Bulgaria's Role in Eurozone ESM Bailout Fund under Fire

Buildings of banks around a euro-sculpture in front of the European Central Bank (ECB) in Frankfurt Main, Germany, 02 December 2010. Photo by EPA/BGNES

The Bulgarian government's decision to join the newly set-up European Stability Mechanism, the permanent euro zone bailout fund, has come under fierce criticism by respected local experts.

"Bulgaria will have to provide EUR 6.1 B in guarantees under the European Stability Mechanism (ESM) should the need for saving another defaulted eurozone member states arise after the scheme becomes operational as of 2013," Georgi Angelov, Senior Economist with the Open Society Institute – Sofia, argued in an interview for Dnevnik saily.

According to him by joining the new bail-out scheme of the European Union, Bulgaria is trying to play the good student, but has failed to secure guarantees for its benefits.

"Former Prime Minister Sergey Stanishev made the same mistake. He let the country embrace the Lisbon treaty but right after that Bulgaria was snubbed in its efforts to join the waiting room of the eurozone ERM II. Now Boyko Borisov has now taken this decision defying the finance ministry and the central bank, who have taken a firm stand against the pact," the expert commented.

The rescue fund itself (ESM) will have a capital of EUR 700 B of which EUR 80 B will be effectively deposited and the rest will be provided when necessary.

Non-euro zone countries from the European Union can participate as lenders in ESM bailout programmes on an ad hoc basis. The ESM does not provide loans for non-euro zone countries, which have their own balance of payments facility for emergencies, run by the European Commission.

"The poor countries will pay more as a share of GDP, and this problem will exacerbate after the 12 year transitional period. Twelve years are not enough for the poor to become rich. Rather paradoxically, the poorest member of the Eurozone will pay the most as a share of GDP - and this money will save one of the richest countries in the EU such as Ireland, Belgium, Spain, etc. It will be even more paradoxical if poorer countries enter the Eurozone – such as Romania, Bulgaria and Latvia. The poorest will come to the rescue of the richest!," Georgi Angelov wrote in an article, entitled "The Eurozone Enlargement: A Viewpoint from Bulgaria".

The experts points out that the countries with the smaller government debt as Estonia and Bulgaria, which are least likely to default, will pay most as a share of GDP in the rescue fund.

"The allocation of capital is not only unjust to the poorer countries – it punishes the prudent countries, which have to increase significantly their debts in order to contribute their share to the fund. At the same time, the counties with the largest government debt will pay the least."

"What is the responsibility of Bulgaria for non-compliance with the Eurozone rules in the last decade so that it has to pay for it? Bulgaria holds the European record for government debt reduction for the last decade – but will not be rewarded for it, but it will be "fined" to pay the most in the ESM when it enters the Eurozone."

According to Angelov the payment in cash, together with the promise for future payments when necessary will prove to be a real burden for the economy.

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