TRUMPETS AND SLAPS IN THE FACE AWAIT US IN THE EU
Overtaken by Optimism, Rulers forgot about the European PricesWithin a year housing prices in Bulgaria jumped by a quarter. At that, according to data of the National Statistics Institute (NSI), which watches closely the prices, declared in front of notaries and tax authorities. This huge increase was explained by a single reason - the forthcoming accession of the country into the European Union (EU). And as Europeans have not yet rushed to buy cheap real estates in Bulgaria, it turns out that the excessive hike is a result of our own expectations of the inevitable equalization of prices with those in the EU. Such premature accounts may seem foolish (only a very naive person would expect that in 2007 Germans and Frenchmen would queue up in order to buy a prefab flat in the Lyulin suburb, but it's still more foolish not to notice the realities. Concerning the real estates, the price increase is quite real and worns that the same developments might follow in other sectors as well. However, such problems do not worry our authorities (the Government and the Bulgarian National Bank). According to them, we'll join the EU smoothly and without jolts in 2007, and two years later the eurozone. Indeed, we shall not get away with a certain growth of inflation due to the increase of excise duties, but as central bank's Governor Ivan Iskorv explained recently that would be only temporary. The same opinion is shared by the Finance Ministry. In the 2004 Budget report it is written that due to the rise of regulated prices (of electricity, telephone services and central heating) and the increase of excise duties, inflation in the country will be1-2% up from the rate in the eurozone where it is expected to be 1.6%, and in Bulgaria - 4.1per cent. It would be more accurate to say that the hike due to the higher excise duties and electricity prices will be 2.5 per cent. Anyway, the percentage is low, even on the background of European countries which can boast of financial stability. In fact, favourable forecasts of that kind are not deprived of grounds. Prices in Bulgaria have been comparatively stable over the last few years. The currency board is operating so quietly that it seems everlasting. And at least theoretically the main sources of inflation under that arrangement are the effect of the so-called dual inflation and the hikes due to the prices of imported goods. To them (even though their influence is weaker) are added the increases of regulated prices and the temporary fluctuations in the volume of money that is in circulation in the country. If these are all the reasons, which together with Bulgaria's integration into the EU could lead to a steep increase of prices, there are no reasons for worries. But of them only dual inflation has been admitted as a factor that is connected with the overtaking of prices in the eurozone, and judging from studies in other countries it does not exceed 2.5 per cent. Two researches on dual inflation were carried out in Bulgaria over the last two years. According to one of them (made by Georgi Chouklev from the Agency for Economic Analyses and Forecasts), such an effect exists and its influence on inflation and the real forex rate in the 1995-2000 period is 2.6 per cent. The other research (by Nikolay Nenovski, member of BNB's Governing Board) practically denies the existence of duel inflation in Bulgaria. In that situation it would be only logical to ask when and how we would reach the prices and incomes in the EU countries. Experts of the International Monetary Fund (IMF) believe that will take some 30 years. The forecasts of the European Centre in Warsaw are still more disencouraging. According to them, in the year 2030 per capita GDP in Bulgaria would be 54% of that in the 15 current members of the EU. In 2002 it was just 26% of the per capita GDP in the EU, according to the most recent data of EUROSTAT (the European statistical service), at that on the basis of the purchase capacity (i.e. the comparison takes into consideration the difference between price levels in Bulgaria and in the richer countries). According to EUROSTAT again, prices in Bulgaria in 2002 were 33% of the average level in the EU and this is the lowest indicator among all candidate countries for EU-membership (in Romania they were 35%). Regarding our salaries, they are about 13% of the average in Europe (again on a comparable basis). The obvious conclusion is that none of the countries (from Ireland to Lithuania with its threefold lagging behind) has ever set out for the EU from such a low starting point.Could this lagging behind be overcome? Roughly speaking, there are two options - more work and reassessments. The first one means to improve productivity and efficiency, and the second - to allow inflation. Of course, the latter will not reduce the huge difference between the GDP in Bulgaria and in the eurozone, neither will it raise the purchase capacity of the professedly increased incomes. It will only hide the differences between prices in Bulgaria and the EU. Therefore, it is quite doubtful that the eggageration of indicators would be of any use. Concerning the increase of productivity, which is the proper way to overtake the developed European countries, there is no occasion for optimism either. A similar indicator is from time to time calculated in our country and Bulgarian economists ofter resort to the services of the Vienna Institute for Economic Studies. According to its calculations, the growth of productivity in Bulgaria after 1995 has been slightly ahead of the rates of increase in the EU, which is obviously not sufficient. Simply because in 2001 productivity in our country was about 10% of the average in the EU, while in the same year it was 20% in Estonia and 30% in Hungary, IMF data showed. We should not forget there will be a higher price increase as well due to the expenses which the State and businesses will have to make in oder to satisfy European standards - from the various technical requirements to industrial goods, to investments in environmental protection. Currently, only the amount of expected ecology-related costs is known - about EUR9BN, but it is sufficiently indicative of the forthcoming pressure on domestic producers and their prices. In Sovenia (the rishest of the future EU members) the price of membership has been preestimated at about 2.5-4% of the GDP. The country expects a 10% annual inflatioon resulting from the fulfillment of ecological and other European requirements. In Bulgaria, however, we take comfort by partial forecasts of a 2.5% price increase.