Economic Policy Review ISSN 1313 - 0544

Bulgaria - An EU member from 1st January 2007

Author: Adriana Mladenova / 29.01.2007
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On 26th of September 2006 the final Monitoring Report of the European Commission on Bulgaria was released with the statement that Bulgaria will become a full-pledged member of the union on 1st of January, 2007. For now there are no protective clauses, but the European Commission has left an open way by declaring explicitly that the strict supervision and control on the areas of concern in the country will continue. Protective clauses in the sphere of internal affairs and judiciary system can be activated later on, and part of the subsidies and money from the Eurofunds can be reduced or declined ex-post, if supervision shows that Bulgaria does not meet the requirements of EU concerning the transparency of the expenditure of public resources, fighting corruption, efficiency and independence of the judicial system.

Bulgaria’s accession to EU legitimates the economic reforms that have been undertaken (or have begun) in the name of the country’s integration to the Eurozone. The EU membership has psychological, political and economic dimensions, which should be considered together (in order) to draw a complete picture of the accession process. By any means, the recent events and the tension on the political scene in Hungary and Poland, which coincided with the period of the official release of the decision for the next EU enlargement in 2007, also have impact on the attitudes of people for the functioning of the “common European family”. Politicians and lawmakers in each state bear responsibility before their voters, and the EU membership cannot be used as an excuse for the lack of coordination of their economic programs with the citizens.

The economic consequences for Bulgaria of the accession to the EU are not one-sided and straightforward. The Institute of Market Economics as an independent non-governmental organization, promoting market solutions in the conducted economic policy, have stressed continuously on the problems the problems, related to the European Union including heavy bureaucratic machine, strict regulations for certain business activities, (which distorts the market reality), numerous norms and rules, (which operate in different institutional environments and informal sets of behavior practices), etc. The IME is simultaneously welcoming the liberal ideas of the EU concerning free movement of Capital, goods and services, people, and continuing the open debate on the problematic spheres, where there is disparity between reality and the principles of economic freedom.

The EU does not mean automatic increase in the incomes of citizens, but it does assist for improvement of the functioning of many of the institutions – judicial system, protection of property rights, and control on the spending of the public resources. The establishment of an effective institutional frame is a necessary prerequisite for the economic development and flourishing of entrepreneurship. At the same time, discussions about the policies of the EU in a number of spheres should be further intensified – such as redistribution of resourses through the government sector, imposition of regulations on the labor market, protectionism in the sector of agriculture, tax duties harmonization. We should not forget that the EU is before all a political unit, which means that the interests of the politically active and ‘strong’ often dominate when decisions concerning all members of the Community are taken.

The focus of (the) attention should not be directed only to the grants and subsidies, which we will receive as an EU member. The agenda of the commentaries on the report by EC are centered only on the possibility of reducing the amount of the structural funds or the direct payments for agricultural producers. However, this may happen only if the administration does not do its job. Additionally, even if all requirements and conditions of the European Commission are met, the application process for the structural and cohesion funds will start at the end of 2007, according to the official timetable. The absorption of resources during the first years of the operation of the financial mechanisms of EU is traditionally weak for the new EU-members (15-30%), so the possibility of reduction of the promised money should not be dramatized. The granted money by itself is not a guarantee for improving the living standard of people, the significant point is how the funds have been allocated and exhausted. (the important thing is where it will be distributed to and how it will be spent.) And for this purpose, visible and well-established business models and entrepreneur ideas should be available on the market. There is not invented by now any central planning mechanism by which scarce resources in the economy to be effectively and fairly allocated. The market makes it most efficiently (“the invisible hand of the market”), and as a result, the interests of both consumers and suppliers coincide.

The positive effects from the EU accession for Bulgaria are the following:

1 More trade within the EU, which will have by all means, a positive impact on the economy – due to specialization and competition pressure;

2 Easier traveling and more opportunities for professional realization of people, gaining experience and appearance of new business opportunities on the horizon;

3 More chances for people to get education and qualification abroad;

4 Exchanging of ideas, know-how and best practices by attracting investors and foreign companies outsourcing their operations in Bulgaria; and

5 Harmonization of procedures and rules, which facilitates doing business, establishment of well-defined property rights and greater accountability of institutional and economic environment.

At the same time, the EU membership does not excuse Bulgaria of the necessity for launching and conducting more economic reforms, on the contrary, this need gets even stronger. It is so because being an EU member means that Bulgaria will have to compete “on an equal basis” with:

1 The tax systems of the new EU members, which attract more and more investors form “old Europe” due to their low tax rates and lessening of the tax burden for the business;

2 High labor productivity in Austria and Germany;

3 Technological progress in Ireland and Finland;

4 Level of education and qualification in Great Britain and Netherlands;

5 Efficiency of the public sector and transparent rules of managing of the public resources in Denmark and Sweden.

The conclusion is that the Bulgaria’s EU membership should not be regarded from an economic point of view either as too pessimistic or too optimistic. The future economic growth of the economy and improvement in the well being of people depend on the political will for continuing of the economic reforms and applying the best, market-driven practices from the EU.