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Looming Grexit and its impact on Bulgaria.

09 July 15

As the Eurozone crisis and threat of looming ‘Grexit’ comes to a head, neighbouring nations prepare for the fallout and unavoidable consequences of being alongside a failing economy.

Whilst the convenient geography of Bulgaria and its fertile lands provides a strong trading partnership with more arid Greece, the downsides of Greece’s misfortunes are certainly rubbing off. As its firth largest trading partner 7% of Bulgaria’s exports are sold to Greece, yet this figure dwindled in recent years and is feared to dramatically drop if Greece leaves the Eurozone entirely. Providing 13% of all tourist visiting Bulgaria each year the southern towns along the border are already feeling the impact: Sandanski and Petrich are border towns just 2 hours south of capital Sofia where Greek can be commonly heard on the streets, menus are in Greek and local businesses exist purely to cater for the cross border demand.


'One quarter of Bulgaria’s banking assets are owned by Greek banks'


However, these tourist towns are suffering devastation as visitor numbers have plummeted to less than a quarter of what they once were, an unsurvivable trickle for businesses built predominantly for northern Greeks seeking cheaper breaks, clothing, food and fuel that was once worth 1.5 million Euros / month is now 100,000 Euros.



One quarter of Bulgaria’s banking assets are owned by Greek banks, but despite media scaremongering the largely Greek shareholding of these institutions has no bearing on the bank’s inability to move funds to Greece to the detriment of Bulgarian depositors. Although marketed under Greek branding these banks are Bulgarian companies operating under Bulgarian law, the Bulgarian central Bank stated ‘banks in Bulgaria with Greek stock ownership have no claim to Greek credit institutions… Greece’s financial system has no legal force in Bulgaria and can in no way affect the normal functioning and the stability of our banking system.’


' ‘cash only’ restaurants and hotels have spread like wildfire'

On the up side, bank branches along the border continue to report steady cash deposits from Greek individuals who have either had cash under the mattress or sold assets for cash and don’t trust Greek banks to reopen next week. This trend has been well documented in recent years, but as the crisis talks in Brussels discuss limiting the cash amount that can be taken out of Greece, depositors rush over the border ahead of any such restriction. However, on the macro scale the story is different; institutional investors consider the region and not just the country, with Greece in its current state it reflects poorly on the Balkans as a whole and this is inescapable. Some of Bulgaria’s largest projects will be suffering diminished progress as global players reconsider the risks and reanalyse their choices only because Greece appears next door on the map.


Greece has been a favoured holiday destination since the fall of communism for Bulgarians with a higher budget, but this year more than ever are expected to head to the Aegean rather than their own Black Sea as rumours of rock bottom prices, discount ‘cash only’ restaurants and hotels have spread like wildfire. In a bizarre twist, Bulgarian leva is now considered hard currency as northern Greek hotels and restaurants have begun accepting it in place of Euros, an inspired work around to avoid the banking restrictions and cash machine queues.


Almost certainly today’s Greece presents a cheaper holiday destination than last summer, but perhaps next year it will become a closer and more serious rival to Bulgaria’s Black Sea for international tourists seeking lower cost sunshine holidays, a point all in the industry are keeping a close eye on.


' Bulgarian begging bowl pushed to Brussels'

Regardless of the sector the overall consensus is that Grexit will result in more losers than winners in Bulgaria, a prosperous and steadfast Eurozone with a stable currency is what Europe’s poorest country really needs to continue growth and reconsider entering the single currency. Until then the discussion for Bulgaria joining the Euro is off the table, as Bulgaria’s prime minister stated ‘If we were in the Eurozone, we too would have to give money to Greece - the poorer giving to the richer, I do not see a logic in that’.


Whilst Bulgaria supports its neighbour and sympathises with its plight, the bare facts are that Greeks have been living beyond their means for more than a generation and despite enormous fiscal support, a second and third chance to reform, the Greek people simply have not produced enough to justify their own costs. Perhaps easily taken as condescending if said by a wealthier Brit or German, but given that pensions in Greece average 5x more than in Bulgaria (148:713 Euros) and the country is still 3x richer, it cannot be understated that 7 million Bulgarians live in far tougher conditions than any Greek austerity measures, yet there is no Bulgarian begging bowl pushed to Brussels awaiting refill by Chancellor Merkel.