By Boyko Vassilev

Lumping Eastern Europe Together Is Wrong.  Since the economic crisis began, global media often have viewed the EU's newest members as a unit. But Bulgaria and the Baltics suffer different problems

A newspaper can kill a fly...and a bank, goes an old PR joke. If this is true of a newspaper, it surely applies to the international business media as a whole. But if it holds true for a single bank, can we apply it to an entire banking system – or, to make things worse, an economy? Bulgaria begs, no.

This is not a joke; the problem is real, even if its foundation was invented. International magazines, newspaper columns, economic pundits and TV talking heads have a mighty refrain: Eastern Europe has taken a huge hit from the international financial crisis and will suffer greatly. In this chorus the reader-viewer-listener could hardly follow the tunes sung by individual countries. They become lost in a dissonance of details: protests in Latvia, failed state finances in Hungary, a government collapse in the Czech Republic, and frozen European funds for Bulgaria. And quite a few commentators make no distinction between the circumstances related to the global recession and others that have nothing to do with it. As a result, we all have a huge image problem.

Pundits are a story in themselves. Often they have only a broad familiarity with the region and do not necessarily command the specifics of each national economy. The 24-hour news cycle, however, insatiably devours every crisis comment – and the pundits go on generalizing. One such expert, New York University professor Nouriel Roubini, put Bulgaria in one basket with the Baltic states, saying that Sofia would weaken its control over its currency while its currency board is under pressure. It is not: the Bulgarian currency board is an automatic mechanism which cannot be attacked, retorted domestic economy experts, among them Georgi Angelov, who denounced the statements and the conclusions of the famous professor. But in the meantime Roubini was widely cited and if you Google him together with "Bulgarian currency board," you will get more than 3,000 hits of basically misleading media coverage.

"Just imagine a Western analyst …" Angelov comments in his blog, "He has to write about Bulgaria once every few weeks, or even months. And when Bulgaria is up for scrutiny, it is surely packaged together with several other countries." This is the fate of small countries. They depend on the views of outsiders whom they can rarely influence. And the view from outside is seldom precise: you see riders in the distance but can hardly distinguish between the light and heavy cavalry in the cloud of dust and smoke.

But such comments can easily turn into self-fulfilling prophecies, creating truths on the ground: investors may step back, official and unofficial ratings go down, banking risks climb up.

The Bulgarian government may explain dozens of times that Sofia is neither Riga nor Budapest; the National Bank governor may say a hundred times that the international media don't know Bulgaria in detail; independent economic analysts like Angelov may insist a thousand times that Bulgarian finances are stable together with the famous currency board – and competent publications like The Economist may explain the fine differences among countries in the region clearly and professionally. All in vain. In this crisis, Central and Eastern Europe is more of a single entity than it was during communism – and rather for worse than for better.

In this situation some nations are fearful of comparisons. Ireland does not want to be Iceland, the Czech Republic does not want to be Hungary, Bulgaria does not want to be Latvia, and Slovakia does not want to be Romania (or was it vice versa?). The blame game goes on diplomatically and undiplomatically, like a medieval plague. Don't let your crisis infect me! Don't let your crisis spoil my image! Don't let your crisis frighten my investors and slow down my growth. Don't...But it happens again and again.

It is not that countries like Bulgaria are perfect. They are not. But Bulgaria has its own crisis pluses and minuses. Politicking ahead of the approaching elections to the European Parliament in June and the national parliament a few weeks later will multiply its problems at least threefold – and, if you are a foreign investor, it is necessary to see the situation in complete clarity and detail.

On the plus side Bulgaria has a stable currency: the lev is firmly tied to the euro. That's why this country enjoyed formidable fiscal discipline in the last decade. Now Bulgaria has a huge budget surplus to serve as an anchor in a sea of financial troubles. It does not rely on the International Monetary Fund and has not asked for assistance so far – although Prime Minister Sergei Stanishev hinted in a TV interview on 20 April that the government is considering such an option. Unnamed IMF and World Bank officials say Bulgaria is financially safe and sound. Its banking system has one unexpected advantage: it never developed the complex financial instruments which brought down some Western banks; so it benefits from its imperfection.

This does not mean the crisis is absent, far from it. Bulgaria's boom in the last decade was based largely on foreign investment, easy credit, emigrant cash, construction, real estate, the English and Irish buying houses; it relied on tourism, hotels, and shopping malls. All this is shaking now. Unemployment, which had almost disappeared, is gradually returning; factories are closing; inflation is to be replaced with deflation. Emigrants could return from crisis-stricken England, Greece, and Spain, asking for jobs back home. These are effects directly related to the crisis and quite far removed from the matter of EU funds frozen because of ineffective administration and allegations of corruption and fraud.

Did Bulgaria prepare well in its seven fruitful years for its seven years of drought? This will be put to the test in the months to come. And the structural deficiencies of the Bulgarian growth model will plainly manifest themselves.

Would it have been wiser to develop more high-tech than tourism, more industry than shopping malls, and plant more fields rather than build more hotels? Was that path of development even possible after the fall of communism? For whatever reasons, the voters are not ready to ask these questions this election season. Instead, they are immersed in the personal quarrels of politicians who are using every means to attract attention – even reality shows. Voters watch as some political leaders, inspired by modern PR methods, appear on Big Brother, others on TV drama shows, still others work out on camera.

The only thing that could redirect the public's gaze to serious issues is … the crisis itself. When your job is at stake, you're interested in the economy, not in virtual reality. But, as the writer Kalin Donkov claims, Bulgarians are experts in survival. They have seen crises bigger than this – and outlived them with rational thinking and skill. So, why worry?

What could take Bulgarians unprepared is an alliance of virtual reality and real crisis. The negative factors on the spot may join Eastern Europe's bad image and the positive ones could fade as well. Jokes about investors are nastier than those about bankers; one goes, the investor is the biggest scaredy cat in the world. If investors and banks get more scared, then we could be left wondering whether financial stability is possible without finances.

Source: BusinessWeek