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Bulgaria to Enshrine 'Debt Alert Mechanism' in Constitution

Date: 23.02.2011

EU newcomer Bulgaria became the first country to try to adopt internally a series of measures emulating the EU 'Competitiveness Pact' proposed by France and Germany, including adding to the country's constitution a 'debt alert mechanism'.

Bulgarian Finance Minister Simeon Djankov presented on 22 February plans for a 'Pact for Financial Stability'.

Djankov said he expected the measures to help the country's bid to join ERM II, the euro zone's 'waiting room', but added that the country would not make its application official until the changes to the constitution had been passed.

Bulgaria had planned to join ERM II in 2010 and to become a member of the euro zone in 2013. But as the country recorded a larger-than-expected deficit in 2009, those plans were shelved.

The minister expressed hope that the proposed plan could be approved before the end of the year. He said, however, that the pact would become effective only after changes had been made to other legislation, such as a law on the state budget. Those changes are expected to take place by 1 January 2013.

Djankov explained that the "three pillars" of his country's financial stability were limiting government expenditure to 3 7% of GDP, capping the public deficit at less than 3 % of GDP, and requiring any corporate and income tax changes to be approved by a two-thirds majority in parliament.

Another requirement foreseen is that the country's external debt should not exceed 40 % of GDP.

The plan also proposes that direct taxation should be modified only with the approval of 160 of the 240 members of parliament.

The government's current budget expenditure is around 35.5-36 % of GDP, Djankov said.

Sofia wrapped up 2010 with a public deficit of 3.6 % of GDP and it is aiming to bring it down to 2.5% this year.

Bulgaria entered into recession relatively late compared to its neighbours. Economic activity contracted by 4.9 % in 2009 and the deterioration continued into the first quarter of 2010, when the recession is believed to have bottomed out, a recent World Bank report says.

According to the European Commission, growth in 2011-12 in Bulgaria will remain well below the pre-crisis average, thus temporarily slowing the country's catch-up process. The figures it has put forward are of 0.1 % GDP growth for 2010, 2.6 % in 2011 and 3.8 % for 2012.

However, the Bulgarian government has come out with more optimistic figures. The country's finance minister, Simeon Djankov, estimates that GDP will grow by 3.6 % in 2011 and 4.7 % in 2012.

With its flat 10% income and corporation tax, Bulgaria remains the country with the lowest tax burden in the whole of the EU. Djankov said that the country would keep that up, in spite of a call by Merkel and Sarkozy to "create a common assessment basis" for corporation tax.

France has a corporation tax rate of 33.33 %, Germany has an aggregated corporation tax of 15.855 % (federal) plus 14.35-17.5 % (local).

EurActiv

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