Clare Nuttall in Bucharest -

Bulgaria is heading for early parliamentary elections for the second time in less than two years, after even the ruling coalition joined the chorus of demands for Prime Minister Plamen Oresharski's government to quit. There are hopes that a new round of elections could give Bulgaria a stable government and end the ongoing political uncertainty, but with no party taking a majority in the recent European Parliament elections, Bulgaria may again be left floundering with a fragile coalition.

The current government's single rocky year in power started with street protests over the appointment of a controversial media tycoon to head the state security agency, and ended in a dispute over the Russia-led South Stream gas pipeline project amid growing criticism from the EU.

Pressure on Oresharski's government has been building since before the May European Parliament elections, when the centre-right opposition party Citizens for European Development of Bulgaria (GERB) took 30.4% of the vote – almost twice as much as the ruling Bulgarian Socialist Party (BSP).

This sparked a slump in support for the government, with both the BSP's junior coalition partner, the ethnic Turkish Movement for Rights and Freedoms (DPS), and its sometime ally the nationalist Ataka party joining GERB to call on the government to resign. On June 10, BSP leader Sergei Stanishev acknowledged that it would be better to call early elections than to cling onto power.

Oresharski managed to scrape a victory in the government's fifth no-confidence vote in the last year on June 14, but both the BSP and MRF made his resignation – expected within weeks – a condition of their support. After consultations with party leaders, President Rosen Plevneliev announced June 17 that elections would take place in late September and or early October. "The political parties agreed the need for a smooth transition to political stability and the need for further political consultations to set up early elections in the period between Sept. 28 and Oct. 12," Plevneliev said, Reuters reported.

According to an note from Sofia-based Elana Trading, early elections could be a first step to a new and more stable government, "reducing the current political instability, which is starting to transform into economic uncertainty."

Interim troubles

In an interview with Bulgarian daily 24 Hours, Oresharski himself described his government as an "interim government" that had operated under "conditions of unprecedented parliamentary and extra-parliamentary opposition pressure." The technocratic Oresharski came to power after GERB leader Boiko Borisov was forced to resign following mass street protests over falling living standards and a series of corruption scandals. However, Oresharski's rule was mired in scandal from the outset, when he appointed controversial media tycoon Delyan Peevski as head of the state security agency, triggering a new wave of protests.

Another serious crisis erupted in April when the European Parliament voted to suspend the South Stream pipeline project as relations with Russia worsened. The pipeline, which will ship gas from Russia to central and southeast Europe bypassing Ukraine, was a priority project for Bulgaria. However, bowing to EU pressure, Oresharski said June 8 that Bulgaria had suspended construction of its section of South Stream. "I have ordered to stop construction until the procedure is agreed with Brussels," Oresharski said following a meeting with US senators in Sofia. His handling of the situation pleased neither Brussels nor Moscow, and has angered his allies at home.

The government came in for further criticism over its selection of a consortium led by Stroytransgaz – a Russian company owned by Gennady Timchenko's Volga Group and one of the targets of US sanctions – to build the Bulgarian section of the pipeline. Opposition leaders claim the €3.5bn project cost has been inflated. The European Commission said June 3 that it had launched an infringement procedure against Bulgaria over its section of the South Stream pipeline, with a commission spokesperson citing a lack of transparency in the awarding of contracts for the work. In a further blow for Sofia, the EU has frozen funding for two regional development projects in Bulgaria after criticising the management and control of the projects.

Further recent crises include the run on Bulgaria's fourth largest bank Corporate Commercial Bank caused by corruption rumours, and the energy regulator's announcement that it would revoke the operating licenses of three foreign-owned power distributors.

There have been some positive developments in the last year, notably the improved performance of the Bulgarian economy; the International Monetary Fund (IMF) forecasts a "modest pick-up" in growth this year. However, the IMF warned at the same time that political uncertainty poses a risk to faster growth. "The effects of domestic political uncertainty on reform momentum and investment, as well as lingering uncertainty in the outlook for key euro area trading partners, remain key risks to the outlook," said Michele Shannon, IMF mission chief for Bulgaria, at the conclusion of a staff visit on June 11.

Growing political risk also contributed to the decision of Standard and Poor's to lower Bulgaria's sovereign credit rating by one notch to 'BBB-' in June, citing the challenge it poses "for the implementation of reforms needed to tackle deep-rooted institutional and economic problems". "We expect that the political landscape will remain volatile over the coming months and will likely not be conducive to implementing potentially unpopular reforms," the rating agency said.

Moreover, the chances of any party scoring an outright victory in the upcoming election are slim. GERB, the largest party in the current parliament, took the biggest share of the vote in the European Parliament elections, and is widely expected to maintain this lead through to the autumn.

Should the party be returned to power, Borisov has already outlined his position on South Stream, telling Bulgarian national radio that he would proceed with the project only with backing from the EU. A GERB government would also cancel the Stroytransgaz contract. "We will carry a new procedure based on European rules, which will be transparent and clear," Borisov said. However, GERB may struggle to find allies to build a stable coalition, as it did after the 2013 elections.

"Certainly the expected lack of a clear winner of the elections will face Bulgaria into some challenges, but scheduled at the end of the year early elections will be a step forward in resolving some problems, connected to public support, investor sentiment, trust to Bulgaria and inefficient government institutions," writes Elana Trading. "We do not believe that the new government will uproot the bribery and corruption in the country, but a more stable one will be a right step in regard to restoring country's attractiveness to foreign investors, especially if there is more transparency."