30th Mar 2020

'Hidden contracts' force Bulgaria to delay eurozone entry

  • Bulgarian Prime Minister Boiko Borisov (left) with European Commission President Jose Manuel Barroso (Photo: European Commission)

A slew of previously unaccounted for "hidden contracts" has forced the Bulgarian government to adjust its 2009 budget deficit figure and delay its timetable for joining the European single currency.

Speaking on Sunday (11 April) however, Bulgarian finance minister Simeon Djankov said the revelations would delay rather than end the country's eurozone ambitions, with an application to join the euro's Exchange Rate Mechanism-II (ERM-II) waiting chamber still possible by January 2011.

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Mr Djankov's comments come three days after the Bulgarian cabinet announced it had discovered additional contracts and annexes made by the previous government, increasing the amount of money owed by the state to private companies.

As a result, the country's 2009 budget deficit has almost doubled from 1.9 percent to 3.7 percent, say officials, pushing it above the three percent barrier set for euro area members and applicants.

Bulgarian Prime Minister Boiko Borisov, whose centre-right GERB party came to power last July, has sought to place the blame squarely on the shoulders of the country's former Socialist-led administration.

"We have in fact lied to our [EU] colleagues about our readiness for the euro zone, being unaware of this trap," he told journalists on Friday.

The government now intends to introduce additional measures to ensure the deficit does not rise above three percent this year, with Sofia's public finances still in markedly better shape than a majority of other EU countries.

Officials in the Bulgarian prosecutor's office and the finance ministry are currently working with the internal auditors of thirteen government departments in a bid to figure out the origin of the hidden contracts.

"I hope that the European Commission will be understanding because trust is the most important thing in finances," said finance minister Djankov on Sunday.

The dangers of an erosion in market confidence have been amply shown up by Greece in recent months, with a budget revision by Athens last October causing widespread investor panic, sending the country's borrowing costs skyward.

George Soros

In a rare teleconference on Sunday afternoon, euro area finance ministers agreed to make available €30 billion in bi-lateral loans for Greece, should private funding dry up. Under the terms of a twin-track bail-out agreement secured by EU leaders last month, the IMF will also contribute towards the potential funding package.

Speaking ahead of the finance ministers' discussion, eastern European billionaire investor George Soros warned that the euro area and wider European Union were on the brink of disintegration unless Germany and other states stepped in to help Greece.

"It is 50-50 whether the eurozone breaks up. The damage that break up would cause is so great, that I think that as people realise it, they will pull back from the brink," Mr Soros told the Financial Times.

The Hungarian-born finance guru is no stranger to eurozone intricacies, famously netting a cool $1 billion in 1992 by betting on sterling's exit from the Exchange Rate Mechanism.

Mr Soros stressed that he was no longer involved in currency betting however, adding that the current environment was much more hostile towards people seen to be profiting off economic turbulence.

"Currency traders find it very difficult right now to speculate because public opinion is very much aroused. If I were running a hedge fund now I would be wary of making money because the political consequences would be too severe," he said.

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