03:45 GMT30 May 2020
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    Rumen Gechev, Bulgaria’s ex-Deputy PM, weighs in on Sofia's economic prospects amid a predicted major economic downturn in 2020 due to the coronavirus pandemic. The politician also shares his opinion on how the purchase of American F-16 aircraft will affect country's economy.

    Sputnik: According to the European Commission, the EU and the Eurozone will face a major economic downturn in 2020: the Eurozone’s GDP may fall by 7.7%, and the EU’s GDP may fall by as much as 7.4%. The economy is unlikely to fully recover until the end of 2021, the EC report says. According to European Commissioner Paolo Gentiloni, “Europe is experiencing an economic shock without precedent since the Great Depression.” The European Commissioner said that the scale of the economic downturn and the speed of economic recovery would vary for different EU regions and would depend on how quickly a country would lift quarantine measures, how much a country depends on tourism as well as on the general state of its economy. “These differences pose a threat to the single market and the Eurozone,” the official said. What’s your take on this?

    Rumen Gechev: At this stage, the EC estimates seem quite objective, provided that in the next two to three months the main restrictions caused by COVID-19 will be lifted. GDP will fall by at least 10-12% as a result of a serious decline in investment and consumption, severely hampered exports in the EU – and especially outside the EU – as well as rapidly growing unemployment and a chain of bankruptcy cases. Of course, the scale of the crisis will vary depending on the structure of individual national economies and their external logistics chains. The EC and the ECB, which have learned from the mistake of pursuing austerity policies during the previous crisis of 2007-2009, have now taken the right path providing companies and households with large-scale liquidity by issuing interest-free loans, credit guarantees and easing loan guarantee requirements, gratuitous assistance, as well by issuing direct and indirect subsidies. The EC announced that it was temporarily abandoning the restrictions imposed on budget deficit size and the share of government debt on GDP. The green light was also given to provide state assistance to private companies.

    However, such relaxation can have a very high price. The Eurozone has somewhat “slowed down;” it had faced serious economic and financial problems even before the crisis started. Despite banking control tightening, many Eurozone banks have ended up in turbulent conditions. For example, Deutsche Bank has suffered huge losses for several years, while it directly or indirectly controls more than $2 trillion worth of assets in Germany, the EU, the US and other countries.

    The bankruptcy of tens of thousands of firms and the increase in unemployment means that a critically large number of legal entities and individuals won’t be able to service their loans. This time, unlike the previous crisis, governments won’t be able to allocate budgetary funds to help banks that find themselves in a difficult situation. Firstly, because budget expenditures have already increased significantly, and secondly, because taxpayers won’t agree to again help banks with their own money. The situation is worsening because even before the crisis, countries didn’t agree on a new EU budget for 2020 due to increased internal disagreements after Brexit. It turned out that Germany and France, especially Germany, didn’t want to increase their contribution to the EU budget. After that, it became clear that expectations regarding some kind of general fiscal policy, including creating a Eurozone finance ministry, were unrealistic. Plans to issue debt securities are unlikely to be realized because, at this stage, Germany and the Netherlands categorically refuse to allocate their national budget resources for that. Thus, a common fight against COVID-19 is impossible without the overall financing of anti-crisis measures. And it is precisely this lack of solidarity that poses the greatest danger to the Eurozone. This is an extremely big risk, even in the medium term. If this risk is not minimized, if it is not possible to reach solutions acceptable to everyone, another serious Eurozone crisis could lead to the collapse of the European Union.

    Commuters, some wearing masks are seen at Canning Town station, following the outbreak of the coronavirus disease (COVID-19), London, Britain, May 13, 2020.
    Commuters, some wearing masks are seen at Canning Town station, following the outbreak of the coronavirus disease (COVID-19), London, Britain, May 13, 2020.

    Sputnik: Which European countries do you think will suffer the most, and who will most easily get through the post-coronavirus economic depression? Is out of sync recovery really a threat to the EU single market? What should be done? Is it urgently “pouring” additional EU funds into the economies of the countries that would suffer most, or is there any other option?

    Rumen Gechev: The real results of the crisis will become clear at least in a few months. The countries that are likely to suffer the most are states with the highest share of tourism in their GDP – Italy, Spain, France, Greece, Bulgaria, etc., as well as countries with hub airports, and therefore with large passenger flows.

    In the long run, this crisis cannot be resolved only through money injections. At the moment, this is exactly what EU governments are doing, of course, with some slight differences in volume and tools.

    The EU’s foreign economic relations, production organization and sustainability amid such an external shock should be comprehensively reevaluated; this especially concerns key industries that ensure regional and national security. Some production facilities are most likely to be withdrawn from China, or substitute capacities will be created in the EU. This is a chance for countries such as Bulgaria: countries that may be suitable for such a relocation of production capacity. This is probably a chance for real progress towards convergence between less and more developed European economies, which has been proclaimed for many years. Without reducing technological and socio-economic differences, it is impossible to overcome the dangerous stagnation in integration processes.

    Talking to Russian RBC, Josep Borrell, High Representative of the European Union for Foreign Affairs and Security Policy, said:

    “Today, they often say that there is no leader in global politics and several countries claim this role. This situation creates new opportunities for the European Union, given its reputation as a player capable of offering constructive solutions to problems, acting in different directions and in the most difficult situations.”

    Sputnik: Considering difficult Sino-American relations, can the EU in the post-COVID era become the new global leader, or is it just flaunting amid the difficult situation with the coronavirus, where the EU started responding quite late, which has in due time caused discontent in Italy, for example?

    Rumen Gechev: Unfortunately, the EU won’t be able to take the opportunity of being a global leader. If Germany is excluded, other leading countries (France, Italy, Spain) remain captive to fiscal deficits, debts, and worsening social and domestic political problems. Italy’s banking and fiscal system was already on the razor’s edge, and now it needs to solve the terrifying problems cause by the coronavirus. France is also facing a serious challenge. Every government’s attempt to reform pensions, for example, faces mass protests of “Yellow Vests” on Champs Elysees. And as soon as quarantine restrictions are lifted, protests are likely to continue. Yes, the EU is a significant economic centre in the global economy, but its weight in international politics doesn’t correspond to economic opportunities. For example, the prospects of creating a common EU army are far-fetched; and without its own army, the EU will continue to depend on NATO.

    An F-16 Desert Falcon of the United Arab Emirates maneuvers at the Bahrain International Airshow in 2016.
    An F-16 Desert Falcon of the United Arab Emirates maneuvers at the Bahrain International Airshow in 2016.

    Sputnik: In 2019, Bulgaria rated first in terms of military spending growth, due to its purchase of American F-16s. At the same time, according to Eurostat, Bulgaria has the lowest minimum wage in the EU (€312). According to a study by the 24 Chasa newspaper, Bulgarian pensions are among the lowest not only in the EU, but also in the Balkans. Why do you think the government decided to purchase the aircraft, the price of which greatly exceeded the original maximum? Both President Rumen Radev and many MPS pointed to the fact that the deal implied reduced opportunities, but Valentin Radev from the ruling GERB Party noted that that purchase brought Bulgaria closer to NATO, its strategic partner, where the United States is “the front man.” Do you think the choice is due primarily to this, or is Sofia really facing serious security challenges?

    Rumen Gechev: Bulgaria is a NATO member, and it should fulfil its obligations under the treaty. But it should be clarified that this should be mutually beneficial; as for the F-16 case, there are several serious problems. Firstly, according to experts, this model has exhausted its capabilities, even in the new Block 70 modification. Therefore, the Pentagon hasn’t bought this aircraft for more than five years. It seems that we’ve become part of a marketing strategy to extend the old product’s life cycle. Secondly, the price for Bulgaria is now higher than for other buyers. The explanation that this is so because the F-16 is supposedly our first purchase seems rather strange. Thirdly, in order to avoid a higher price – higher than what had previously been approved by the parliament – the government resorted to removing part of the armament and manning. In other words, additional costs will now follow. Fourthly, we are buying a modification that still exists only on paper. What are the guarantees that the product will be successful when its delivery actually becomes possible? What are the guarantees that there will be no delays, as was the case with the F-35, for example? Fifthly, the fact that such an extremely expensive product has only six months of warranty, which is four times less than the warranty for electrical appliances in the EU, is a scandal. Sixthly, we paid the full price in advance – both for the drawing and for the promise to deliver the aircraft from 2023. But it recently became known that deliveries can actually last until January 2027! That is, the people of Bulgaria pay the whole amount in advance and receive equipment in 7-8 years. Here, as they say, common sense fails to appreciate the so-called Euro-Atlantic solidarity, which is unilaterally served by the current Bulgarian government.

    Sputnik: The other day, Bulgarian Prime Minister Boyko Borisov said that Sofia could block the start of negotiations on Northern Macedonia’s joining the EU if Skopje didn’t comply with the Treaty of Good-Neighbourliness. At the same time, the EU called on Northern Macedonia to comply with the terms of the treaty. In your opinion, can Bulgaria arrange a “Greek” scenario for Skopje? Recall that Athens has for many years blocked the Euro-Atlantic integration of its northern neighbour. Or, if the leading EU countries are determined to give Northern Macedonia the green light, will Sofia remove the conditions and stop arguing with its Western EU partners?

    Rumen Gechev: For Bulgaria, the issue of Macedonia is extremely sensitive, since the land and population of this country are part of our historical past; today we speak different dialects of the same language. Of course, part of Northern Macedonian political elite has a different opinion and defends its own interests. We have irrefutable historical evidence that they steal our history, the history of Bulgaria. We cannot agree that the Bulgarian kings and historical figures are declared Macedonians and that their history books are full of distorted historical facts. Therefore, I would say that, unfortunately, the government led by Borisov hasn’t repeated the Greek scenario. Greece first resolved historical disputes with its Macedonian partners, including the issue of imitation monuments in Skopje, for example, the monument to Alexander the Great (according to the Prespa Agreement, monuments to the family of Alexander the Great should have signs explaining that the monuments belong to ancient history, which belongs to Greece), and only then gave the green light for Northern Macedonia’s Euro-Atlantic integration. The Bulgarian government first signed an agreement (on friendship, good neighbourliness and cooperation) promising to show historical tolerance to historical truth, and then waited for adequate steps from Northern Macedonia. Unfortunately, such steps didn’t follow and probably won’t follow. The problem is that the current government, trying to please Brussels and remain in power, may not use our right to veto Northern Macedonia’s entering the EU. I am convinced that most Bulgarians would consider such steps (no veto) national treason.

    Sputnik: At the online EU-Western Balkans summit in early May, there was no question of the date of the start of negotiations on Northern Macedonia and Albania’s joining the EU, although back in 2018, Jean-Claude Juncker said that the Balkan candidates could consider 2025 as the date of their possible accession to the European Union, as soon as they fulfilled the necessary conditions. Do you think the situation with COVID-19 and the economic recession will alienate the prospects for Balkan countries’ joining the EU? Which country do you think is the most promising candidate, Serbia, Montenegro or Albania?

    Rumen Gechev: Covid-19 will undoubtedly slow down the process of Albania, Northern Macedonia and Montenegro’s accession to the EU. At this stage, due to a variety of reasons, the issue of Serbia is out of the question. A slowdown is inevitable due to the fact that the EU doesn’t think about expansion. It has to deal with very serious economic and political problems in order to pay more attention to the periphery in the Balkans. The differences between the western and eastern EU countries are still significant. Brussels has serious political disagreements with the Czech Republic, Hungary and Poland over the judicial system, migrant problems, the Istanbul Convention, their unwillingness to join the Eurozone, and so on. The EU is literally in a fever of problems, and Albania, Northern Macedonia and Montenegro’s accession is likely to make the situation even worse. In addition, two Balkan EU members, Greece and Bulgaria, have their own “preferences.” Greece would like to support Montenegro, while Bulgaria would prefer Northern Macedonia to Albania and Montenegro. First of all, you need to see whether the Eurozone can withstand the crisis and whether the EC finds a clear path and tools to continue building a common European home. Before that, there are unlikely to be any real steps to accept new members.

    © Sputnik / Sergei Guneev
    Russian President Vladimir Putin Speaking at the launching ceremony of TurkStream pipeline

    Sputnik: You have repeatedly called for lifting anti-Russia sanctions, indicating that of the EU member states, Bulgaria suffered the most from these economic measures. You also noted that at the same time, countries like Germany maintain economic relations with Russia, participating in the Nord Stream-2 project, while Bulgaria has buried the South Stream. In your opinion, can Turkstream somehow make up for these losses? Can it be that maybe the post-coronavirus era and the economic difficulties that accompany it are a good reason to lift various restrictive measures?

    Rumen Gechev: Yes, both in our parliament and in the media I expressed the opinion that serving foreign economic interests entailed huge economic losses; we missed out on exceptional advantages. Because gas pipelines shouldn’t be seen only as transit fees sources, even if it is several hundred million euros per year. They would provide the economy with a stable supply (of energy resources) at preferential prices. After the failure of South Stream, we still have the opportunity to connect to the Turkstream, which our Prime Minister somewhat guilty calls “Balkan”. But no matter how we call it, we will now need to pay transit fees and margins to Turkey; but it could have been the other way around. It’s clear that the current Bulgarian government will strongly support anti-Russia sanctions so that it remains in power. For several consecutive years, nuclear reactors for Belene NPPs have been stored in a warehouse, almost two billion euros have been invested (in 2018, the Bulgarian Academy of Sciences published a report on Belene, saying that Bulgaria had invested 3 billion levs, or about €1.54 billion). And while the Czech Republic and Hungary expand the possibilities of using peaceful atomic energy with the help of Rosatom, our authorities still keep frozen billions in a promising investment project, a project that would provide Bulgarian companies and households with clean electricity at competitive prices. One can only hope that COVID-19 will bring something positive to relations between the EU and Russia. Looking at the development of macroeconomic indicators, the approaching mass bankruptcies and problems in banks, I think that pressure from EU members regarding sanctions lifting will only increase. The statements of the political leaders of Germany, France and Italy are encouraging in this direction. Lifting the sanctions would simplify the restructuring and adaptation of our economy to new conditions, as well as allow the completion of significant and, I would say, pained Bulgarian-Russian investment projects.

    Rumen Gechev is a Bulgarian MP from the Bulgarian Socialist Party, Deputy Chairman of the budget commission and member of the economic policy commission. He is Doctor of Economics, Professor of Macroeconomics at University of National and World Economy in Sofia. He was a visiting professor at a number of leading European and American Universities. He was Deputy Prime Minister and Minister of Economic Development (1995-1997), Chairman of the fourth session of the UN Commission on Sustainable Development (1996-1997).

    United States, COVID-19, economy, European Union, F-16, Bulgaria
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