Банкеръ Weekly



The European Commission became a real fairy as soon as the 2007-2009 financial framework for Bulgaria and Romania was announced in public. The commissioners' proposal presented on February 10 provides EUR15.4BN and definitely goes beyond all expectations. It is more than a third of the amount received by the ten countries participating in the first round of enlargement. In fact, EUR9BN will be paid in practice, but the amount is still generous and should evade, at least for a while, skepticism in the applying countries.The EUR4.245BN provided for Bulgaria caused enthusiasm among the rulers. As the Minister of Finance Milen Velchev noted, the amount is equal to a half of the principal on Bulgaria's foreign debt. Dimitris Kourkoulas, EU Ambassador to Bulgaria, said that no other country in the past history of the EU has ever been offered a more serious assistance in terms of its gross domestic product.The statements made by both Bulgarian and foreign officials should not be considered just protocol. The most objective indicator for comparing the financial packages offered to Bulgaria and Romania to those offered to the first ten countries is the so called net balance. It is calculated as a difference between the funds used from the single European budget and the installments that each of the new members is going to make to it. In the ranking of the 12 Central and Eastern European countries, Bulgaria is an undubious leader. Its net profit amounts to some 5% of the GDP. Romania ranks second with a profit worth 4.8% of the GDP. Meanwhile, countries like Cyprus and Malta were forced to ask for a compensation budget subsidy after their integration to the union.At least on paper, the net balance per capita in Bulgaria for 2007-2009 (EUR463) shows that only Lithuania, Estonia, and Latvia, have better indicators. These countries will be given between EUR650 and EUR600 per capita.Preparing a joint framework for the two Balkan states, the European Commission implicated that Bulgaria and Romania will go along their way to the union together. As far as the framework is concerned, the parceling of Bulgaria with its northern neighbour may appear positive. According to the Bulgarian Minister of European Affairs Meglena Kouneva, the numerous rural population in Romania played a role for the distribution of the agricultural funds. The financing of the agricultural sector is divided in three parts - for market support, for development of rural areas, and for direct payments. EUR1.120BN will be provided for market support, of which EUR388MN for Bulgaria and EUR732MN for Romania. Rural areas will be given a total amount of EUR3.041BN, of which EUR617MN for Bulgaria. Direct payments on which farmers in both countries can rely in 2007 will amount to 25% of the funds given to the 15 present members, and not to 40% as insisted by the Bulgarian Ministry of Agriculture. Subsidies will grow by 5% by 2010 and by 10% later. Payments for Bulgarian agricultural producers for the period 2007-2009 are expected to reach EUR431MN. Romanian farmers will receive twice that amount.In 2007, within the single internal market there will be three categories of countries which will have to compete in terms of complete trade liberalization. (The ten countries from the first round of enlargement will receive 40% of the assistance to present members, and Bulgaria and Romania - 25 per cent.) This will be partly compensated by the fact that for their agriculture as a whole Bulgaria and Romania will be given the largest amounts calculated as percentage of their gross domestic product (2 and 2-3% respectively). For comparison, Poland which was considered one of the most favoured applicants, receives approximately 0.7% of its GDP.Particular interest was provoked by the money planned to be paid for the four structural funds (agriculture, fishery, social activities, and regional development) as well as the fund for economic rapprochement (the Cohesion fund). These funds form the lion's share of the assistance from Brussels. The money planned for structural activities in Bulgaria in the first 36 months following the nation's EU debut amounts to EUR2.3BN (3.2% of GDP). About EUR690MN of this amount will come from the Cohesion fund and will be used for financing of infrastructural and ecological projects. As a result, Bulgaria ranks among the top three countries of the 12 Central and Eastern European members. The first one is Lithuania which receives from the structural funds an amount equal to 3.6% of its GDP. Romania is second with EUR5.973BN (3.3% of GDP).The Internal Policies item is among the most discussed ones. It includes the EUR350MN compensation for the closing of the first three reactors of the Kozlodoui power plant. EUR200MN negotiated with the Verheugen - Mihailova memorandum in 1999 should be added to that amount. Lithuania and Slovakia were given EUR285MN and EUR65MN respectively for the closing of their reactors. Confusion was provoked by an announcement of EUR82MN planned for construction of administrative structures. However, this money is not going to enter Bulgaria in practice. It will cover the expenses on payment of salaries to Bulgarian representatives in the EU numerous institutions after 2007. Some publications in the press claiming that Brussels has cut Bulgaria out of the Foreign Borders program are not true, Minister Kouneva said. In fact, after the forthcoming enlargement of the union the program will be called Neighbours and Bulgaria will be included in its budget.Let's not forget, however, that the amounts proposed by the commisioners are not final. They have to be assessed by the EU member countries and the European Parliament. Only then will the 15 members announce their joint position. That will start the negotiations on the financial chapters (General Agricultural Policy, Regional Policy, and Budget and Finance). This is expected to happen after the March 23 meeting of the Council of Ministers of the EU in Dublin. If the top diplomats of the member states fail to reach an agreement, their state and government leaders will have the final say when they meet in Ireland in June. Delaying the talks for the second half of the year does not mean the ten newly-arriving countries will take part in them, however. We also should not underestimate a possible unfavourable course of the discussions on the parametres of the future 6-month budget of the union. Along with the financial framework for Bulgarian and Romania, the European Commission announced an ambitious plan for raising the budget expenses up to EUR1,270 for the period 2007-2013 (1.14% of the gross national income of the community). However, a scenario like that do not conform with the intentions of the six biggest payers in the EU who pay more than they receive - Austria, Great Britain, France, Germany, Netherlands, and Sweden. In a special letter in the end of 2003 sent to the European Commission Chairman Romano Prodi, they insisted on shrinking the budget expenses. According to diplomatic sources, among the countries that may appear skeptical towards the assistance for Bulgaria are also Spain, Greece, and Portugal. As it is known, these countries use significant amounts from the Cohesion fund.According to Financial Times, negotiations about the new six-year financial plan of the EU will probably relate to the negotiations on the future constitution agreement. Bulgaria will only be an observor in them. It is hard to predict how things will go on if negotiations with Romania are terminated, too. As Minister Velchev put it: Help yourself and God will help you.

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