Bulgaria and the Eurozone Case – a Pioneer Stakeholder Analysis

The opening speech of the forum at the University of National and World Economics main conference hall

Bulgaria’s entry into the Eurozone has broadly been discussed as a matter of time, a matter or readiness and fulfillment of specific pre-conditions. But is it that simple, having in mind the condition the Eurozone is in, and its systemic shortcomings?

Instead of the next bias partisan discussion about it, me and my colleagues from Brain Workshop Institute, with the help of the Public Finance Department at the University of National and World Economy, to which I am grateful for their cooperation, decided to organize a pioneer state-of-the-art stakeholder analysis discussion, in order to unveil all the competitive interests, weigh the pros and cons, as seen by the different stakeholders, and to provide an independent analysis of their influence and power over the process, setting up the stage for drafting the best possible path for the country to follow.

We therefore invited as a key speaker Mr Gordon Kerr, an experienced investment banker, founder of Cobden Partners Consultancy, and an author of numerous financial risk management researches and publications, who had worked with a number of governments on managing their public finances after the financial collapse of 2007-8.

Being an experienced banker with broad expertise on banking collapses and the need for systemic reform, Gorden Kerr had started his career working on sovereign debt syndications and the Latin American debt crisis. He is currently a Senior Fellow at The Institute for Research in Economic and Fiscal Issues, based in Paris, and the author of “The Law of Opposites, Illusory Profits in the Financial Sector”.

Kuzman Iliev and Vladimir Sirkarov, hosts of the Boom & Bust TV Programme, were co-panelists, along with Ass. Prof. Petar Chobanov from UNWE, later a Minister of Finance.

The three main pillars for Bulgaria to stick to, that were outlined in the beginning of the discussion, were the currency board; the fiscal stability, and the sound banking principles, which were to be respected. Those were the navigating points in the assessment of the potential paths and road maps to be considered, because as Gorden Kerr pointed out ‘Bulgaria is vulnerable and dependent‘. Unfortunately, 2 out of those 3 pillars were soon to be abandoned by key political stakeholders, with the consequences to follow for the Bulgarian economy and its financial system.

The more general, global problems that were outlined, as part of the broader state-of-the-art analysis were:

– The fractional reserve banking, which is inherently unstable and promotes credit expansion;

– The production structure discoordination and malinvestments;

– The accumulation of debt and wrong premises (economic growth versus austerity);

– The cheap money, which fuels speculation, excessive risk-taking and leverage.

All of this, in combination with the fact that ECB continues to buy government debt, and “the bazooka is ready to fire, if needed”, as outlined, gave not that many arguments in favor of joining the Eurozone – back then, and now. Still, the event did not intend to draw any conclusions, but to start a professional discussion.

In that regard, I have to mention that there were representatives, participating in the forum, from a broader circle of stakeholders – academia, young entrepreneurs from the University Business Club (also partnering the event), representatives of foreign investors, current political and economic advisors to the cabinet members.

It’s good to remind the audience once more of the arguments discussed back then, as the topic is yet again on the governmental agenda. Especially now, when we know, and have seen, what might happen when you divert from the common sence arguments and the pillars of stability, mentioned earlier.

An interview with the Gordon Kerr, taken prior the discussion, can be found, kindly provided by our media partners from Bulgaria On Air TV.