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The debate that hasn’t happened: Bulgaria and the Euro

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Bulgaria will adopt the euro in 2024 because ‘[t]he benefits  […] outweigh the drawbacks’. At least, this is what Bulgaria’s finance minister, Asen Vasilev, argued to international media on June 3, 2022.  Crucially, there is quite a lot of scepticism in the country regarding the real cost-benefit balance of the euro’s adoption. But the government has no intention of listening to the opposition by calling a vote on the parliament’s floor. Moreover, support for Eurozone membership practically more than halved from 74% in 2004 to 27% in 2022 (see chart below). Not to mention that the European Central Bank (ECB) itself found Bulgaria unfit for joining the Eurozone. Yet, there will not be a referendum asking voters whether they approve of this dramatic reform.

Indeed, there debate on the cons and pros of adopting the euro is mostly partisan and ideological. Hence, scrutiny of the government’s efforts to better align Bulgaria with the EU and the US remains  seriously deficient.

Summary of the arguments in favour

Many of arguments in favour of adopting the euro are not actually country-specific. For instance, participating in the Eurozone can improve the quality of banking supervision for a country’s largest (‘systemically important’) banks. Additionally, economists have long argued that the use of a common currency is a key driver of investments and trade. Moreover, joining this exclusive club means gaining access to additional EU funds for pandemic-crisis relief.

But Bulgaria is also an intrinsically idiosyncratic country, especially when it comes to its fiscal and monetary policies. Namely, the local currency, called lev, is pegged to the euro at a fixed 1.98 exchange rate. Hence, some argue that Bulgaria is already  in the Eurozone due to the currency board that guarantees the peg. Thus, becoming a Eurozone member would give Bulgaria’s central bank a say on the monetary decisions affecting the country’s economy.

Finally, more than 85% of Bulgarians has already used euro bills and/or coins. Thus, there is at least some familiarity with the common currency that may reduce unwanted side effects. And the government’s promised public messaging campaign to communicate the benefits of the euro may remedy the latter’s current unpopularity.

Arguments against

All too often, the arguments favouring the EU’s single currency are taken at face value. Instead, it is necessary to make them undergo a thorough dissection to distinguish assumptions from facts. For the sake of brevity, a few variables shall suffice to summarise the dynamics underlying Bulgaria’s peculiar cases.

Trade and investment

In Bulgaria’s cases, it is especially worth focusing on the potential impact of Eurozone membership on trade and investment. In particular, economists and politicians have consistently put the spotlight on how the euro facilitates foreign direct investments (FDIs). Coherently, Vasilev declared that ‘[j]oining the euro will […] boost investor confidence’ and help the Bulgarian economy grow faster.

However, there are many researches published by renowned institutions and universities disproving such claims. For instance, using data on 35 OECD countries covering the period 1997–2008, two Czech researchers found that ‘EU membership fosters FDI flows much more than the euro.’ Thus, the real booster to FDIs comes from a country’s membership in the EU, not the Eurozone. Similarly, two economists at the University of Amsterdam found ‘an estimated euro impact’ on trade in goods ‘of only 3%.

Access to additional funds

True, joining the Eurozone would allow Bulgaria to access significant extra funding from EU institutions. However, there is a tendency to omit discussing the comparatively onerous costs of adopting the common currency. According to a well-known Bulgarian economists, Atanas Penkov, Bulgarian would pay an entrance fee between 1% and 3% of GDP.

Indicatively, the single largest expense would comprise upfront deposits for the European Stability Mechanism of up to €1.04bn. Essentially, Bulgaria would be paying 1–2% of its GDP to buy an insurance in case of insolvency. However, at less less than 30%, Bulgaria’s debt-to-GDP ratio is several times smaller than that of the average Eurozone country. Moreover, Bulgaria financed its public debt at relatively low interest rate (Figure 2). Thus, the risk of a public-debt crisis in Bulgaria in basically non-existent. Yet, the country would become ‘jointly liable for any problems’ in high-debt countries like Greece and Italy.

In addition, the State would lose all revenues from currency-exchange fees and incur logistic costs estimated at 0.3–7% of GDP.

Sovereignty and democracy

Lastly, there is issue of Bulgaria’s de-facto membership in the Eurozone and the benefits of having voting rights in the ECB.

There is one key fallacy in the arguments that adopting the euro would increase Bulgarian institutions’ influence on monetary policy. True, currently the Bulgarian central bank has no ability to influence monetary variables at its discretion. But Bulgarian political institutions do enjoy monetary sovereignty, they simply chose to delegate it for the time being. Indeed, one must remember that what ties the central bank’s hands is simply a law. Thus, future governments may change those rules or even repeal them altogether.

Meanwhile, there is no way back out of the Eurozone. Once Sofia delegates monetary sovereignty to Frankfurt there will be no government able to get it back. The government seems to be acutely aware of it, but this irreversible delegation of sovereignty does not generate any concern. Instead, Vasilev simply argued that crisis Greece’s crisis, which ‘nearly pulled the currency union apart […] shows that the currency’s flaws can be addressed’. However, he avoided to mention the immense costs that these ‘flaws’ can extol on the weakest members of society.

Conclusion: Beyond economics

Clearly, the approval of a plan to adopt the common currency is this government’s umpteenth top-down diktat. However, unlike previous such instances, this decision may weaken Bulgaria’s external independence. Namely, the definitive cession of monetary sovereignty will strengthen the ECB’s and other EU institutions’ role in economic policymaking. But, given the consistent push for more simple-majority decision-making, an apparently ‘technical’ decision may deal a fatal blow to Bulgaria’s very Statehood. Against this background, one ought to remember that the economics and politics of Eurozone membership is very complicated. And surely much more son than what this brief summary suggests. Nevertheless, it is undeniable that even bringing up such simplified arguments would benefit the debate in Bulgaria. Otherwise, the lack of sufficient public debate regarding the euro’s adoption may threaten the viability of Bulgarian democracy.

Fabio A. Telarico was born in Naples, Southern Italy. Since 2018 he has been publishing on websites and magazines about the culture, society and politics of South Eastern Europe and the former USSR in Italian, English, Bulgarian and French. As of 2021, he has edited two volumes and is the author of contributions in collective works. He combines his activity as author and researcher with that of regular participant to international conferences on Europe’s periphery, Russia and everything in between. For more information, visit the Author’s website (in English and Bulgarian).

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The End of History, Delayed: The EU’s Role in Defining the Post-War Order

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While the world is following the dramatic unfolding of the Russian aggression against Ukraine’s sovereignty and territorial integrity, Europe needs to start elaborating its vision for the post-war world. While a new Yalta might be needed, we all should realise that a peaceful world order has never existed outside the European Union. This in itself grants the EU the credibility – and responsibility – for arranging the post-war framework that secures the peaceful future of the continent.

By Dr.Maria Alesina and Francesco Cappelletti*

In the interconnected international society, war is not only a horrific and painful but also irrational choice. It is a zero-sum game, which sets into motion the domino effect of global repercussions. However, rational considerations have little to do with what stands behind the ongoing military attack on Ukraine. Russia’s war is not limited to Ukraine or aimed at a regime change to strengthen regional influence (as realists would say), nor does it represent an attempt to reinforce specific strategic interests (as a cognitivist analysis would suggest). It has emerged as something beyond traditional disputes: it is, as a matter of fact, an ideological war against the West. More than anything, it is Huntington’s “clash of civilizations”, although driven not by ideology or religion but by the two conflicting standpoints on human life – as a value and a non-value. This fundamental clash is happening now on the Ukrainian soil, and the battle is as fierce as it can possibly get.

The propaganda-driven “Rus-zism” rhetoric, missing any solid ideological basis or constructive meaning, consists of an overt anti-Western narrative aiming to establish a multi-polar world order and a vaguely defined concept of Russia’s “greatness”, entrenched in the shreds of evidence given by altered revision of events, such as the Great Patriotic War. A war that, in the eyes of the Russian establishment, has never ended. In the anti-Western rhetoric, the corroborating factor is a series of facts, events, convictions, beliefs, interests that support the leitmotif of the inevitability of “blocks”, an enemy, the “others”. A heritage of the Cold War. All this is grounded in the historical super Troika of the Russia’s foreign policy: fear of external threats, dispersed economic and political inefficiency, and focus on securing citizens’ support – by all means, ranging from propaganda to political repressions. This is a sheer exercise in power without purpose, control without vision, projected both internally and externally. This dynamic, although never fully dissipated, has been re-gaining momentum starting with Putin’s speech at the 2007 Munich Security Conference.

Today, in mid-2022, Russian aggression in Ukraine is only growing in atrocities and cynicism. In contrast, the EU politics still remain a palliative medicine, by definition unprepared to dealing with the concept of war. Political crises in several Member States – Italy, France, Estonia, Bulgaria – risk becoming a further destabilizing factor preventing the EU from fully standing up against Putin’s war plans. Meanwhile, the Europeans are becoming increasingly concerned with the upcoming ‘Russian winter’, recession, global food shortages, and a new migration crisis. As much as citizens advocated for support to Ukraine in the beginning, soon they might start demanding peace at any cost – most likely, Ukraine’s cost. This is the trap that Russia is orchestrating.

However, any simple, although desperately needed, ceasefire agreement risks only deepening the problem and postponing the solution. It will be a matter or years, if not months, when Russia restarts its aggression, possibly better prepared the next time around. The somewhat belated understanding of this simple truth should prevent us from re-engaging into the dilemma of prioritizing short-lived comfort and material gain over long-term solutions based on our fundamental, “civilizational” priorities. We need to remember that Europe’s prosperity has resulted from a prolonged period of peace – not vice versa. Those who threaten the peace, by definition threaten our growth and sustainability. Alongside building up its strategic autonomy for the 21st century, Europe must be prepared to do what it takes to secure a new long-term peaceful world order – not simply patch the old one.

Given that the ‘Russian factor’ will not disappear even after the overt military conflict is over, the Cold War II stands in the midst of diplomatic challenges anticipated for the post-war scenario. On the one hand, as Russia has acquired the official status of the world’s villain, dethroning China from this role, it will continue to face some extent of isolation. Regaining any level of trust will require years, and Moscow will struggle to find a credible audience to speak to when trying to redefine its external relations, while having to deal with a prolonged recession and a technological slowdown never experienced since 1991. On the other hand, without being naïve, we cannot expect any substantial regime changes to happen in Moscow. For centuries, the narrative ‘Russia vs. the West’ has constituted the very central axis of the national public discourse, even within the liberally-minded opposition circles. Such long-standing trends do not change quickly, if ever.

Although no notions of trustworthy diplomacy will bring Russia to the international negotiation tables for a long time, the need to guarantee security goes beyond this conflict and its territorial or ideological implications. The only viable solution is to find a way to contain Russia within a binding and comprehensive international framework. This means a pragmatic approach is needed in developing untouchable geopolitical, diplomatic, and security-related boundaries of the new order. The exact same boundaries that kept the first Cold War “cold”, with the difference that this time one of the great powers involved is – to use Kennedy’s word – declining.

The results of the potential Kyiv-Moscow talks will largely depend on the West’s willingness to avoid grey zones in the future security settlements. It is a matter of responsibility, especially for the EU, to provide a forum to assess, judge, clarify, evaluate, measure, and pragmatically set limits of the new post-war security system. While the US is interested, first and foremost, in slowly weakening Russia politically and economically, Europe’s long-term concern consists primarily in preventing its giant neighbour from disrupting the very basic principles of coexistence on the continent. A zero-trust model should be applied to Russia, while a new paradigm for debates should be developed from scratch: there is no more “balance of power” and “deterrence” to fit into the discourse. The world is now divided into nations that either care or not about commonly accepted principles, rights, and, above all, about the value of human life. The end of history, in 2022, is farther away than expected.

*Dr Maria Alesina and Francesco Cappelletti are Policy and Research Officers at the European Liberal Forum. Dr Alesina holds MA degrees in Political Science and EU Studies obtained in Ukraine, Germany and Belgium and a PhD degree in interdisciplinary cultural studies from Ghent University. She specializes in EU foreign, social, and cultural affairs. Francesco Cappelletti holds an MA in International Relations from the University of Florence and MA in World Politics from MGIMO. Member of Center for Cybersecurity in Florence. He focuses on cybersecurity, digitisation, Russian-Western relations and the relation between sustainability and technologies.

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“No longer analyze Asia with European eyes”, says French expert in Bucharest conference

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A 2-day academic hybrid conference organized in Bucharest at mid-July by MEPEI (Middle East Economic and Political Institute) and EuroDefense Romania, two Bucharest-based think-tanks, was the perfect venue to learn about the latest analyses on economic, geopolitical and security topics related to the Middle East and Asia, during which China was mentioned by all speakers as clearly playing a role in today’s international order. Entitled “Middle East in Quest for Security, Stability, and Economic Identity”, the conference was the 8th in a series of international conferences that annually gather well-known experts from all over the world to present their analyses and research on highly debated topics such as terrorism, Middle East, emerging Asian countries, the rising China, to which this year a new topic was added: the conflict in Ukraine.

Interesting ideas derived from the speakers’ presentations.

Adrian Severin, former Romanian minister of foreign affairs and EU parliamentarian, pointed out that “the conflict in Ukraine is actually one between Russia and the West, but economic sanctions never stop wars, and they even may lead to global disaster”. Severin considers it to be more and more difficult for NATO to defend its allies, with so many countries relying on NATO, and on the US, for their national protection, including non-European countries such as Saudi Arabia and Israel. When it comes to Asia, Severin sees “China to have a first rank role in shaping the world order.”

Teodor Meleșcanu, another former Romanian minister of foreign affairs, stressed that “Asia has the majority of the world’s population and lots and resources, and the future of Asia will assume the future of our civilizations.” Meleșcanu explained that “China wants to stabilize the world and to forge alliances, but not to fight with the West. Chinese trade is not interested in confrontation with Western partners by making alliance with Russia and it’s obvious why – because the West means more than 700 million people whereas Russia means only 114 million.” Meleșcanu suggested that the optimal solution in international relations is to operate with regional organizations in order to have dialogue, not directly with “the big boys in the garden.” Meleșcanu also encourages never-ending dialogue between the US-Russia-China, as the current situation proves it, in order to prevent such events that destabilize the world. He believes that the principles in Norman Angell’s The Great Illusion will always apply, as war does not actually mean conquering territories.  

Lily Ong, host of the Geopolitics360 live show in Singapore, confirmed that regional organizations are vital for dialogue: “Had not it have been for ASEAN, Singapore would have been on the menu, not at the table.”

Foad Izadi from the University of Tehran informed that Iran signed a 25-year agreement with China, and a separate one with Russia, and said “Iran would welcome such 25-year agreements with European countries. It’s Europe’s decision if they really want to follow the US decisions, but the US interests are often not aligned with the European interests”, concluded Izadi.

Vasily Kuznetsov from the Institute of Oriental Studies of the Russian Academy of Sciences in Moscow reminded the audience that Russia and the West cooperated very well in Libya, in fighting against ISIS in Syria, and expressed his confusion about Europe’ militarized approach towards Russia.  He stressed that “the current international situation will result into the strengthening of Asian centres of global power and global economics. China, as well as India and the Middle East as a collective actor become new great powers directly linked to each other, without the West.” At the same time, Kuznetsov sees “for China, a dilemma between pragmatic economic interest and global political ambitions, and for India, a choice between regional and global ambitions outside South Asia”, and he wondered whether “China can have a realistic foreign policy in the Middle East which  is facing issues of internal reconfiguration, sovereignty and security.” For the US, Kuznetsov sees the biggest challenge in the effort “to preserve leadership without more engagement, to make American politics more successful and to combine values and pragmatism.”

 “The rise of China is beneficial not only for China but for entire Asia”, believes Yao Jinxiang from China Institute of International Studies (CIIS) in Beijing. “The rise of Asia will rebalance the world.” Yao also stressed that “people are often biased about Asia. Let us not forget that, apart from the wars led by the US in Asia, Asia has been stable with no war for a long time. The self-control of the Asia countries ensures stability. It looks that it’s easier to attract Europe in a war than Asia. Asian countries try to solve problems by consensus. For example, China, Japan and South Korea step back because ASEAN is the leader. On the other hand, China has always been defensive. China does not want to claim hegemony or to replace the US, or another great power.” Yao equally explained the two terms used to refer to the same region: Asia-Pacific and Indo-Pacific: “Asia-Pacific reflects economic relations, whereas Indo-Pacific rather mirrors the political and military relations”, and he stressed that “China does not want to claim hegemony in this world or to replace the US or another great power. China is only interested in prosperity around the world and it watches carefully the Global Development Index and the Global Security Index”.

Pierre Fournié, French expert on Asia from SUFFREN International think-tank declared the Belt and Road Initiative, formerly One-Belt, One-Road (OBOR), to be “a magnificent project that could be pivotal in Europe” because “trade has always been a peaceful and fruitful relation among countries.” Fournié made clear that the war in Ukraine, inflation, migration, social discontent in Europe and the ongoing reconfiguration of the US society create conditions for Asian nations to become key partners in the post-war reshaping of Europe. “Thus, BRI, or the Indonesian Global Maritime Fulcrum are magnificent assets. Fournié also suggested that ”the current economic model creates tensions, and it’s time for  people to apply mutual aid and to unite to create coo-petition, a term coined by himself, and not competition. He recommended people to “no longer analyze Asia with European eyes.”

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Why the EU Could End Within a Year

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Germany, which has been high-and-mighty within the European Union and has imposed austerity against weaker European economies such as in Greece, Spain, Italy, and Portugal, is now demanding that other EU member nations bail Germans out of what will soon inevitably be an energy-emergency that results from Germany’s having complied with America’s demand to not only join with America’s sanctions against Russia, but to even terminate Germany’s Nord Stream 2 Russian gas pipeline that was supposed to be increasing — instead of (as now will be the case) decreasing — Russia’s natural-gas supplies to Europe. Germany was, until recently, the industrial motor of the EU, and therefore has the most to lose from reduced and far costlier energy-supplies; but this has now happened, and will escalate in the coming winter. As those energy supplies get reduced, energy prices will rise, then soar, and Germany’s economy will get crushed. Germany’s leaders (like in the other EU nations) complied with the American anti-Russia sanctions demands (which are based on faked ‘information’); and, as a result, the German public will soon be freezing, even while Germany will be spending astronomically higher prices for energy than it had previously been paying. The plunging energy supplies from Russia will be replaced by increased supplies from other countries (including America) whose energy is far costlier than Russia’s; and only a small fraction of those reduced supplies from Russia will be able to be replaced at all. Something will have to give, probably the EU itself, because the resultant rapidly escalating internal hostilities between EU nations — especially between Germany and the nations that it now expects to bail it out of this crisis — could blow the EU itself irrevocably apart.

This will be happening at the same time when the EU — which was extremely committed to reducing or even eliminating both nuclear and fossil fuels and especially coal — is suddenly rushing to increase greatly its use of those non-green fuel-sources, and when European voters who had placed those people into power will not like seeing their leaders turn 180 degrees now into the opposite direction, toward global warming. Previously unanticipated new questions will inevitably become raised. Furthermore, the transitions back to fossil fuels can’t even possibly be done as fast as Europe’s leaders are promising; and, as a consequence, not only will Europeans be chilling-out and shivering during this coming winter, but their leaders will have a lot of explaining to do that can’t be explained except by admitting that they had been wrong — terribly wrong and unprepared — and this undeniable fact will cause political chaos, as the mutual recriminations about their multiple failures will embitter Europeans about the entire EU project, the project of creating one single incomprehensibly bureaucratic U.S.-satellite European mega-nation, the “European Union,” that is composed of virtually all European nations. Nostalgia about the past, of beautiful independent European nations, and bitterness about the future, of “north versus south” (etc.) in Europe, will take over, weakening the EU’s fabric, and bringing into question the entire post-WW-II cross-Atlantic alliance (subservience, actually to the Russia-hating U.S. Government), both America’s NATO and its political twin, the U.S.-dominated EU and its thousands of American servants in Brussels.

The most-recent comprehensive evaluation of the energy-needs of the EU nations is the September 2008 “Europe’s Dependence on Russian Natural Gas: Perspectives and Recommendations for a Long-term Strategy” by Richard J. Anderson of the George C. Marshall European Center for Security Studies, funded by the U.S. and German Governments. It made clear that the lowest cost and fastest-growing fuel in Europe (unless EU countries would institute polices to change this, which didn’t occur) was pipelined natural gas from Russia, and that this was especially so regarding electricity-production, industrial uses, and chemical feedstocks for plastics etc. That’s what has happened — Russian dominance of Europe’s energy-supplies (and industrial supplies) — and, as-of 2008, the countries that were the most dependent upon cheap Russian pipelined natural gas were (see this image there): Germany, Poland, Slovenia, Hungary, Turkey, Austria, Czechia, Greece, Finland, Slovakia, Bulgaria, Belarus, Moldova, Lithuania, Latvia, and Estonia. 

Presumably, those are the nations that will be especially “chilling out” this coming winter, in order to continue America’s political domination over Europe. The supposed moral imperative that has supposedly triggered this “chilling-out” is Russia’s invasion of Ukraine in February 2022 as being Russia’s inevitable ultimate response to America’s coup grabbing of Ukraine in February 2014 and NATO’s insulting-to-Russia insistence that this U.S.-made new Russia-hating Ukrainian regime has a sovereign right to place American missiles on Russia’s border only a mere five-minute striking-distance to nuking Moscow — that’s the EU’s supposed moral-imperative reason to turn Russia (Europe’s cheapest energy-supplier) off as being a supplier of energy to Europe. But, as a result of turning off Russia’s energy-spigots in Europe, the EU itself might become destroyed, and a mere has-been economically, culturally, industrially, and otherwise, just so that Europe will remain as being vassal-nations to America (its “dispensable” nations, like all the rest are), instead of to become what it always should have been, and naturally would have been — the radiant glory of the world’s largest continent: Eurasia, a Europe that includes Russia, instead of that endangers Russia. The glory of Europe is done for, finished as what it was, and the only real question now is how fast? Oh — and WHY? Why did Europe’s leaders do this? That will be the real EU-killer question.

The Europe that was, is gone — killed by the regime in Washington DC, using its many hired agents in Europe, and their hired guns in NATO.

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