Bulgarian election date named amid bank worries

By bne IntelliNews June 30, 2014

Sandy Gill in Sofia -



So they’ve finally named the day. Early elections for Bulgaria’s 240-seat parliament - called for by some for more than a year, and definitely in the wind for a month - are to take place on October 5. The decision over the elections comes at a critical time for the country, which on June 30 received permission from the European Commission to provide funding to some of the country's biggest banks, which the authorities believe have been victims of a plot to undermine the banking system.

This emerged from a meeting on June 27 of three of Bulgaria’s four parliamentary parties and was confirmed at another get together on June 29, this time with President Rosen Plevneliev and two parties that had made the grade in May’s European Parliament (EP) elections. The current parliament is to work until August 6, while the Socialist-led government of Plamen Oresharski is to submit its resignation not later than July 26, paving the way for a caretaker government nominated by the president.

Not before time, perhaps. It’s been a precarious government since it was formed by the Bulgarian Socialist Party (BSP) and the mainly ethnic Turkish Movement for Rights and Freedoms (MRF) after elections in May 2013, on the basis of just half the seats in parliament - forcing reliance on the extreme nationalist Ataka party on occasion.

Severely rattled by the disastrous performance of the (BSP) in the European Parliament elections, the government was pretty much sentenced to death by the MRF - which had done rather better in EP polls - after Brussels moved against Sofia for defiance over the South Stream gas pipeline in early June. Within days, even Socialist leader Sergei Stanishev was echoing the MRF’s call for early elections.

Consultations on timing proved tricky, however. A meeting on June 17 established that elections would take place between September 28 and October 12, but the lack of moves to actual resignation, along with the government’s insistence on then pushing through controversial legislation, enraged mouthy opposition leader Boiko Borisov. And last week, Borisov flirted briefly with insistence on a mid-September date - arguing that the sooner the government went, the better.

To a limited extent, Bulgaria’s politicians have closed ranks. What they talked about most in the June 29 four-hour meeting, in fact, was the banking system. The country’s fourth biggest bank - Corporate Commercial Bank - had been put under special supervision on June 20 when investigations, rumours and a falling out between oligarchs had produced jittery liquidity problems. And the third biggest, the First Investment Bank (Fibank), came under pressure late on June 26, with a record BGN800m (€409m) withdrawn the following day and the bank closing early - though insisting it was in good shape financially and would open first thing on Monday, June 30.

A deliberate attack on the bank, claimed the authorities, with Interior Minister Tsvetlin Yovchev taking the lead in public statements on June 27. The evidence seems to be circumstantial. According to security sources, queues outside Fibank branches were artificially stimulated, with the same people turning up again and again - and just asking about interest rates and how to open accounts when they reached the head of the queue. Widely circulated emails alleging systemic weakness and the precarious state of other banks were also cited by the authorities as evidence. There’s been sufficient confidence in the conspiracy version of events for several arrests for malicious misinformation to be made.

State aid

Meanwhile, the June 27 meeting ended with a ringing endorsement of the stability of the banking system and of individual banks, of the authorities’ possession of the resources to deal with the situation, of the security of people’s deposits (which, up to €100,000, are covered by state guarantees), and of the immutability of the country’s currency board and exchange-rate until eventual introduction of the euro. And, it now turns out, very substantial measures have been taken: Brussels on June 29 gave double-quick approval to Bulgarian proposals for provision of BGN3.3bn worth of liquidity for the banking sector as a defence against speculative attacks - legitimate state aid, it seems. All of which seems to have worked: admittedly on rather low trading, Fibank shares, which tumbled by 24% on June 27, rebounded by almost 34% early on June 20 on the local exchange.

President, central bankers and politicians seem to be talking with a single voice on this. With one slight discordant note. Never one to miss an opportunity to badmouth opponents, Borisov followed the June 27 meeting by talking loudly about the urgent need for an International Monetary Fund (IMF) deal to be mandated and for loans of BGN5bn-6bn to be taken out “to calm people down” - adding reassuringly that “catastrophe has turned into disaster” and calling for the immediate removal of Oresharski and his finance minister in the interests of confidence.

It won’t do Borisov any harm. Bulgarians are used to his verbal exuberances and, politically, he’s riding high at present. Certainly his main opponent, the BSP, is in a mess: its government just hasn’t performed and its leader, Sergei Stanishev, contradicted repeated disavowals by finally opting, last week, for a seat in the European Parliament. Long term, the party’s probably best off with him away from Sofia. But he has so far insisted that he’s not standing down as party leader, which poses certain logistical and campaigning problems. Borisov and his party GERB will emerge from elections stronger, and with a plausible right-of-centre ally in the Reformist Block, which will probably qualify for parliament.

Quite how simple parliamentary arithmetic will be remains to be seen, however. The tedious complication of the nationalist Ataka - petulantly absent from recent consultations - will probably be removed for good by voters. But other nationalists may scrape in, while the populist Bulgaria Without Censorship will almost certainly get a sizeable contingent of MPs. And the MRF electorate has, so far, been pretty reliable. With bargains to strike and hard decisions to take - notably on the financially problematic energy sector - Borisov could well be serious about the IMF. Not immune in the past from populist temptations, he could find it useful in future as an external ally and an excuse for being virtuous.


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