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Ivan Kostov: The big risk for Bulgaria is the substantial amount of capital outflow

This is Studio Banker, I'm Emil Yanev with the state debate. One of the key figures in the recent history of BG-former Prime Minister Yvan  Kostov is in the studio. Welcome Mr. Kostov

Let's look for the role and place of BG in current Europe especially during the last 10 years. A series of votes in the judiciary and the legislature gave reasons to uphold the belief that the center of power is already taken by the prosecution-oligarchic circle that issues decisions for implementation instead of receiving them.


Kostov: - This would not have happened if the politicians felt free, honest and unguilty. Then they might have voted otherwise. And what is being said is spoken by outside observers who are well aware of what is happening in BG. For example - They see that Bulgarian democracy is not consolidated, which means that there is no rule of law and that the institutions have not produced a democracy in which people feel well and protected. I also assume that the Cooperation and Verification Mechanism will not drop out, although the opposite is presented. The decision is taken by the Council of Europe, where the Netherlands has stated its firm position and Germany is always behind it.

That is, this assessment of our legal system impairs BG's image and prevents it from receiving direct investments for the creation of high value-added jobs. Тhere is a cycle in which BG turns out to be an exporter of capital in particularly large amounts.  And this has been happening continuously since 2011.

The Risk Analysis and Management Center is your field of expertise. Let's take the word risk. Is there any risk that the status quo in BG could be shattered in some way?

KOSTOV: The risk is early parliamentary elections - these are political risks. There is a risk that the government will fall and parliament will continue to exist - these are options. But it is unlikely for me that this government and parliament will not hold office

This is  for the government. What about  the prosecutor-oligarchic circle - is there any risk of disruption to its comfort.

KOSTOV: I think there is, and that will come under the impact of outside pressure

How can it be legal. To demolish, under external pressure, a well-established benefit system.

KOSTOV:  Much depends on the direction in which the EU will reform, especially after the UK exit. This is crucial because different scenarios come with different options. If we assume an increase in the strength of prosecutorial investigations and internal integration, if we investigate the spending of European funds, very serious problems can be expected for the Bulgarian judicial system as a whole.

On the other hand, many of the political cases won by the prosecution here are lost in the European Court of Human Rights, the sums we pay are huge. The mechanism for dealing with this is easy. If, in a lost case in Strasbourg, part of the financial damage to the state or part of  the  compensation of the affected is personally borne, we will have a result. No one will sacrifice his salary to deal with such political orders. This will be a blow to the oligarchic circle. But let's just say what oligarchy is - a word that is being misused.

A person with great economic potential who is able to influence on political decisions, for example, Dogan, Peevski. But a person who has excellent business but is not interested in politics, such as Gebrev, cannot be called oligarch. Our society has not yet cleared up the idea of ​​democracy, which is one of the most complex political systems – There is no other  more complicated than it. Its equilibria and dynamics are very poorly known, including by our political circles, not to mention the public. Something more - there is no debate about this.

There is no debate, but there are several workshops working on a new constitution. Your opinion?

KOSTOV:  Here is the way to make a change in the country - when there is strong internal pressure to generate it even at the risk of losing European funding. Several cosmetic corrections were made which, we said, were mimicry. Now the knowledge of the European authorities - the Venice Commission and others are much more in-depth, they can identify problems in BG, Hungary and so on.

I was surprised to hear the representative of the Constitutional Court, Philip Dimitrov, say that we have a sense of corruption rather than corruption itself.

KOSTOV:  This is true because the Transparency International benchmark which measure  corruption is for a sense of corruption. There is no real indicator of corruption. Therefore, the recipients respond that they have a feeling about it. In this sense Philip Dimitrov is right.

But this is an alibi for the status quo

KOSTOV:  Yes, it is, but this is because in order to expose corruption and punish it, it must be detected by these same authorities. This is paragraph 22.

The maze of the absurd. What can be done in BG from a political, democratic and civic point of view?  Here the changes were made mainly by pressure from the street.

KOSTOV:  That's right, but now there's no energy, no motivation. In my personal opinion the avant-garde part of BG society is living better. It is not the part that is impoverished or destitute. The people who were on the streets were energetic and capable people, with high expertise, opportunities, skills. They live well now and feel the benefits of years of economic growth. We have been at this stage of growth since 2011 with a few small depressions, but these people are not motivated now. This is my personal view.

But with this growth we are at the bottom of Europe and with 3% growth we have no chance of catching up with EU countries or we will catch up with them in 70-80 years’ time.

KOSTOV:  This is a big and interesting topic and should not be read in this way. The EU has real and conditional indicators that measure growth. The growth that you are talking about is the so-called conditional growth. The  real GDP growth involves an increase in production and the prices of real estate and rents. These are the factors that fuel real growth. But there is also nominal growth, which is very high and is not explored and understood here. In order to understand how the BG indicator is growing it must be compared with the real depreciation of the euro in Europe, not BG, because BGN is linked to the euro. Look, this year we expect about BGN 112 billion of GDP, which in Euro is a big figure and is getting bigger. I have been concerned with the extent to which impoverishment carries political risk.

The indicators describing the level of consumption of the average Bulgarian are very different from what is being said about us, so we are not the poorest.

Why - first - the vast majority of Bulgarians own a home, often two, i.e. they do not pay rent. Therefore, the cost structure of households includes a small rental component. Therefore, the food and beverage component remains relatively high, but it is already falling very fast. From this point of view it will turn out that the average Bulgarian does not live as badly as the Western media claims. The media in Europe needs a bad example.

However, this does not mean that the gap between the very poor and the very wealthy is not expanding. An energy-savvy middle class, it's visible - cars, travel. These people have a large disposable income. In the West almost everyone lives on credit. Here few people leave their heads in credit institutions. Small amounts or more are taken but they are well-calculated, well-considered, well-secured. The Bulgarian does not live on credit.

Even so, we are among the poor countries, but this is evident from other indicators. The health of the nation. It is grave . One reason is the unhealthy behavior of people - this is my working version. People do not take care of themselves, they do not keep themselves safe, they have no conviction that this is the greatest wealth they have. We are people of low culture who live in a very favorable environment as far as nature and resources are concerned.

Let's look at Europe - the role and place of BG in current Europe. Your assessment of BG diplomacy - some say that we are a balancer, others- that we have neither the resource nor the capacity for it. Especially on the energy routes.

KOSTOV: I don't think BG can balance between the consulted EU and the Russian Federation. We have no resource or potential. The main countries maintain their own relations with Russia. They will not go to the mediation of BG to settle their relations. The economic relations between Germany and Russia are huge, it is unlikely that BG can play a role there, no one will allow it. BG has its place in Southeast Europe.

Borisov's visit to the US has left different shades. We were left with the impression that because of high-level corruption he would protect American interests. He mentioned that the Turkish stream had been discussed but there was not a single word in the communique.

KOSTOV:  The reasoning behind this explanation is that Russian natural gas coming through the Black Sea will be more competitive in terms of prices than the liquid gas transported by sea to the dream gas distribution center Balkan. Our estimates showed 4 years ago that US LNG is competitive. It turns out that transporting gas thousands of miles away, through tankers with modern technology is more profitable than through pipes. It sounds curious but it is very likely to be true.Meanwhile, this was confirmed by the first sales of natural gas, not landed on Alexandroupolis. It turned out to be they are 10% cheaper than the one negotiated with Russia. Our market and national interest benefit from this. This benefit will be shown through the price. Our market should not be pressed when the benefit is clear, the result is there. So I do not believe there is political pressure from the state beyond the ocean.

This card was played openly for the high-level corruption versus LNG.

KOSTOV:  It is obvious that the topics discussed between the two US and BG leaders are not what was presented in our media, such as visa waivers

Something additional on the energy topic. The US-based Three seas project - the Baltic, Adriatic and Black Sea - to deter Russian energy raids has become widely known. What is our state position that we need to take?

KOSTOV:  This is not the whole picture of gas supply. Firstly, if the EU accepts the pressure of the green and limits the hazardous emissions, then natural gas will become an inefficient fuel because it emits more than 550 kg per MWh of sulfur dioxide. The idea is that this limit will fall below 500. On the other hand, there are deposits in the eastern Mediterranean that are about to hit the market. These deposits in the Levantine Sea change the map of natural gas supplies. This will be the cheapest gas because these are the shortest routes especially for BG. BG's interest is to ask to become part of this arrangement and when the pipe is opened – to make possible our interests to be taken into account. Similar deposits exist in Cyprus and Israel, which can produce large quantities of gas.

This could lead to a change in forces and a decline of Russia's influence in Europe.

KOSTOV:  That's right. There are many conditionalities, but some things are emerging and must be observed. For example, whether the requirement for less than 500 kg per MWh of the “Greens” will be accepted.

The Greens have already managed to take the place of the Socialists and Social Democrats in the European Parliament, as nationalists are taking over part of the right-wing. A new party-political balance of power in Europe is emerging.

KOSTOV:  From an intellectual standpoint, I think the green movement is untenable. Why - there is a very powerful philosophical argument against what they see as a disaster, i.e. the only way to handle the problem is to put the brakes on the economy and hope that it will pass us by. First, because many scientists acknowledge that it is unclear to what extent temperature rises are due to human activity and to what extent to other factors that cannot be measured at this stage. But the second philosophical argument is very strong - if we put the brakes on the economy, how we will solve the environmental problem  tomorrow,  how the technologies in agriculture, energy, industrial technologies, the way of production of services will progress. We will become more powerless  and  consequently more vulnerable. Powerful protection systems must be put in place to, for example, extinguish Australia's fires. They can be invented by chemists, technologists, engineers, by skilled people. The latter can save the planet, not the green movement, which is ignorant of these issues.

Not to mention that there are doubts about corporate interests as well

KOSTOV: Interesting is the example of China, it has undergone  huge pollution problems to become one of the most powerful countries in the RES (renewable energy sources)sector –China has been replacing old power plants with RES ones. The dynamics of this sector there is tremendous.  Why, because they are evolving rapidly and we have stopped developing and have continued to produce these emissions. Yes, we  reduce them but slowly. See who can handle the problem - the one that's developing. The solution is faster technology development and scientific research

In your opinion, is Europe lagging  technologically  behind the USA and China. Whether the disintegration or fragmentation of Europe will  turn it into a secondary global power?

KOSTOV: They’ve already turned it. It's already a fact. Britain comes out - EU power is shrinking significantly. UK goes out  and Macedonia enters – a very big compensation.

For me, the core of the problem is the low real growth of the eurozone, which is directly related to the development of technology. An economy is developing technologically in a growth environment, otherwise it is merely marking time - there is no investment income, no absorption of new technologies and new spaces. See for how many years the Euro zone has remained stuck in one place. At the same time the United States has an incredibly high growth rate. Whatever liberals in Europe say, they can also say it out of envy, but the United States is developing at an unprecedented pace and has extremely low unemployment.  So is China, also Turkey and Brazil if they keep their growth rate, these are countries with huge economies.

And finally, because our time is running out - what are the direct, short-term risks that BG and Europe are facing?

KOSTOV:  For me the main risk for BG is the low level of democracy and the insufficient pace at which we are catching up with other European countries. These two processes are linked - you have no democracy, you have no security, you have no protected rights, property prices and land are low because no one is bringing you into their sight as a promising object. This also keeps away foreign investors. We do not realize that what we get from the EU as EU funds goes to a small group of people - a few landlords, a few public procurement companies. This is compensated by the huge export of BG capital abroad. If we have received about 7.5 billion euros net worth since 2010, about 13 billion net worth has been exported. During this period the average export of currency from BG is about 2 billion a year. This is the big risk for BG, it is the country with the most urgent need for capital in order to develop and maximize the benefit of jobs to receive high added value and at the same time it exports the biggest amount of capital, measured per capita. This is how foreign economies are nourished. There is no such thing in the world. This is the biggest risk. This policy which has led to such exports of capital is not a good policy. It does not protect BG interest, it is a policy of inertia that increases inequality and exports the vital forces of the country. Some of this capital may be returned, but exports of it may as well increase. We are glad that by 2009 we had a negative balance of payments but it is swapped by property. Those who imported the money own real estate in BG. Tomorrow if they sell to Bulgarians this money will go away and in that sense what will remain for us. It is a policy of weak political will, a misunderstanding of the mechanisms of economic development and, above all, a poor reading of the interests of the country.

How do you see the process of reformatting the EU, which is inevitable? Germany, France, Benelux in the middle, followed by the B squad of the “quartet” and we - in the amateur league to keep and protect the EU's external borders.

KOSTOV:  If the EU goes into defense this will be the option. If it stops its development, limits the process of expansion, does not accept the challenges of time or the thrown gloves from other countries, this will be the result, of course. Conversely - if it finds the strength to reform and respond to the demands of  times, but not in the direction that liberals are pushing it, then things will be different.

Which direction will Europe go?

KOSTOV:  Perhaps there will be clarity after the end of 2020. First, it will become clear what will happen in the Middle East, because for me, the most dangerous thing is the escalation and exaltation of the Iranian Parliament.

Leaving a nuclear agreement is a request for nuclear weapons production. Who will allow these fanatical people to possess nuclear weapons. If a politician does it, he will become a criminal. It will become clear how things will develop, whether a modus vivendi is going to be found. The risk is great. These fanatical members of the political core can cause great havoc. Certainly America will not do this.

Secondly, we will see that Trump will be re-elected. Shall he address the Pacific region and China or continue to maintain Euro-Atlantic contacts at the level before his presidency. He can continue to detach himself from Europe but he can also do the opposite - protect this Euro-Atlantic axis. This, in my view, is important to us.

Another important factor is that a trade agreement is being negotiated with the UK. It is one thing for the UK to stay in the European Economic Area and another to stay outside it. It will be a blow to both UK and the EU. 2020 will not be a quiet year.

Thank you so much for your analysis

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