Economic Situation in Bulgaria after EU Accession Essay Example for Free

Economic Situation in Bulgaria after EU Accession Essay Bulgaria has passed a long way between the fall of communism, transition to market economy, and up to EU accession that has become the culmination of Bulgarian economic transformation. Undoubtedly, Bulgarian economy has substantially benefited of becoming a full member of European Union. Despite the fact that Bulgaria does not have sufficient experience in managing various marketing processes, the whole process of transition from Central European priorities to European integration has been smooth and mostly positive. In this work, we will critically examine the impact of EU accession on Bulgarian product and labor markets, agriculture, and FDI. We expect that profound multifaceted analysis of Bulgarian economy will help determining the major economic benefits and problems of Bulgarias accession to EU. Historical background Before the end of the 1980s – the beginning of the 1990s, Bulgaria has been one of the largest communist states in Europe. After the general collapse of socialism and communism in Europe at the edge of 1990s, Bulgaria faced a choice between integration with other Eastern European countries or the developed Western Europe. In distinction from Romania and Hungary, Bulgaria was not characterized by high income per capita or its economic openness to foreign trade relations. However, Bulgaria was well known for its excellently trained workforce and well developed labor markets (Bevan, Estrin Grabbe 23). Bulgaria was characterized by high level of government involvement into economic affairs, and Bulgarian authorities had to develop new strategies for eliminating government intrusion into the newly formed free markets. In general, Bulgaria has experienced relatively smooth transition from dissolution of communism to the development of well-organized market oriented structures. At that time, most of the initiated processes, such as privatization, were postponed, and a series of new problems arose including the substantial damages to infrastructure and housing, a rapidly growing number of refugees, and a breakdown of trade and capital flows (Anusic Rohatinski 48). By the end of the 1990s, after the deep economic crisis of 1997, Bulgaria managed to resolve all economic issues, and to become prepared to further accession into European economic structures. Economic profile Since 2002, the European Commission has considered Bulgaria as one of the best performing market economies in Central Eastern Europe. Since 2006, useful steps were taken to contain the external deficit. The privatization process and the liberalization and restructuring notably of utilities have well advanced. Some additional progress has been made in improving the business environment and reducing non-wage labor costs (Baldwin Portes 127). Currently, Bulgarian GDP per capita equals to â‚ ¬7500 (32. 1% of the EU-25); economic growth: 6. 7% in 2007; inflation rate: 4. 9%; unemployment: 11%; government budget surplus: 2. 7%; exports to EU countries: 68% of total exports; imports from EU countries: 59% of total imports (Davidova, Gorton Ratinger 303). It is expected, that by the end of 2008, the total economic output of Bulgarian markets will further increase 0. 4% (Davidova, Gorton Ratinger 303). EU Accession and Product Markets After accession to EU at the beginning of 2007, Bulgaria has acquired additional opportunities and resources for further trade liberalization with European partners. Bulgaria has ultimately entered the Single Market; the administrative barriers to trade with the rest of Europe have been eliminated or reduced to levels that were acceptable among other EU members. Bulgaria had to re-consider the system of its external tariffs and to adopt it to the new European requirements; as a result, the tariffs have been liberalized compared to those exercised by Western European towards other third tier countries. The discussed tariff liberalization has seriously contributed into trade diversification and the growing portion of more expensive EU suppliers in the trade structure of Bulgarian economy. Bulgarian product markets have not only acquired free access to European trade potential; they have also been involved into European Structural Funds. This participation has reduced the risk of default for Bulgarian economy by almost 33%; consequentially, numerous political risks have also been reduced (Lejour 22). EU membership has greatly constrained arbitrary trade policy and indirect tax changes. It has locked in well-defined property rights, has codified competition policy, state-aids policies, and has secured open capital markets and right of establishment, assuring investors that they could put in and take our their money (Bevan, Estrin Grabbe 87). Here, we should pay more attention to the economic affects of Bulgarian accession to the EU internal markets and its trade effects. Lejour has developed a mathematical model for calculating the specific trade effects of EU accession onto various sectors of Eastern European economies. In terms of Bulgaria, Lejour has revealed the most promising trends within agriculture, food processions, textiles and apparel. Similar economic emphases have been made for Romania, Poland, and Hungary (Basci, Togan Hagen 54). Furthermore, Hungary and Poland have promising perspectives in Transport equipment and transport services with the rest of EU members. However, at the edge of Bulgarian accession to EU, the country has already experienced substantial liberalization of trade relations with Europe; 62% of Bulgarian exports were already distributed among other EU member countries (Basci, Togan Hagen 32). As a result of such preliminary trade liberalization, the net effect of accessing the EU market for Bulgaria has almost equaled zero. In distinction from Bulgaria, Hungarian GDP growth has been additionally increased by trade effects of EU membership. The abolition of trade barriers with old EU members has boosted Hungary trade. The countrys trade performance was impressive given the increased competition posed by its EU membership (Baldwin Portes 134). This is not the case with Bulgaria: the country has not experienced any trade boost, and there can be several reasons for that. First, we have already mentioned the effects of pre-accession trade liberalization with EU (exports from the European Union was increasing 6. 4% annually, to finally achieve 68% of total Bulgarian exports). Second, Bulgaria has spent only 18 months as a full EU member, and many positive long-term economic effects have not yet become visible. However, Bulgaria faced a challenge in the form of intensified import competition that has somewhat lowered inflation and has weakened European-directed domestic macroeconomic policies. It is expected that with further integration to Common Agricultural Policy and Single European markets Bulgaria will acquire additional opportunities for expanding its trade. In terms of agriculture, EU accession is anticipated to triple the total amount of trade, and to increase exports to other European and non-European countries by more than a third (Davidova, Gorton Ratinger 307). In general, EU accession has developed stable confidence among the major Bulgarian trade partners towards Bulgarian economic environment and economic relations with the country. As with the other EU members, EU accession has and will result in further GDP growth within Bulgaria, with the subsequent impact on general EUs GDP. EU Accession and FDI Foreign Direct Investment has played special role in Bulgarian economy. For Bulgaria, FDI growth was critical to further promote restructuring processes within all sectors of Bulgarian economy. FDI has been particularly important for privatization and developing the confidence of investors towards Bulgarian economic environment. In this context, Bulgarias accession to EU has become the turning point towards further liberalization of all economic areas. It has been important to finance the acquisition of plants and equipment and the transfer of technology (Fiala 189). Before Bulgaria entered EU, the country could not boast high FDI inflows. Compared to other European countries, Bulgaria was lagging behind its major Eastern European partners – Croatia and Hungary. In Croatia, FDI inflows accounted for â‚ ¬2,800 per capita, while Hungarian FDI inflows equaled to â‚ ¬3. 7 billion in 2004 immediately after including Hungary into the list of full EU members (Lejour, Mooij Nahuis 223). Although Bulgaria did not experience FDI growth equal to that in Hungary and Croatia, the level of FDI increase after EU accession has been substantial. In 2007 following EU accession, Bulgaria marked a record of FDI for the last decade. Since EU accession implies secure environment for investors, it is not surprising that an estimated â‚ ¬1,790 per capita entered the country in 2007 (Lejour 49). Surprisingly or not, but Bulgaria and Romania have been among the states the least likely to be included into EU before 2015. This is why in this research numbers are less important than the quality of the emerging investor relations within Bulgarian financial structures: EU accession has significantly increased transparence of the financial and investor relations between Bulgaria and member (non-member) states. Similar situation has also been reported in relation to Hungary and Romania (Fiala 192). EU Accession and Labor Markets â€Å"While FDI, GDP growth, exports and inflation have developed evident positive tendencies since EU accession, unemployment has had ambiguous development† (Feldman 218). Currently, Bulgaria has one of the highest unemployment rates among EU state-members. For example, Hungary has been experiencing the rising rates of unemployment that have later reached 7. 2% in 2006 (Anusic Rohatinski 90). At that time, Hungarys unemployment rates were average for Europe, but the highest in the region. After EU accession of Bulgaria, its unemployment rates have gone up to 11% (Kolev 30). As a result, thousands of workers have set up their minds to reach other more developed labor markets. Simultaneously, â€Å"following EU accession Bulgarian perennial low labor participation and long-term unemployment showed positive signs† (Kolev 31). It is expected that by the end of 2008, Bulgaria will be able to decrease long-term unemployment to 9% (Kolev 34). EU accession has resulted in the emergence of new open labor markets which Bulgarian workers could easily reach. Migration is characteristic of all newly accepted EU members, and with unfavorable employment prospects for Bulgaria, other European states had to adopt a set of restrictive measures, to decrease the growing inflow of Bulgarian (and Romanian) workers into more developed EU states. â€Å"Member States do, however, have discretion to restrict migration of workers for up to seven years. The UK government chose to impose restrictions for an initial two-year period, to be reviewed on an annual basis. Low-skilled Bulgarian and Romanian nationals may only apply to work as seasonal agricultural workers or on sector-based schemes. † (Feldman 221) Bulgaria’s accession to EU has causes the two significant impacts on Bulgarian labor markets. On the one hand, immigrants have already created a â€Å"small net gain in terms of per capita income to Bulgaria† (Feldman 218). On the other hand, EU accession and the comparatively slower rates of Bulgarian economic development have already distracted large labor flows from Bulgarian towards other international labor markets. Although the net impact of Bulgarian migration has not been fully analyzed, the examples of other EU countries suggest that migration can undermine the stability of Bulgarian economy after EU accession: for Hungary, migration of local workers has resulted in 2% productivity decrease; in Poland and Czech Republic, productivity has fallen 3% (Basci, Togan Hagen 138). Researchers estimate that in the nearest 3 years current migration patterns will decrease Bulgarian economic productivity 3-5% (Feldman 222). Certainly, Bulgarian workers are willing to work for lower wages compared to those European countries pay to their citizens. As a result, accession of Bulgaria to EU creates serious pressures on other domestic labor markets. Here, Bulgaria should address its economic and labor misbalances, to promote equal labor opportunities for its workers, and to prevent the negative impacts of Bulgarian migration on other European economies. EU Accession and Agriculture Bulgarian agriculture has perceived the biggest and the brightest impact of Bulgaria’s accession to EU. EU accession has â€Å"significantly impacted the agricultural and food sectors because of its integration into the Single Market and its adoption of the Common Agricultural Policy† (Davidova, Gorton Ratinger 304). Since the beginning of 2007, Bulgarian agricultural sectors have faced a challenge due to the absence of appropriate state support of livestock business. The first payments from the common European budget funds have reached farmers by the end of 2007; before that, Bulgarian farmers had to deal with the growing financial uncertainty and restrictions put on payments from national budget funds (Davidova, Gorton Ratinger 305). However, Bulgarian economy and EU have been able to resolve all agricultural market issues. Between 2008 and 2010, Bulgaria will receive total â‚ ¬4. 3 billion to support its internal agricultural policies, to create cohesion funds, and to further promote effective agricultural policies within and outside Bulgarian economy (Davidova, Gorton Ratinger 309). Conclusion During the first 18 months of Bulgarias membership in EU, the countrys economy has not been able to fully perceive long-term benefits and failures of its accession to the Single European market. However, EU accession has already created multifaceted impacts on all economic sectors, among which labor and agricultural markets have been influenced the most. It is expected that in the two-three years Bulgaria will be able to stabilize its economic relations with Western Europe, and to benefit of opportunities which EU market opens to the countries of Central and Eastern Europe. Works Cited Anusic, Z. Z. Rohatinski, Z. A Road to Low Inflation: 2003-2006. Zagreb: Government of Republic of Croatia, 2007. Baldwin, R. E. Portes, R. â€Å"The Costs and Benefits of Eastern Enlargement: The Impact on the EU and Central Europe†. Economic Policy, vol. 24 (2007): 125-70. Basci, E. , Togan, S. Hagen, J. Macroeconomics Policies for EU Accession. Edward Elgar Publishing, 2007.