The events of the last week have seriously tipped the scales in the direction of the failure of the rotation and going to new parliamentary elections. Despite all the political disputes in recent weeks and the interruption of the television program for the extraordinary briefings of the two major parliamentary formations on Sunday, the leading hypothesis of the economic agents, as well as of the European and international partners of the country, was for a successful rotation and the preservation of political stability at least until the end of 2024.
This hypothesis can still be realized, taking into account that much of the actions of politicians are rather a game with the public with a possibly pre-determined end result, but it is now inevitable to look at the alternative scenario, in which an official cabinet comes and we go in new elections.
Slowing economic growth
A few notes about when all this is happening. At the end of 2023, the country’s economy marked the 10th consecutive quarter of a slowdown in the growth of the gross domestic product (GDP) on an annual basis – from 9.8% growth in the second quarter of 2021 compared to the same period in 2020 to now just 1.6% in the fourth quarter of 2023.
And while the much higher growth in 2021 reflects the recovery of economic activity after the shock of the pandemic, it the fact that economic growth is slowing throughout 2023 is worrying. Growth in Europe has disappeared over this period, with eurozone growth at 0.1% in the fourth quarter of 2023, and some countries, including our main trading partner Germany, reporting negative growth.
Inflation is under control
At the same time, inflation is already under control, with annual inflation in the entire European Union in February 2024 at 2.8% – for the first time below 3% since summer 2021.
Price growth in Bulgaria also slowed significantly, with annual inflation for February 2024 being 3.5% according to the European methodology. Taking into account the continuing trend of shrinking inflation in our country, we can expect it to shrink to below 3% in the coming months and we will gradually begin to approach the inflation criterion for membership in the Eurozone.
However, this does not mean that we will meet the benchmark by April and get the green light for the eurozone in May or June, when the regular convergence report of the European Central Bank and the European Commission is published.
However, the trend at the moment sets all the prerequisites for us to fulfill the criterion by the end of the year, which will already open the possibility of adopting the euro. Such were the messages during the visit of the President of the Eurogroup, Paschal Donahue, just days before the new portion of political dramas.
Regulators and reforms
Against the backdrop of slowing economic growth and a real prospect for the Eurozone, the challenges facing economic policy in the country are enormous. Reshuffles of all expiring regulators that have been mooted in recent months remain pending.
A large part of the reforms under the Recovery and Resilience Plan are still to come, and so are the expected payments.
The pressure for policies to support competitiveness and shrink the budget deficit is also increasing. The latter implies both structural reforms in the expenditure side and targeting of social payments, as well as income support measures.
Rather, with the hypothesis of a successful rotation, some path for action on each of these themes was visible.
Office insecurity
The question is, is there a clear way forward with an official cabinet, or will everything be “paused” until the formation of a new “assembly”?
We should note two new points here. The first is that, under the new provisions in the Constitution, Parliament is not dissolved when a cabinet is appointed. This eliminates the risk of no parliament and temporary blocking of the legislature.
The second is that this time the president does not have the power to appoint a cabinet at his discretion. The changes in the basic law state that the president chooses a prime minister from a predetermined list – the expectation is that the speaker of the National Assembly will be elected, and the already elected prime minister will propose the composition of the cabinet.
Here, the question is open to what extent this composition will be the result of consultations and whether it will be in some form supra-party, or it will rather be a derivative of the largest formation in the parliament.
There will be another case in front of the possible official office. One of the new texts in the Constitution states that the fundamental task of the caretaker government is to organize the elections. And while organizing them, can he propose a change in policy towards industrial parks? Or to change the coefficients according to which the scope and amount of social benefits are determined?
The entire cabinet will hang in an uncertainty of what can and what goes too far from its main purpose. And to top it off, the parliament can also adopt a special law to limit the powers of the official government and we can already enter into a new hypothesis.
In addition to the uncertainty of how exactly such a cabinet will work, there is also the uncertainty of what floating majorities will be formed in the parliament until the new elections are held.
All the topics we listed above, incl. regulators, reforms and changes in laws, incl. a possible law to limit the powers of the official cabinet, will have to pass through a parliament in which there is no clear majority.
All this shows that if the rotation fails, the most likely scenarios are two. One is the temporary blocking of all important topics until new elections are held. The other is overactivity of the floating majorities and temporary chaos similar to the voting of budget texts during a caretaker government.
In recent weeks, we have seen clearly this drive, which has led to several decisions with a billion-dollar effect on public finances. In this environment, we can hardly claim that the economy will remain unaffected and the prospects for growth will not deteriorate.
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