[LINK] "Merkel’s Right, Greece Should Act Like Bulgaria"

[rfmcdonald]

This unsigned piece published late last month by Bulgaria's FOCUS News Agency contrasts and compares Greece with Bulgaria, the latter country--Communist until 1989, outside of the European Union unil 2007, still outside of the Eurozone--being presented as a model.

Leaving aside the complexities of the now-stable Bulgarian-Greek relationship, and the question of whether the Bulgaria's transition from Communism is relevant for Greece's ongoing transition to some unknown state, is the example of a country still substantially poorer than Greece going to be welcomed by Greeks as meaningful and positive? The bar can't be set too low.

Earlier this month, German Chancellor Angela Merkel cited Bulgaria as an exemplar of fiscal virtue in its response to the financial crisis, Bloomberg informed.
It isn’t every day that Bulgaria, still the poorest country in the European Union, is held up as a role model. The only way to understand Merkel’s praise was as a parable for her belief that countries that spend more than they earn have to go through a period of harsh austerity if they are to grow sustainably.

[. . .]

Greeks and Bulgarians had a lot in common until relatively recently. Both spent centuries under Ottoman rule; both fought for their independence and became poor backwaters of Europe. Their paths began to diverge only after World War II, when Bulgaria was folded into the Soviet bloc and Greece remained part of Western Europe. Once Greece joined the EU -- then called the European Economic Community -- in 1981, it was showered with money, as the communists next door stagnated.

Then, in 1989, the Soviet bloc collapsed. A new Bulgarian democracy was born, but with no money in the state treasury to pay for it. The nation’s savings were insignificant, shops were empty, unemployment was high and infrastructure was rudimentary. Austerity was just a fact of life.

[. . .]

The decade of 1989-1999 was harsh, but it turned Bulgaria into a disciplined nation of savers -- even after the country joined the EU in 2007. The banking sector is financed by these savings accounts, which provide a healthy Tier 1 capital- adequacy ratio of 15.8 percent. Credit-card penetration is extremely low -- Bulgarians prefer cash.

Being poor is no fun, of course. Public-sector employees are badly paid and retired people struggle to survive with their low pensions. Not a single motorway has been completed to link one end of Bulgaria with another and only parts of the subway in the capital, Sofia, work. This is the price to pay for not spending money that isn’t yours to improve your lot, at the level of the state and of the individual consumer.

But today Bulgaria has positive economic growth and the second-lowest state debt in the EU (after Estonia) at 16 percent of gross domestic product. It also has a manageable budget deficit of about 2 percent of GDP, despite levying a flat corporate and personal income tax of just 10 percent. Foreign- exchange reserves amount to 6 percent of GDP. In short, the country has a future.

[. . .]

Bulgaria’s example is the only way forward for Greece. It does mean becoming poorer for now, but unlike Bulgaria in the 1990s, Greece has infrastructure and savings -- an estimated 600 billion euros stashed abroad alone -- to make the process easier. Austerity should make the Greek government and the nation more disciplined in their spending habits.
Europe may have mishandled the financial crisis, but for the past three years Greeks have tried to blame others for the state of their own economy. Unless they recognize the mistakes they made on their own, their future path of development will never be sustainable.