by Plamen Doudov

EU member Bulgaria finds itself in a win-win situation. Will it hold it?

coming in from the cold

Bulgaria has entered the EU after 17 years of economic transition on the thorny way to market economy and Western values. Unrivalled celebrations, lavishly organised by the government, spread the "spirit of Europe" across the country. The new European millennium for Bulgaria started at the beginning of 2007. Mr Balkanski, dressed up in a tailored three-piece pinstripe suit, met old Madam Europe and seduced her with his charms and promises over a bowl of tripe soup and home-brewed rakiya.

Crowds of enthusiastic tourists from the EU have already opened the winter season. They suffered stoically the long queues at the airports' border control EU-Only counters after their new Bulgarian brothers abandoned the Non-EU queues and proudly lined up with a new European identity. As of January, all EU citizens can now come to Bulgaria with just their identity cards, as the country is no longer considered to be somewhere abroad.

You can now stay in Bulgaria for the usual 90 days, as in any other EU member country, without a visa or residence permit. Don't worry about your health insurance either as the European Health Insurance Card (EHIC) is valid now in Bulgaria. The card entitles you to any medical treatment that you may have to undergo while in any other EU country at a reduced cost, sometimes free. You will be treated like a Bulgarian citizen and as such enjoy the same health services available to the local population.

If you are travelling by car to Bulgaria, another useful document is the Green Card insurance. Actually, EU car insurance provides third-party cover anywhere in the EU for the period of validity of the policy, though comprehensive insurance is usually limited to 90 days. The same validity period applies to your driving licence and if you are staying for more than three months, you will need to apply for a Bulgarian issued one.

If you'd prefer to skip the paperwork, choose flying as the most economic way of getting here. In fact, coming to Bulgaria is getting easier, as most of the top low-cost airlines will be flying to and from the country in 2007. Some of them got a head start and have successfully been operating flights since the beginning of 2006. Cheap flights are considered a blessing by all travel lovers, but they also facilitate the free movement of people which is a key feature of EU citizenship. This year Bulgaria will be the top destination for UK tourists during the winter season.

Those who are not first time visitors to Bulgaria will be happy to find that the notorious double standard in prices for foreigners and locals is gone. You now have legal grounds to question every attempt at overcharging, so you're less likely to feel ripped off. Nevertheless, be wary as in some places old habits die hard.

But if first impressions are good, you may consider continuing your education here. Educational requirements among EU members vary and in some countries the educational system is so selective that certain types of diploma do not allow their holders to earn a university degree. However, four to five years of secondary schooling, regardless of specialisation and curriculum, qualify you to be a student at any Bulgarian university. In 2007, tuition fees charged by Sofia University to students coming from EU countries will drop considerably from 3,500 euros to just 500 euros on average per academic year.

Before you draw out the money from the bank and rush to the Bulgarian alma mater though, please bear in mind that Bulgaria is still using its national currency unit, the lev. It is a popular fallacy among the general public that the euro is introduced automatically with EU membership. These are two separate procedures and the introduction of the euro is expected in 2010 at the earliest. But in practical terms, this shouldn't prove too bothersome as the exchange rate is fixed and you can easily calculate prices in euro simply by dividing the amount in leva by two.

From an economic point of view, Bulgaria's EU membership means faster integration of the national economy into the larger EU system and higher competitive power that will stimulate economic growth and foreign trade. Local companies will enjoy better access to the transfer of new technologies and know-how, which will ensure the stable growth of productivity and output. Open access to EU structural funds as of 2007 provides another strong impetus to the economy as a whole by facilitating the completion of some major infrastructure projects in the country. Macroeconomics theory dictates that this will lead to a further reduction in unemployment, lower inflation and moderate improvement in the current account deficit.

The full application of European law should further improve the predictability and stability of the business environment in Bulgaria, allowing EU companies to make better plans for investing in the country. Many leading multinational companies have already included Bulgaria in their investment strategies for expanding their business in the region. This will inevitably improve the investment climate and attract more foreign investors.

Those Bulgarian companies who manage to meet EU standards will enter the common market without any tariff or non-tariff restrictions on trade and expand their business. The same applies to the EU companies that target the Bulgarian market. As a result, in 2007 there will be a great number of mergers and acquisitions by foreign companies, as many Bulgarian companies are not able to provide the necessary investment or to meet European standards. In addition, Bulgarian companies will enjoy easier and cheaper access to financial services and credit resources on the European capital markets, which will further develop the Bulgarian stock exchange and financial services on the local capital market.

Shortage of capital leads to higher returns on investment. This makes Bulgaria extremely attractive for investors as investment risks considerably decrease with EU membership. Higher return at lower risk is every entrepreneur's dream. In addition, the government has set corporate tax at 10 percent and lowered the level of social security contributions required from employers, which will further boost foreign investment.

Incoming capital requires a bigger labour force, thus reducing unemployment and increasing competition in the labour market. If you're not a potential investor, you could seek employment in Bulgaria. The country will need lots of qualified workers for top and mid-level management positions in the sectors where most investment is attracted. Wages are expected to rise by 10 percent on average, but in certain sectors where top experts are needed, there will be a manifold increase.

According to EU directives, it will not be permitted to charge double social security payments. If you are an EU citizen who comes to work in Bulgaria, you will preserve your social insurance rights and be treated by the social authorities in the same manner as in your country of origin, despite the fact that you are living and working in another member country. The same applies to pensioners. You could be a UK pensioner and enjoy a retirement home in Bulgaria.

However, the EU perspective is not always rosy. In 2007 the excise duty on fuels will go up and increase inflation from the desired four percent to five, as fuel prices affect the price of all goods and services. Another excise duty on coal and electricity will be applied as a prerequisite for EU entry. The tax burden on the population will be higher, with increased personal social security contributions and property taxes. Valuation of property will increase too, resulting in higher taxes on real estate. Considering this general increase in expenses, the overall effect on the wealth of the population is dubious.

It is businesses who are most likely to benefit from the EU policies coming into effect now. Bulgaria enters the EU customs union and becomes a part of the common market, which means that borders with Greece and Romania are now internal for the EU. A flat 20 percent VAT is applied to all goods and services exchanged on Bulgarian territory. There will no longer be any double taxation, and trade with other EU members is considered to be intra-community, with a single consumer tax to be levied. This also means that there is no tax back option at the borders if you are an EU resident.

The real estate market is expected to maintain its current levels. Experts predict strong segmentation to occur, with the prices of only certain types of property continuing their upward movement. This will depend on the economic growth of the country and the big infrastructure projects that will start in 2007 with EU funding. Most probably demand for office spaces in new luxury business buildings will increase depending on their location, quality and subsequent management.

Location, location, location: this is also key for commercial land plots. Investment in land where big trade centres and showrooms could be located is on the up. There is still space for mall-type commercial centres to be situated around the big cities in Bulgaria. This opportunity will remain open for two or three more years, but more options for investment are being presented with the EU structural funds for Bulgaria.

Investors' focus is gradually shifting towards arable land. This is a logical move as Bulgaria has changed its Constitution to meet the EU directives that foreign nationals and companies have the right to purchase land. Agriculture is one of the economic sectors that will benefit most from EU funding. Foreign investment in land is expected to increase considerably. The price of arable land is extremely low at the moment. As a consequence, rent will rise and large owners will reap the benefits. This explains why the price of large plots of land, around 500-600 hectares, is expected to more than double in two years' time.

Bulgaria's EU membership is a clear win-win situation. Despite the general public's natural qualms about the rising cost of living and restrictions on the economy, there is only one direction for the country - ahead. Integration into the large EU market, along with the increasing level of investment, will boost Bulgarian industries and business. This will create more jobs and increase the standard of living. Europe will see that New Year's Eve 2006 gave birth to the first Balkan tiger economy, which is now ready to jump into the EU.


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