4640 | 13 May 2025 | 13:14
Lyubomir Datsov, member of the Fiscal Council and former Deputy Minister of Finance, in an interview for the show "Bulgaria, Europe and the World in Focus" on Radio Focus
- Our guest is Lubomir Datsov, member of the Fiscal Council and former Deputy Minister of Finance. Good day, Mr. Datsov.
- Hello, thank you for the invitation.
- Let's start with the topic of the past few days - the President Rumen Radev's request for a referendum on adopting the euro in 2026. Is there any reason for the state leader to do so?
- I think this referendum is pointless. в началото на 2019 г. I cannot delve into the purely legal aspects, but after the decision of the Constitutional Court on this issue, it is clear for any educated lawyer that these are international treaties, and based on these treaties, Bulgaria is actually doing what is currently happening with the eurozone - the rules are European. In other words, I believe that these things are clear to anyone who is at least interested in this topic. I am saying that this act is meaningless from a practical point of view because Bulgaria will receive confirmation for its entry into the eurozone or rejection within the next month and a half, i.e. at the beginning of 2019. On June 4, both reports from the European Central Bank and the European Commission will be published, along with their opinions, meaning that they determine that we have met the criteria and are ready as a country. This is very important to emphasize, as the main speculation is that people were not confident in our readiness. In fact, throughout this whole mechanism, experts with knowledge, not just talking heads, as they are called on TV and radio, determine and assess our readiness. They will actually say with these reports "We are ready". After that, a few procedures will follow.
First of all, ECOFIN, where the finance ministers will approve, based on these reports, Bulgaria's entry into the eurozone. After that, it will go to the high political level of the prime ministers, i.e. the council. And possibly with a subsequent step in about a week, the final approval, Bulgaria will know if it has entered the eurozone from January 1 of next year. This will happen within a month and a half, i.e. before the end of July. Such a referendum cannot be held in less than 5-6 months, I mean the whole package - preparation, passage through the National Assembly, all votings, then preparation for the referendum, technical preparations, finding funds for it, processing the results and going through the procedure again in the National Assembly. In other words, even in the best case scenario, the result of such a referendum would be ready somewhere towards the end of the year.
In other words, if the result is negative, it does not matter at all - at the moment I am speculating, just to clarify, what we will say: "No, thank you, we are not entering the eurozone", and consequently we are leaving the European Union, because this is an equivalent act. In other words, from a purely practical point of view, this act, and I believe the president knows it perfectly well, has no practical value. And now, what leads to the next conclusion is that this is purely a political act, and the president is not doing anything else but positioning himself.
- Will these political turbulences, Mr. Datskov, have any reflection on the European institutions towards us, on ECOFIN and the members of the Eurogroup, how will they echo in the European Central Bank (ECB)?
- At the level of the ECB and at the level of the European Commission, I am not talking about a political level, but purely the expert level, they are not very concerned, in my opinion, about the democracy concerns of the president. That is, this will not have an impact on the assessment itself. But the unpleasant thing is that this reflects on the image of Bulgaria and the feeling that our political leaders don't know exactly what they are doing. Because to do something, which is purely political at the last moment, there isn't much logic in that. There is no way our country can gain trust as a result of this. I cannot say whether this would affect the decision of the Prime Ministers. But yes, there are long-term consequences for a country that makes conflicting decisions and where politicians do not communicate or are willing to act against the interests of the state.
From a practical standpoint, I do not think this will hinder Bulgaria from joining and being evaluated for the eurozone, but it is an unpleasant fact in itself. Especially as it leaves a bitter feeling for me personally, given the lack of transparency in the current situation.
- Tell us again what are the financial risks for our country if we do not join the eurozone.
No, you see, the eurozone is an opportunity, a political opportunity to first be part of something. This is part of an integration. That is, when you take a step in the right direction, for example, let's say, I don't know, until the example is good, but when two families during a wedding, it is not only the newlyweds who participate in the wedding, but also the families, relatives. And in fact, what the young people have been close to before, the wedding makes a next step of integration. This is a statement that they will move forward and move together with all subsequent steps. No one knows if this will be only good or there will also be bad elements, life is something that cannot be predicted. But everything depends on the quality of politicians in Bulgaria.
The Eurozone is just opening its doors, it will not "put everything on a plate," as they say, if someone expects that. But this means a new interest in Bulgaria. If we take a look at Croatia, because in Bulgaria most people speculate and are left with the feeling that something bad has happened there, the opposite is true: due to joining the Eurozone, Croatia has had two consecutive years of the highest economic growth in Europe, which has increased significantly, and this growth is almost twice that of Bulgaria. So personally, I expect next year to be very successful for the Bulgarian economy, regardless of any turbulence in the world. Let's say that this would have been lost if we hadn't entered. And another thing, the loss of trust, the evaluation as partners is not small, because if we give up at the last moment, it would not look good, no one would take us seriously in the long run.
- The results for the consolidated fiscal program for the first quarter were released. From them, it is clear that the revenue from VAT is a problem for the treasury - only 19% of the annual target has been collected. What is the reason for this lag? What is the planned budgeted and will it be possible to catch up?
- I do not agree with this. The revenues from VAT are unexpectedly good. They are better than what the economy suggests. The other question is that, compared to what was anticipated and expected by the government, they are slightly lower. But VAT has had almost double the nominal growth for this period compared to last year, compared to the growth of the economy. So, We have seen significant improvement in revenue collection and a brightening of the economy. And this is visible at the moment. From what the tax authorities are doing, it can be seen that there is even a feeling of crossing some boundaries on their part. But the fact is that VAT is above expectations based on a clean economy. Another issue is, as I emphasize again, that the result may not be as expected, which is not abnormal. That is, the bigger question here is, revenue is within the expected range, which I consider normal.
The economy is working and the corresponding revenues are linked to this economy. What is important and noticeable is that the government controls the deficit. Yes, he controls it at the expense of certain compromises and sacrifices, which he will make in the expenditure part, but the expenditure part itself, if you remember, and we have always expressed such a position, was slightly inflated initially. So there are enough reserves there and in the end, what is important is whether we will have a 3% deficit at the end of the year, and I believe that this goal will be achieved without any problem, despite not meeting the budget parameters that were adopted in the National Assembly. Simply put...
- They will be changed.
- Yes, expenses will be adjusted according to revenues, so that the commitment for the deficit level can be fulfilled. And this is absolutely realistic.
- And finally let me ask you: the Fiscal Council has criticized the increased defense expenses and express reservations about Bulgaria's ability to request exceeding the 3% deficit limit. Why?
- This is a very important principled question. What we are saying may need some clarification, because it is more professional, i.e. it is not for such a wide audience. So there are two options when you go for such a move. One is to look at whether there are internal reserves in the budget and to pursue a policy of what is called having enough fiscal space, so that you can restructure this budget, and when you need new programs, you can release such fiscal space, so that you can finance it. What we are saying is that Bulgaria, without this... In fact, based on economic calculations, we should not have a deficit of more than 0.8% of GDP, but we have reached 3%. In other words, we currently have inflated expenses, which are above the level that the budget should follow.
The Fiscal Council says in principle that we believe a much more professional approach would be to look for reserves and restructure expenses from other sectors, considering these military expenses as an absolute priority, which would be normal. Because if we continue to exceed our budget deficit, regardless of whether the so-called "safety clause" will be taken into account or not, it does not matter from a macroeconomic point of view. This means higher expenses, pushing the private sector away from contributing to the GDP, and redirecting resources towards a sector where producing this weapon would only bring harm and all the costs will go out of the country. At the moment, when we believe that Bulgaria should focus on implementing reforms in the economy for increased productivity.
The European Union itself, just a few months ago, discussed a report stating that we have issues with competitiveness and lag behind all others. In my opinion, this is a much bigger priority that the European Union and Bulgaria should place at the top of the list, rather than a small, newly-invented issue in the defense sector. Moreover, there is no political preparation for the allocation of these funds.
We are walking like a child who has not seen some things in a toy store and does not know that his mother's credit card has a limit. This approach of first buying some weapons without understanding how they can be operated, in what way, can we finance long-term maintenance and preparation of this equipment, ultimately part of a general modernization. In other words, there are many political issues that will not be resolved next year, but we are buying weapons. Personally, this approach does not seem good to us from the standpoint of both efficiency and the impact on the budget. What we are saying is, in the end let's stick to a more classical approach, as we want to make these expenditures and have enough reserves in the budget, let's optimize and find resources from there.
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