What is missing in the “anti-crisis” recipe?

Teodora Kamenova

In the context of the deepening crisis in Europe, the vague measures suggested by the Bulgarian government seem even more hazardous. Up to this moment the “anti-crisis” formula has been changed repeatedly, even in a matter of a single day, and this has naturally led to confusion of both the business and the ordinary people. The need for effective actions is beyond doubt, but what are the aspects that the government strategy is lacking?  

Short-term vs. long-term measures  

Thus far, most of the government’s measures have been focused mainly on the short-term perspective. An example for that, were the plans for an increase in VAT, a “luxury” tax, and other taxes aimed at decreasing the budget deficit and stabilizing revenues. However, without carefully considering the long-term impact of such measures, they can lead to serious consequences for the economy.

Efficient short-term measures are of course needed, but the government should not ignore the long-term goals for the country’s development. One of these aims is to increase the flow of foreign direct investment. A strategy which takes this aspect into account will have an extremely positive impact on the country both in the short and long-term. A survey by Ernst & Young demonstrates that the “Bulgaria-in-the-eurozone” factor is hardly ranked by investors as a top criterion when judging on the country’s investment attractiveness. Despite that fact, it is precisely in pursuing this goal that the government is ready to adopt potentially harmful measures, such as the increase of VAT, in order to decrease the budget deficit at any cost. In reality, according to the survey, investors have pointed as some of the most important factors: the elimination of corruption, less bureaucracy and improvement of the communication infrastructure. Perhaps, it is precisely these issues that should be turned into one of the government’s main priorities, so that Bulgaria can not only tackle the crisis but also increase its competitiveness in South-East Europe. 

Greece and the banking sector

Less than a month ago, the European Union (EU) discussed measures for preventing a new collapse of the banking system. Whether Bulgaria managed to avoid the most severe shakes in this sector remains to be seen. Even if at the peak of the crisis some of the big problems have been evaded, this by no means should be interpreted as a sign that this aspect should not to be included in the government’s anti-crisis strategy.    This is crucial, especially now when the crisis in Greece is becoming increasingly serious. Many economists predict that there would be a spill-over to neighboring countries, including Bulgaria. Along with the consequences on Bulgarian exports, it should also be taken into account that a large percent of the banking sector is connected to Greece. For that reason, the government’s efforts should consider the possibility of a scenario where the banking sector might need quick and substantial assistance.    

With regard to such possibility, one of the measures discussed by the EU consists of a small fee on various banking transactions, which would serve to accumulate a reserve that can be used in case of a new banking collapse. Such a measure increases to some extent the chance that banks might start taking higher risks, but having in mind the current market uncertainty and the lessons learnt from the crisis, the likelihood for this is not as great as before. This move represents a sensible anti-crisis measure and it will protect taxpayers from carrying the burden in case of a potential banking collapse for which they will not be directly responsible.  

Foreign policy

In spite of signs that Bulgaria is becoming more active in its foreign policy, such initiatives should be much more thorough and goal-oriented during times of crisis.  On the one hand, the government should seek different ways to promote cooperation in order to reduce its trade deficit, which is currently one of the biggest challenges ahead of the country. Achieving progress in this area is key for pulling Bulgaria out of the crisis. On the other hand, more efforts and concrete policies are needed with regard to the Black Sea region. This is a geographical area of great importance for Bulgaria’s business and trade relations and the government should not ignore its economic significance for the country. It is also vital to ensure greater efficiency with regard to the management of funds coming from the European Union, because they can greatly contribute for the financing of a number of high- priority projects in the country. This is one of the easiest ways for Bulgaria to cut costs in various areas such as administration, infrastructure, and regional development. A coherent and clear strategy for using foreign policy as an instrument to alleviate the impact of the crisis should be a crucial element in any anti-crisis plan.

In times of crisis, it is necessary that each government undertakes apt and efficient measures in order to tackle the negative consequences of the difficult economic situation. However, the government’s attempts thus far have prompted many to question Bulgaria’s overall strategy with regard to the crisis. A number of broader measures can help the country achieve significant progress both in the short and long-term perspective. The benefits of such measures could lead to more lasting results such as an increase in foreign direct investment, improvement of the country’s trade balance, and alleviation of the consequences of a potential failure in the banking sector. And for an anti-crisis recipe to be effective, it should indeed include all of these factors.     

 

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