Enlargement of the Euroarea Competitiveness Issues The Case

Enlargement of the Euro-area Competitiveness Issues: The Case of Bulgaria Ruslan Stefanov Center for the Study of Democracy Brussels, 9 December 2010

Content • Center for the Study of Democracy – Short Presentation • International Context and Bulgaria’s ERM II / Eurozone Bid • Competitiveness Profile: the Bottomline • Governance Concerns • Hidden Economy and Undeclared Work • Innovation: the Economic Growth Engine • Policy Ideas

CSD Services and Activities Research Public awareness Policy impact • Economic • Sociological • Legal • Conferences • Round-tables • Media training • European Commission • Bulgarian government • Foreign governments

International Context • The Future of Capitalism Debate • The Future of Economics Debate • The Future of the Eurozone Debate • Fallen Angels and Rising Stars – In and Out of Eurozone Love • Clear Path

Bulgaria’s Bid • • • Preserve the currency board Keep the existing exchange rate 0% tunnel for fluctuation of national currency in ERMII Requests for ERMII membership – 2007 / 2009? The modus operandi is clear … … Bulgaria has subscribed for all the downside risks but no action on the upside benefits … • … and the bottom line remains: competitiveness

Productivity Differentials 120, 0 100, 0 Euro area (15 countries) Bulgaria 80, 0 Czech Republic Estonia Latvia 60, 0 Hungary Poland 40, 0 Romania Slovenia Slovakia 20, 0 2004 2005 2006 2007 2008 2009 Source: Eurostat. Labour productivity person employed = GDP in PPS person employed relative to EU-27 (EU-27 = 100)

Bulgaria’s Competitiveness Landscape Source: IMD, 2010.

Government Top Competitiveness Deficiencies • Social cohesion is not a priority • Enforcement of competitiveness legislation (general law enforcement is lax) • Population aging • Financing the social security system • Access of foreign bidders to public procurement

Governance Concerns (Corruption and Organised Crime): Country Clusters Source: Study on the Links between Corruption and Organised Crime, 2010

Governance Concerns: Clusters Clarified Cluster 1: Denmark, Finland, Sweden Cluster 4: Estonia, Latvia, Lithuania, Portugal Cluster 2: Austrian, Belgium, Germany, Ireland, Luxembourg, Slovenia, Spain, UK Cluster 5: Czech Republic, Cyprus, Greece, Hungary, Malta, Slovakia Cluster 3: France Weak link b/w corruption & OC Source: Study on the Links between Corruption and Organised Crime, 2010 Cluster 6: Italy Cluster 7: Bulgaria, Poland, Romania Strong link b/w corruption & OC

Corruption and GDP Bad governance: Corruption 300, 0 250, 0 200, 0 150, 0 100, 0 50, 0 -50, 0 IR NL AT SE DK UK BE FI DE FR ES IT EL GDP PPP per capita Source: Study on the Links between Corruption and Organised Crime, 2010 SI CY CZ MT PT SK EE HU LT Corr Control Bribes LV PL RO BG

Bad Governance: the Hidden Economy Source: CSD, 2010

Bad Governance: Undeclared Work 9/2009 8/2008 3/2004 2/2003 The minimum social security threshold, although the total sum of my remuneration is higher 12. 9 13. 5 13. 4 12. 1 The minimum social security threshold, which is what I am actually paid 12. 6 9. 5 14. 3 10. 3 The amount stated in my contract even though the total sum of my remuneration is higher 15. 5 15. 0 8. 3 6. 7 The amount stated in my contract, which is what I am actually paid 56. 2 61. 8 63. 4 68. 3 2. 8 0. 3 0. 6 2. 6 Other Source: CSD, 2010

Company Innovation: Imitate Locally Source: ARC Fund, 2010

Innovation Characteristics • 90% of companies are micro-sized • European/national/regional/local = 5/15/20/60 • Networked for fun • Why report R&D?

Some Policy Ideas (Wild Cards) • Improve policy responsiveness, incl. information gathering to societal needs – Eurozone entry is a means not an endgoal • Design a common good governance bottomline • Do reverse discrimination if needed – e. g. FP 7, CIP, etc.

Thank You! www. csd. bg Ruslan Stefanov ruslan. stefanov@csd. bg