SSE.LT

Bulgaria’s economy will fail to grow until 2011, lagging behind other European Union states, where most of the Balkan nation’s exports are shipped… Real estate, construction and financial services, which drove growth before the crisis, won’t be able to recover to pre-crisis levels… Recovery will have to be export driven

But what can Latvia offer? Or Lithuania with Estonia? We already now expect fast recovery in 2010. But Baltic case is much more complicated than Bulgarian. There are several short but explicit reasons.

First of all, both Bulgaria and Baltic states have pegged their currencies to Euro and both claimed to protect them. Thus more deflation should occur in our economies to reduce value of the currency and rebuild competitiveness. Bulgarians admitted they will not grow in 2010. Next step is expected by Latvians and their neighbors. Wages should fall further and more considerably. No question here.

Secondly, Bulgarian labor is the cheapest in the EU. Income and corporate taxes in Bulgaria are lowest in the EU, reaching only 10%. In Lithuania, taxes generally increase twice a year. If a rich guy wants to build a labor intensive factory or establish an outsourcing office he would prefer Bulgaria over other options, because it will have lower cost of capital, simply. Who disagrees that entrepreneurs and matured companies are praying for their government in Sofia?

Thirdly, Bulgaria, as well as Baltic states, suffered from fragile construction and financial services. However, the country acknowledges the only way to return to positive growth is to sell goods and service abroad, given tough financing opportunities.  Baltics are using foreign debt to patch holes in its budget balances and expect for real estate prices to go up one day. If they won’t we actually will have no other jobs. Losers.