As Support for E.U. Flags Elsewhere, Bulgaria Sees Its Benefits

http://www.nytimes.com/2017/01/16/business/bulgaria-eu-politics-economy.html

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SOFIA, Bulgaria — With Bulgaria in the grips of a bank run in the summer of 2014, Lyubomir Vassilev was panicking.

Unemployed and living off a compensation package from a workplace accident, he had lost access to his bank account and joined others in street protests when a troubled lender went into bankruptcy, setting off a financial — and political — crisis.

Months later, with his parents having had to borrow money from relatives to help him survive, Mr. Vassilev finally got his $6,000 back.

“After the bank went bankrupt,” he said, “I lost trust in the banking system.”

Mr. Vassilev blamed Bulgaria’s leaders and, like many of his compatriots, attributed the resolution of the crisis to the European Union.

Across much of Western Europe, critics complain of distant and unfeeling technocrats in Brussels who enforce arcane rules to the letter, with little understanding of local nuances and needs. Britain’s vote in June to leave the bloc struck a stinging blow against regional unity at a time when confidence was already flagging in the European Union.

But Mr. Vassilev and his fellow citizens paint a different picture — one of regional officials who hold domestic authorities to account, set higher standards and are more trustworthy than their local counterparts.

Bulgaria joined the European Union in 2007, along with Romania. At the time, polling indicated that a slim majority of its population was in favor of membership, hopeful that it would strengthen the Balkan country’s economy and political institutions.

In the years since, Bulgaria has remained the bloc’s poorest member state, with a per capita gross domestic product about half the regional average. Still, incomes have risen sharply, billions have been poured into infrastructure and surveys show Bulgarians are still convinced that joining was a step in the right direction.

“Bulgaria has clearly benefited since it joined the European Union,” said Ruslan Stefanov, an analyst for the Center for the Study of Democracy, a Sofia-based think tank. “We’re richer, with a wider choice in terms of jobs and education across the bloc.”

The average Bulgarian now earns 440 euros, or about $470, a month, twice as much as when the country joined. Trade has increased significantly, as companies have taken advantage of membership in the bloc’s single market. Exports to European Union countries have doubled in the years since Bulgaria joined, and sales to other member states now account for two-thirds of all exports.

There have been other benefits. Tens of thousands of Bulgarians are studying elsewhere in the 28-member European Union — a greater proportion of its population than comparably sized member states like Austria, the Czech Republic or Hungary (this is partly a result, however, of the poor quality of Bulgaria’s education system).

Even more Bulgarians work and travel throughout the bloc, taking advantage of the region’s free movement of labor. That, according to Mr. Stefanov, has helped keep unemployment relatively low at around 8 percent — if Bulgarians cannot find jobs at home, he noted, they look abroad.

The European Union has also pumped in billions of euros in aid to help the country build new highways and roads, develop agriculture and rural areas, and protect the environment. Regular reports published by the European Commission on corruption and organized crime — persistent problems in Bulgaria — have kept local politicians on their toes (though Sofia has made little progress when it comes to uprooting graft and reforming its judiciary).

“The fact that Bulgaria is an E.U. member and there are a number of reforms on the way makes us believe that Bulgaria is definitely on the right track,” said Olivier Marquette, managing director for the Bulgarian operations of AES, a power company with its headquarters in Arlington, Va.

AES began considering projects in Bulgaria in 2000, when the country was still only a candidate to join the European Union. In the years since, it has invested around €1.6 billion in three projects here — a 600-megawatt thermal power plant, a wind farm and a waste disposal center.

It has not always been smooth: It took two years to resolve a dispute with the state-owned utility company, which owed €300 million. Mr. Marquette nevertheless says AES is happy with its bet on the country.

A combination of European Union aid, guidance and oversight has meant that within Bulgaria, trust in the bloc and its institutions remains strong, and markedly higher than in most of the rest of the bloc.

About 49 percent of Bulgarians say they trust the E.U., compared with 33 percent who do not, according to a 2016 survey by Eurobarometer, which carries out polling in the region. That is the third-highest level of trust of any member state (behind Lithuania and Malta), and around twice as much trust as Bulgarians have in their own government, public institutions or legal system.

“People don’t recognize the state as theirs and thus see Brussels as the external power on their side,” said Marin Lessenski, director of the European Policies and Civic Participation Program at the Open Society Institute.

The heft of Brussels came into play in 2014.

In June of that year, Corporate Commercial Bank, or K.T.B., experienced mass withdrawals after a feud between a local politician and the lender’s largest shareholder. As confidence flagged, a fifth of K.T.B.’s assets were pulled within a week, and the bank was taken into central bank supervision.

The panic soon spread and the next month, Bulgaria’s central bank said it would begin bankruptcy proceedings against K.T.B.

Mr. Vassilev was one of many account holders whose lives were thrown into chaos. Lured by the promise of high interest rates, he instead lost access to his savings for months. More than two years on, an investigation into K.T.B.’s collapse continues.

“The mere existence of such a bank indicates some serious deficiencies of regulations and transparency in Bulgaria,” said Dimitar Bechev, the director of the European Policy Institute in Sofia.

The European Commission, the bloc’s executive arm, and the European Banking Authority, a regional financial watchdog, repeatedly called on Sofia to fulfill a government guarantee on depositors’ savings. Both opened investigations into whether Bulgarian authorities had breached regional law by delaying payouts.

Facing the prospect of formal charges, the government finally began paying back account holders in December 2014 (both inquiries have since been closed).

Businesses also benefit from Brussels’s acting as a bulwark against Bulgaria’s politicians, as well as being able to gain access to the region’s single market, able to export their wares without restriction to the rest of the bloc.

In recent years, several major manufacturers of vehicle components — with clients including Volkswagen, Daimler, Mercedes and Renault — have set up shop in Bulgaria. The number of companies in the auto parts sector has tripled since Bulgaria joined the European Union, now numbering around 120 businesses, and last year the industry accounted for 3.5 percent of the country’s economy.

A small start-up community is also being built, and two Sofia-based funds have invested more than €20 million in around 200 companies over the last four years, thanks to a European Union-sponsored initiative.

The businesses that have received funding include an online marketplace connecting small farms with potential customers; a toymaker whose products use energy generated by children playing with them to activate lights and sounds; and a company that has developed image-recognition and organization software.

It is not just fledgling enterprises that see advantages — older ones do, too.

“Since we joined the E.U., the country has become a more stable and less risky place to do business,” said Manol Peykov, who manages his family’s publishing house in Bulgaria’s second-biggest city, Plovdiv.

“If it weren’t for E.U. directives and rules, Bulgarian politicians would be untouchable.”