Hard times, hard cash

By T.J. | The Economist Online

On August 31st Jose Manuel Barroso, the president of the European Commission took the metro to European Union: a stop on Sofia’s new metro line, which he had come to inaugurate with Boiko Borisov, the Bulgarian prime minister. As EU funds had paid for half the cost of the line this was a “perfect demonstration” of how Europe was helping the country he said.

With €1.5 billion ($1.9 billion) of EU money still unallocated, Bulgarians can certainly look forward to more such infrastructure projects. Few lament joining the EU in 2007. Hundreds of thousands of Bulgarians now live and work in EU countries and despite the recession, they send increasing amounts of money home.

Like seven other members, Bulgaria is committed by treaty to joining the euro. Exemplary public finances mean it meets all the euro zone's entry criteria. But nobody expects the common currency soon: indeed when Simeon Djankov, the finance minister, said in April that now was not the time to join, it barely rippled in the news. (The European Central Bank takes a similar view.) But when he and Mr Borisov said the same thing to the Wall Street Journal on September 4th it became big news.

Mr Djankov believes one reason is that it coincided with similar announcements from Poland, Latvia and Lithuania. Croatia will join the EU next year and Vesna Pusic, its foreign minister, told a conference in Bled in Slovenia on September 3rd that, likewise, the euro issue was simply not on the agenda for the foreseeable future.

Until the future of the euro is clear, Mr Djankov says the risks of joining are much higher than the perceived benefits. "So why join?” Marin Lessenski, an analyst, says that Bulgarians are happy with the status quo and a majority are now against euro membership. The lev has been pegged to the euro since the beginning (and before that to the Deutschmark, since 1997) in a currency-board arrangement. So Bulgaria enjoys many of the benefits of the single currency already.

But Dimitar Bechev, an analyst with the European Council on Foreign Relations think-tank in Sofia believes that something else lies behind the furore. He thinks it marks the “starting gun” for next year's general election campaign.

Mr Borisov is a physically and personally formidable (some say intimidating) figure: a former bodyguard and mayor of Sofia who has long been dogged by allegations of links to organised crime, which he strenuously denies. No governing party has won a second term in modern Bulgarian history. But infighting has weakened the main opposition Socialists, so Mr Borisov's minority centre-right coalition may stand a chance of a historic win.

Mr Djankov is under pressure from hard pressed public servants and pensioners for more cash. With an election in view maybe fiscal discipline will be breached now, but Mr Djankov takes a hard line: “No, absolutely not."