Bulgaria – on the Edge of Abyss

by Milena Hristova                     July 7, 2014


Ghosts are haunting Bulgaria.


Thanks to runs on the country’s third and fourth-largest lenders, triggered by nothing else but feuds among shady local oligarchs, the ghosts of the nightmare banking crash of 1996-97 came back... With a twist.


How did Bulgaria end up on the edge of the abyss? To slightly paraphrase Steve Hanke, the architect of Bulgaria's Currency Board:


“Bulgarian mafia’s links to politicians, bureaucrats, and state structures explain why the country is always in a state of unstable equilibrium, at best.”


It is only natural for a state captured by the mafia to be teetering on the edge of the abyss and Bulgarians know that well. But the bank crisis revealed yet another ugly truth – the crisis has been self-made, an artificial catastrophe concocted by oligarchs and obedient politicians.


The official line is that Bulgaria's bank crisis eased after the European Commission gave Sofia the green light to provide state aid to its lenders. That is, Bulgaria itself extinguished the panic among depositors.


Truth is, insiders say, politicians were pushing for bringing the whole banking system to a halt, a catastrophe for millions of clients and thousands of companies, which was to be euphemistically called “a bank holiday.”


Both banks, which faced runs, are domestically owned. Fortunately the banking system in Bulgaria is dominated by international banks. It was namely those banks that rose up against the “bank holiday” idea and steered the country clear of insanity.


The official line is that it all started with a public spat between Tsvetan Vassilev, CCB’s largest shareholder, and Delyan Peevski, a controversial businessman. The other, seemingly unrelated, bank run at FIBank was triggered by anonymous e-mails, social-media posts and mobile-phone messages fanning fears about the safety of their deposits, the investigation says.


Truth is these were well-prepared attacks and we will never know the whole truth.


But to say that Bulgarians are “sensitive to the talk of bank runs” and “don't trust the political elite” because of the living memories of the 1996 crash is an understatement. The 2014 bank crisis and the magnates involved revealed a typical example of state capture by oligarchs.


Accordingly, vulnerability in the Bulgarian banks have not gone away altogether. They can get shaky again but not on the consumer sentiment or the financial backing (Bulgaria's banking system has ample liquidity and one of the highest capital-adequacy ratios in Europe).


They can get shaky due to a new round of corporate clashes and politicians all too willing to serve the oligarchs.