Austerity Policies Toppled Bulgaria Cabinet, Roubini Says

Bulgaria was too strict with austerity as energy prices soared, angering voters and bringing down the Cabinet, said Nouriel Roubini, the New York University professor who predicted the 2008 global financial crisis.

“Fiscal austerity is valid and countries should have some fiscal policies,” Roubini said in an interview yesterday, before a conference in Sofia organized by Doverie, the biggest pension provider in Bulgaria. “Probably in Bulgaria austerity has been very front-loaded.”

Prime Minister Boyko Borissov resigned Feb. 19 after mass street demonstrations against high utility bills and low wages turned violent and dozens were injured, while others were arrested. Borissov’s administration came to power in 2009 and was forced to freeze wages and delay value-added-tax reimbursements to businesses to narrow a widening budget deficit and stave off the impact of the euro-area debt crisis.

Government debt was 18.7 percent of gross domestic product at the end of the third quarter, the EU’s second-lowest behind Estonia, compared with the 27-nation bloc’s average of 85.1 percent, according to Eurostat. The government wants to keep this year’s budget deficit at 1.3 percent of GDP, the same level as last year.

The Bulgarian Socialist Party rejected an offer to form a Cabinet today. President Rosen Plevneliev will make one more attempt this week to find parties willing to cobble together a government before dissolving Parliament and calling early elections for late April or May. He said Feb. 25 he will also appoint a caretaker administration by the end of next week.

Austerity, Corruption

“The government collapsed because of austerity and other concerns including high energy prices that affect the purchasing power of the household sector,” Roubini said. “There is also some element of corruption that is systemic and people are frustrated with it.”

The European Union’s poorest state in terms of per-capita output, has run a currency board system since 1997 that bans central bank lending and requires tight fiscal and financial policies. GDP expanded 0.5 percent from a year earlier in the three months through December, the 10th consecutive quarter of growth.

Missing Growth

“What is missing in Bulgaria and also other parts of central and eastern Europe is economic growth,” he said. “There have been massive job losses there’s been a rise in the unemployment rate, growth is mediocre.”

Unemployment rose to 11.9 percent in January, the highest since April 2005.

The benchmark Sofix stock index rose 0.82 percent to 369.54 at 2:13 p.m. in Sofia, after it plunged 4.4 percent yesterday, its biggest drop since Feb. 2, 2009, according to data compiled by Bloomberg. The yield on Eurobonds maturing in July 2017 rose one basis point, or 0.01 percentage point, to 2.254 percent. The yield rose 19 basis points yesterday to the highest this year.

Borissov was admitted to hospital yesterday to treat high blood pressure, the government-run health facility said in a statement today.