Green Energy and the Fall of the Bulgarian Government

The Bulgarian government resigned on Wednesday after violent protests spread across the  country. The protesters complained about a variety of issues, including perceived government corruption and persistently low standards of living. A key complaint, it seems, was the high price of electricity. Yet when it comes to electricity price, Bulgarians ought to understand the pernicious role played by the European Union and its obsessive drive toward renewable energy targets.

The departing minority government of Prime Minister Boyko Borisov and his center-right party, the Citizens for European Development of Bulgaria, came to power in 2009. Under the leadership of respected former World Bank official and finance minister Simeon Djankov, the government cut the budget deficit from 4.3 percent in 2009 to 2 percent in 2011. Both Standard & Poors and Moody’s upgraded Bulgaria, the only sovereign upgrade in the EU since 2008. The country’s parliament also adopted the so-called “golden rules” that prohibit the government from running deficits higher than 2 percent of GDP and a debt-to-GDP ratio to exceed 40 percent. Growth, alas, proved elusive and Djankov was forced to resign on February 18.

That said, Bulgaria remains the EU’s poorest country. In 2010, for example, Bulgaria had the lowest average gross annual earnings of full-time employees, at 4,396 euros. Neighboring Romania was one spot ahead of Bulgaria with 5,891 euros per year. A comparable number for Denmark, the EU’s richest nation, was 58,840 euros. Bulgarian economic growth has been anemic in recent years, a reminder that membership in the EU is not a panacea for economic problems. In fact, Bulgaria’s membership in the EU may have worsened the lives of its neediest citizens by artificially increasing the price of electricity.

In March 2007, European leaders agreed to a binding requirement that renewable energy would comprise 20 percent of the EU’s final energy consumption by 2020. The Bulgarian target is a somewhat lower 16 percent. In a country as poor as Bulgaria, energy consumption can amount to a staggeringly high share of income. According to Eurasia Group, average Bulgarians pay as much as a quarter of their monthly earnings for electricity and all are forced to subsidize renewable energy production through additional fees amounting to some 8 percent of their pre-tax electricity bills.

This is not to deny that EU membership brings with it some important benefits, free trade among them. Still, the costs of the EU membership have far too often been overlooked. Among those costs is the insistence of the bureaucrats in Brussels to impose the same environmental and health and safety standards throughout the EU. Yet, as the example of the East German integration into the Federal Republic of Germany shows, increasing the burden of regulation ahead of productivity gains can result in mass unemployment and stagnation.

The negative costs of over-regulation at the pan-European level can partly be offset by liberalizing measures undertaken by governments at a national level—though, as a result of the passing of the Lisbon Treaty, the scope for autonomous action by national governments has been severely restricted. That is bad news for Central and Eastern European countries like Bulgaria, which have been historically much poorer than their western neighbors—a fact compounded by four decades of communism.

Of course, for many nations, membership in the EU is not just a matter of euros and cents. Geopolitical considerations, such as proximity to Russia, matter. The same could be said, at least until recently, for political stability and the rule of law, which tended to improve with accession to the EU. Still, it is high time for the ex-communist nations to realize that the goings-on in Brussels are not necessarily to their benefit. To that effect, it is interesting to see that, according to the Eurobarometer, 30 percent of Bulgarians distrusted the EU in May 2012; up from 19 percent in October 2004. Similarly, only 20 percent of Bulgarians associated the EU with economic prosperity in May 2012; down from 47 percent in October 2004.

According to press reports, Bulgaria will soon face an early election. The current government could be returned to power or be replaced by a leftist bloc led by former prime minister Sergei Stanishev. Whoever wins, Bulgarians will hope for a more assertive representation of their interests in Brussels.