Cause and Effect in European Politics and Law

The party is over

Adelina Marini, November 4, 2009

According to the autumn forecast of the European Commission, the Bulgarian economy will start growing again in 2011. However, with much slower pace than before the crisis. For a start of the recovery, the forecast points the second half of 2010, saying that the actual GDP growth in 2011 will reach 3%. With the lowest GDP-per-capita level in the EU, the main challenge for Bulgaria is to ensure sustained and quick catching-up process while preserving macroeconomic stability. Furthermore, the autumn forecast of the Commission says, the FDI that used to drive the economy of Bulgaria before the crisis, is expected to be less.

This is the reason why the adjustment of the economy is expected to involve a shift to a
more export-oriented growth pattern, which would depend to a large extent on a recovery in external demand. But in order this scenario to come true, it is necessary for Bulgaria to improve competitiveness and to realise structural reforms so as to stimulate potential growth. The analysis for Bulgaria also says that a main problem for the economy remains the low productivity, compared to the overestimated labour costs.

The expectations of the Commission are for a budget deficit even in 2011. The forecast shows that this year's budget will end with a low deficit of 3/4% of the GDP. Under a nopolicy-
change assumption, the budgetary outcome should yield a deficit of around 1.25% of GDP in
2010 and less than 0.5% in 2011. However, there are risks that the budgetary deficit might turn out to be higher.

The forecast is not quite optimistic regarding employment. Although the labour market remained resilient, total employment is expected to decline by 2% in 2009 and the expectations of the Commission is that it would start to increase in 2011. And this would lead to more pressure over the social spending of the government.

This analysis shows that the government should do much more than just think of spending cuts on an annual basis. Instead of dealing only with the failures of the previous cabinet, maybe it is not a bad idea the new one to start thinking of a comprehensive reform of those sectors that swallow a lot of public spending but are ineffective. It is also worth doing something about the low productivity - a problem which is quite old and it is high time that a solution is found together with the business community.

The Commission also reports that the foreign parent banks have committed to support their local subsidiaries might translate in some credit easing. But this should not be perceived as a natural process. The government should think how to avoid the granting of credits to everyone.

In other words, it will not be bad if the government should start think of the future instead of dealing with reports and publishing of secret documents that is not allowed to do. I'm not saying that it should not do this at all, but it shouldn't be in the centre of public attention because, otherwise, we are left with the impression that the cabinet does nothing else.