incomes and the expenditures and submits current information. After the end of the year (in February and March next year) the Ministry supplies data to NSI, together with other institutions (such as the Bulgarian National Bank, National Social Security Institute, National Health Insurance Fund, etc..) and the statistics compiles them. As a result, at the end of March the final figures of the budget parameters are being produced. “The last data on deficit and debt were submitted to Eurostat in March 2010. After the approval of Eurostat, they were officially published both on the websites of NSI and Eurostat on 22 April 2010”, an official statement of the NSI notes.

NSI has announced a single number of the deficit for the last year - 3.9% - which was not challenged by Eurostat, the president of the institute Mariana Kotseva said, asked about the frequent changes in the assessment.

Another problem, as it turns out, is the revision of Budget 2010. Besides the frequent changes in the budgetary plans are themselves alarming, especially against the background of EU's attempts to strengthen budgetary control and common policies of Member States, Brussels is concerned about the undue optimism in Sofia. As euinside has already noted, the EU has repeatedly warned Bulgaria that it works with overly optimistic assumptions about the budget.This is recorded in the assessment of the Council of the EU Convergence Programme of the country, published shortly after the government had announced an excessive deficit. Due to the impossibility for a serious analysis of the problem at that moment, the assessment stipulates: its full achievement (of the programme) depends on an optimistic macroeconomic scenario with further risks coming from the upward revision of the 2009 deficit.

Moreover, this scenario (defined as optimistic) sets economic growth of 0.3% in 2010. While in the draft budget revision, submitted to parliament a week ago, 1% growth is set. For comparison, the spring forecast of the European Commission for Bulgaria provides for 0% growth this year and the latest IMF forecast is for 0.2 percent.

With these obvious differences in expectations for economic growth, poor competitiveness and expected decrease in budget revenues, the draft budget revision boldly sets a deficit of 4.8 percent of the consolidated fiscal programme (which is formed by a deficit of 3.9% of projected GDP and a deficit of 0.9% in EU funding). Moreover, on a cash basis. European Commission's spring forecasts provided the comfortable 2.8% budget deficit.

Against the background of EU's desperate efforts to curb deficits and the draconian measures taken by some countries, the declaration of such a deficit is mildly cynical. Explaining how the peer review of the budgets would take place, EU president Herman van Rompuy said, that countries which perform large deficits would have to defend it in front of their partners. If the "European semester" had started this spring, Simeon Dyankov (Bulgaria's Minister of Finance) would have had to bring the draft budget revision in Brussels and explain to his colleagues why Bulgaria predicted such a large fiscal deficit, increased spending and stirred in the fiscal reserve, and against that offered modest reductions and vague promises for structural reforms.

However, this will happen only next spring. When it will be hardly easier for the Bulgarian finance minister if this manner of frequent and apparently ill-grounded changes continues. Prime Minister Boyko Borissov already has insured himself that if necessary, there will be more budgetary revisions this year. The existence of a problem is obvious even for the way chosen from the European Commission to set the issue. Do you think that an experienced politician like Commissioner Olli Rehn has accidentally dropped out his doubts about Bulgaria? Before saying something in the plain text, Brussels must had used previously non-public mechanisms and diplomatic language. Apparently they have not helped. And we have already seen this film in the summer of 2008, when relations between Sofia and Brussels reached the freezing point.

The lack of confidence now, however, is worth much more. In a situation of excessive suspiciousness and nervousness in the markets, the short sentence said by Olli Rehn immediately increased the price of risk premium on the internationally traded government debt. Risk premium on loans amounted to 4% and outpaced even that of Hungary, which has shot itself last week with the recognition that it was strolling the way of Greece. This, of course, does not put Sofia along with Athens, but it is a red light for investors, which the country needs so much right now.

Although harmful to the image of the country, the news of the planned European mission is good because it will answer many questions. Moreover - in public. And because of the extreme economic and financial situation in the Union, probably, this mission would not take into account who what ratings is chasing and that elections should be won.