A Conditional Thumbs Up

Economic News

22 Jul 2010
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While the European Commission report recommending that Bulgaria become a member of the EU on January 1, 2007, has been hailed throughout the country as a major achievement, there were enough codicils and red flags to give pause for thought.

Bulgarian Prime Minister Sergei Stanishev said that the recommendation to admit his country into the EU represented the final fall of the Berlin Wall, while President Georgi Parvanov said it was the most important event in the country's history.

However the report, released on September 26, made clear that neither Bulgaria nor neighbouring Romania were anywhere near meeting all of the bloc's membership criteria and that both would have a lot of catching up to do.

Though saying that Bulgaria deserved to become a member of the EU, European Commission President Jose Manuel Barroso said that Sofia had to sustain the momentum of its reforms. Speaking at a ceremony in the Bulgarian capital on September 27, where he formally handed over the EC's report, Barroso said that the government must in particular push on with changes to its judicial system, agriculture, aviation safety and copyright laws.

In fact, these were just some of the issues flagged in the report. It cited the need to implement further reforms in the country's energy sector and its steel industry, along with fully putting in place a mechanism to prepare projects that would qualify for the EU's Structural Fund allocations, used to develop backward industries or sectors. The matters of patents law and the protection of personal data were other areas where the report said that Bulgaria was lagging.

Failure to maintain the pace of reform will bring with it a heavy price, with the EC making it plain that Bulgaria, along with Romania, will be subject to stringent monitoring long after they join the European bloc. It is well within the powers of the EU to withhold much needed funding for Bulgaria should it take its foot off the pedal of the reform process, with the country's agriculture sector being seen as one of the areas most in need of an overhaul.

In an effort to show its willingness to put in place the reforms to agriculture required by the EU, Nihat Kabil, the agriculture and forestry minister, announced on September 29 that funding for the sector would be slashed in the 2007 budget. The reduction from the initially proposed $785m to just $490m was part of a policy designed to encourage small farmers to consolidate holdings, Kabil said.

Currently, many of Bulgaria's farms, especially those that produce tobacco, were less than the 10 hectares required to receive EU subsidies. However, this and other measures aimed to bring the country's agriculture industry into line with EU norms are also expected to add to the hardship of some primary producers, and drive others out of the sector.

Given that the EU has set aside only $1.9bn in its next budgetary cycle to be spent on Bulgaria's agriculture sector over the next three years, half that allocated to Romania, and have made it clear that a failure to implement reforms will see funding cut off, Bulgarian farmers could be in for a lean harvest after January 1.

The tight controls and system of monitoring that the EU will have in place post January 1 have been compared by Ivan Kostov, the leader of the opposition Democrats for a Strong Bulgaria, to Bulgaria being put into quarantine rather than being given membership of the bloc. Kostov, who was Bulgaria's prime minister when accession talks were launched in 2000, said the restrictions implied a lack of trust instead of an open embrace.

However, while raising some concerns and waving a big stick, there was also warm praise in the report for the steps already taken, with the European Comission saying Bulgaria was a functioning market economy with prudent fiscal and wage policies, with a projected surplus in GDP and growing exports eating into the trade deficit, and new momentum in its privatisation program.

"Bulgaria has made further progress with macroeconomic stabilisation and economic reform. Its current reform path should enable it to cope with competitive pressure and market forces within the EU," the report stated.

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