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NewEstate publishes new article on the Greek Crisis and its impact on Bulgaria

16 November 11

The ongoing crisis in neighbouring Greece is of growing concern to both political leaders and the Bulgarian public alike, however with all the potential risks come certain benefits for the poorest EU nation.

Greek banks currently own 36% of Bulgaria’s banking market. These institutions support Bulgarian commerce and industry from the highest level right down to individual overdrafts and credit cards. The greatest immediate fear is that capital will be withdrawn as a fist defence safeguard and either retained or simply pulled back to the motherland. Either way the businesses of major employers and lives of individuals could be adversely effected. Without such a withdrawal the next threat would come from these banks increasing interest rates across a third of Bulgaria’s lending, which would not only chronically impact Bulgarian industry by way of business loans but also home owners with mortgages too.

Whilst the above represents a worst case scenario, it is much more likely that in the event of this crisis worsening without progressive resolve, Greek subsidiary banks will be sold, merged or acquired. This will cause mass restructuring and considerable opportunity within Bulgaria for either alternative foreign direct investment or indeed domestic investment to fill the vacant Greek shoes.

Few will disagree that Bulgaria is currently reaping the benefits of the Greek crisis, with more than 2,000 Greek companies having relocated to Bulgaria in past 2 years and an expected 800 more to come. It is unknown how many millions of Euros have been deposited in private bank accounts in Bulgaria by Greek citizens, however the mass opening of deposit accounts along the southern border areas has been widely reported by many Bulgarian bank high street branches. The trend is clear; many believe their cash is at risk in Greek banks, in Greece or elsewhere, thus the short trip across the border to ‘safe haven’ Bulgaria is seen as a better bet.

Whilst Brussels will always insist on assessing any economy on its own merits, the reality is that Balkan countries are grouped and regarded collectively by most when it comes to economics. Throughout Bulgaria’s accession to the EU and its perpetual comparison with Romania is testament to this. The theory remains, in the Balkans luck and misfortune on an international scale are often shared thus the fate of your neighbour cannot be dismissed or ignored.

To make brief comparison between Greece and Bulgaria it is easy to see why the torrent of capital is currently a one way flow, even the Bulgarian Finance Minister, Simeon Dyankov, stated that Bulgarians will be more wealthy than Greeks within 5-6 years.

  • Greece’s economy is estimated to shirk by an average of- 5.5% by the end of 2011, Bulgaria would have grown by +2%.
  • Greek deficit is currently at 9%, three times the limit for any Eurozone economy, Bulgaria’s is ten times less at 0.9%.
  • Greece’s unemployment is at 18.4% expecting to rise to 25% by Q2 2012. Bulgaria’s unemployment sits at 10.2% in Q3 2011, expect to marginally decrease in 2012.
  • Moody’s credit ratings: Greece Ca, Bulgaria Aa3.

Bulgaria’s growth has been much reduced from the boom years of 2004-2008, however in this financial climate 2% proves impressive stability and puts it amongst the fastest growing European nations. Mostly export driven and boosted by a successful tourism sector, Bulgaria managed to stabilise its economic results, reduce its deficit and increase its Moody’s credit rating in 2011 (the only European country to do so).

The real question for many is when will Bulgaria join the Euro currency and move beyond simply having the Lev pegged to the Euro. Unfortunately, it seems that despite its originals and impacts having very little to do with Bulgaria, the crisis of its neighbour and the rest of PIGS (Portugal, Ireland, Greece and Spain) will mostly likely set back currency membership by 2-3 years at best, although it is commonly accepted that it will certainly not derail the process.