In a just a few weeks time, Bulgaria revised its budget from balanced to a deficit of 3.8% of GDP. Sound familiar? It should. Dramatic revisions in budget deficits is what started the ball rolling in Greece.
Inquiring minds note that the EU has launched a Greek-style budget fraud investigation in Bulgaria
New Greek-style budgetary fraud is possibly looming in Europe, as the European Commission announced it was sending an exploratory mission to Bulgaria to assess the reliability of the country’s statistics, which were significantly revised in a short period of time “from a balanced budget to a deficit”.
Economic and Financial Affairs Commissioner Olli Rehn announced on Tuesday (8 June) at a press conference following the Ecofin Council in Luxembourg that the Commission has “doubts” about the Bulgarian budgetary statistics and that a “methodological mission” will be sent to Sofia shortly to assess the situation.
The Commission’s concerns are related to two aspects. First, Brussels regrets having “only belatedly been informed by the Bulgarian authorities about sizeable revisions in the budgetary outlook,” Rehn’s spokesperson told journalists in Brussels yesterday (9 June).
This already “constitutes a violation of treaty obligations”. Second, “the Commission (still) lacks information on why Bulgaria has revised its planned 2010 budget from a balanced budget to a deficit estimated at 3.8% of GDP within just a few weeks, even though the macro-economic scenario remained unchanged, or was even improved during that time,” explained Rehn’s spokesperson, Amadeu Altafaj Tardio.
EU Sanctions – a Toothless Dog
How does the EU deal with these problems? Please consider EU ministers discuss sanctions for debt-laden economies
The loan package was agreed in late May after EU finance ministers backed German calls for tougher sanctions against states that flout the bloc’s budget rules, dubbed the Stability and Growth Pact (EurActiv 24/05/10).
Under the pact, economies are expected to keep national debt below 3% of GDP or face sanctions such as a suspension of voting rights.
As most EU member states were in breach of the 3% ceiling, sanctioning voting rights became an unrealistic option.
After the meeting with other ministers, German Finance Minister Wolfgang Schaeuble repeated calls for tougher sanctions of countries out of step with the EU’s budget discipline rules.
“Markets don’t want just explanations but actions,” the minister added, citing the latest drop of the euro currency to a four-year low.
A European Commission proposal, presented on 12 May, suggested that EU countries review each others’ draft annual budgets before they are adopted at national level (EurActiv 12/05/10).
The measures could pave the way for “a semi-automated sanctions mechanism” for countries found to be in breach of the pact.
Previously, German Chancellor Angela Merkel had argued that tougher sanctions would require changes to the EU’s legal backbone, the Lisbon Treaty.
But with three years of EU soul-searching over whether or not to approve the treaty having only just ended, member states are reluctant to launch yet another overhaul, even a small one, argue diplomats.
“It is very clear that […] there have to be progressive sanctions that are applied effectively. And for this, you don’t necessarily have to change the treaties,” argued a diplomat from a large member state ahead of the talks.
“One has to have sanctions that can be applied very quickly and that are truly dissuasive. These are sanctions that can be applied effectively and that you know others will apply against you.”
“Today, there have been suggestions on suspending voting rights, but I think there could be others, certainly.”
Italian Bond Insurance Cost Hits Record
The Wall Street Journal reports Italian Bond Insurance Cost Hits Record
The cost of insuring debt issued by European sovereign borrowers continued to rise on fresh fears that the debt crisis affecting some southern European nations may spread further.
The downgrade of Spain’s credit rating by Fitch Ratings after European markets closed on Friday combined with a warning from the European Central Bank Monday night that euro-zone banks face an estimated €195 billion in write-downs this year and next, pressured the already fragile sentiment surrounding Europe.
As a result, the annual cost of insuring $10 million of Italian government debt against the risk of default for five years climbed to a record $250,000, or $49,000 more than Friday’s close, according to data provider Markit.
That story is from June 2, but it shows the heightened risk nearly everywhere in Europe.
Public Workers Strike in Spain
The New York Times reports Spain Hit by Strike Over Austerity Measures
Spanish public workers went on strike on Tuesday against a cut in their wages in what could be the first of several union-led protests against the government’s latest austerity measures.
The strike reduced hospital care, mail distribution and other public services to a minimum, but did not cause a nationwide paralysis. Trade unions said that 75 percent of the country’s 2.5 million public workers had gone on strike — a number that was contested by the government, which put the level of participation at about 11.85 percent.
Spain’s public workers were protesting against a 5 percent average reduction in their wages this year, part of a government package of additional spending cuts worth 15 billion euros that was narrowly approved by lawmakers last month.
Spain has some of the highest firing costs for open-ended contracts in Europe, according to the World Bank. That, in turn, has encouraged employers to put a quarter of the country’s workforce on temporary contracts. That contributes to rapid fluctuations in Spain’s employment levels, with the jobless rate recently soaring to almost 20 percent, double the European Union’s average.
As part of his labor reform, José Luis Rodríguez Zapatero, the prime minister, is expected to propose next week a sharp cut in redundancy costs for companies, reducing the payment that fired workers on long-term contracts are guaranteed for each year of employment to as little as 20 days from the prevailing 45 days.
A second priority of the reform is to loosen the rigid system of collective bargaining that prevents companies from agreeing to their own terms with employees — and even forces them to follow different rules in different regions.
Mr. Zapatero recently warned the rich of higher taxes. The government is also considering a fiscal amnesty, according to the center-right newspaper El Mundo, that would seek to repatriate about 50 billion euros held offshore by granting tax evaders a pardon in return for investing in Spanish debt at below market rates.
Public unions wrecked Europe and they are wrecking the US. Indeed, public union workers are a problem everywhere you look, always demanding more pay and benefits for less work than the private sector. Many of the jobs are not needed at all.
Mike “Mish” Shedlock
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