STRUGGLING TO MEET THE EU DEADLINE

FINANCIAL TIMES – Boris Velchev, Bulgaria's chief prosecutor, says there will be no quick fixes to reform the country's judicial system in spite of intensifying pressure from the European Union for it to demonstrate "concrete progress" against high-level corruption and organised crime.

Bulgaria has fallen behind Romania in tackling both issues, say European Commission officials, and the government's effort to improve performance is being closely monitored in Brussels.

STRUGGLING TO MEET THE EU DEADLINE - By Kerin Hope and Theodor Troev July 11 2006 15:02

It is 9:45 on a hot June morning in Sofia. Meglena Kuneva, Bulgaria’s European affairs minister, walks fast down a chandelier-hung corridor in the cabinet office and throws open the door of a large conference room. More than 50 heads turn as she enters. Papers rustle amid a low hum of voices. Mrs Kuneva is 15 minutes late for a weekly meeting with senior bureaucrats who chair the working groups responsible for ensuring that Bulgaria will be ready for European Union accession on January 1, 2007.

Mrs Kuneva insists the pace of preparations has accelerated since Olli Rehn, the EU’s enlargement commissioner, warned in mid-May that Bulgaria and Romania’s entry could be delayed 12 months if they failed to make “concrete progress” with tackling corruption and organised crime.

She says: “We have an almost hourly timetable for every working day” until the first few days of September, the cut-off date for the Commission’s final report on September 26, which will determine whether both Danube countries join the EU in 2007 or have to wait a year.

Four other “red flag” areas for Bulgaria concern poor enforcement of money laundering rules; delays in setting up a farm payments agency to disburse agricultural subsidies and establishing controls for EU regional aid payments; and inadequate measures to prevent mad cow disease. Visits by experts, the presence of European advisers within Bulgarian ministries and almost weekly peer reviews underline how closely the Commission is monitoring progress.

“If we don’t make this deadline, it will be a great disappointment, not just for us but for the Union, and our region as well. It’s important to prove that Bulgaria can be a success story,” says Mrs Kuneva.

The Socialist-led coalition government, formed with two right-of-centre parties after last year’s parliamentary election, is kept together by its mandate to take Bulgaria into the EU. But Sergey Stanishev, the prime minister who persuaded the ex-communist Socialist party to embrace the market economy, will face pressure to stand down if accession is delayed. Polls show that more than 60 per cent of Bulgarians are in favour of EU membership.

Yet the country’s road to Europe has been longer and more obstacle-strewn than in the case of member-states from central Europe. After the collapse of a large swathe of Soviet-era industry – which sent the unemployment rate to more than 25 per cent – then there was the departure of about 750,000 young people to jobs abroad and a precipitous decline in standards of healthcare and education.

The European project was launched in 1998 as Bulgaria struggled to recover from a meltdown of the banking system and a bout of hyperinflation that had prompted fears of political and social upheaval. Bulgaria’s come-back has been steady rather than spectacular. Two right-of-centre coalition governments steered a relatively smooth course through EU accession negotiations, while economic growth picked up, privatisation was re-launched and greenfield foreign investment started to arrive. In April, two years after Bulgaria became a full member of the Nato alliance, the government signed an agreement with the US to use three military bases in central and eastern Bulgaria for training activities. The prospect of a regular US military presence in a country that was formerly the closest Soviet ally aroused little comment. Bulgarians also shrugged off the Socialists’ decision to keep a small military contingent in the US-led force in Iraq, reversing a campaign pledge to pull out.

“There’s not much nostalgia for Soviet military protection – it’s more about the economic benefits of having US troops based in several regions where incomes are very low,” says Boyko Noev, a defence expert.

Bulgaria has also shown determination to end its dependence on Russian energy supplies by joining the Nabucco pipeline project to ship Caspian gas through Turkey, Bulgaria and Romania to western Europe.

But as the country draws closer to western Europe, its dark side has been revealed. The failure of political leaders to crack down on the illegal activities of shady business groups – often linked with former officers in the communist-era intelligence services – has given Bulgaria the reputation of being a place where prominent MPs and their friends can break the rules with impunity.

“Disappointingly, people who are known to have transferred state funds abroad when communism collapsed, then brought part of the money back to ‘invest,’ are still walking the corridors of power,” says Ognian Shentov, director of the Centre for the Study of Democracy (CSD).

At the same time, organised crime groups making money from networks that smuggle people, cigarettes, drugs and weapons across the Balkans have laundered the proceeds through acquisitions of legitimate businesses. These range from insurance companies and Black Sea hotels to soccer clubs and luxury goods franchises, according to CSD researchers.

Reform of the police, prosecution service and judiciary will take time to become effective, regardless of how much pressure is exerted by Brussels. While Sofia-based bankers and investors agree the business climate is improving – foreign investment is projected to exceed 10 per cent of gross domestic product this year – deals involving the government continue to be fraught with uncertainty.

Following a court decision, the government last month overturned a €500m agreement with Copenhagen Airports, declared winner last year of a concession tender to modernise the airports of Varna and Bourgas, the main gateways for Black Seatourism. The deal was handed to Fraport of Germany, the second-placed bidder. France’s Vinci group, the third contestant, has appealed against the decision, a move that will further delay the start of the refurbishment.

“The state and the judiciary haven’t yet managed to create a mechanism for privatising companies that foreign investors can regard as reliable,” says a venture capital expert.

The World Bank is planning to help Bulgaria set up spending strategies and management systems, as well as a pipeline of priority projects, in order to avoid delays in disbursement of EU structural aid after accession.

Bulgaria stands to receive funds equal to 3.7 per cent of GDP annually in the first three years of membership, of which 1.7 per cent would consist of subsidies for farmers. Living conditions in the countryside – home to about 40 per cent of the population – could improve rapidly if EU funds for upgrading roads and water supplies in rural areas are disbursed according to the timetable. The number of producers has risen over the past decade, as pensioners returned from the cities, although the share of agriculture in overall output has fallen.

While a year’s delay in accession would cause Bulgaria deep political embarrassment, it would probably not make much difference in the longer term. The EU’s citizens have already embraced Bulgaria, with UK and Irish buyers leading a rush to buy second homes on the Black Sea coast and in traditional villages. With a per capita income at just over 30 per cent of the EU average and below that of Romania, Bulgaria is likely to be the poorest member-state for years to come. Current projections indicate it will take more than 20 years for Bulgarians to achieve incomes of two-thirds of the EU average.

“The challenge starts after accession. Bulgaria needs to set ambitious targets – growth rates in double digits, for example – for at least the next decade in order to have a chance of catching up with its new partners,” says a senior World Bank official.

The Financial Times ft.com