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In a secret vote on 27th July, the parliament rejected the government proposed by socialist leader Sergei Stanishev.
submited on 28.07.2005 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 28.07.2005 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
The coalition had 116 votes; it could also count on one MP that left the Ataka faction earlier and openly announced its support for BSP cabinet. The vote was a two-stage one: first, Sergei Stanishev had to be approved as prime minister, and second, the parliament had to approve the structure and the staff of the cabinet. Stanishev gained a fragile majority of 120 out of 239 and was even sworn as a prime minister; later however his proposal for government was rejected. The BSP/MRF requested a re-vote on 28 July, but all opposition factions boycotted. Later this day, the socialist leader Stanishev officially declared that the BSP mandate failed. The president now has to hand the mandate to a candidate nominated by the second-in-size parliamentary faction of the National Movement Simeon Second (NMS2).
Although this means at least another 2 weeks before a new government can be approved, the overall risk for the fiscal stability and business environment did not change significantly. The BSP/MRF minority government, supported by individual MPs seemed a pro-corruption, short-term solution. Both parties had sizable public spending ambitions. Additionally, to maintain fragile support, this government would be subject to strong pressure to favor individual or specific business interests. All these considerations put serious doubts about the reliability of the announced declarations, e.g. balanced budget, public spending limited to 40% of GDP, etc.
The possible scenarios now seem to be three.
First, the NMS2 may try to form a political coalition with BSP (or part of it plus the Peoples Union, which has 13 MPs), without the MRF in the cabinet. The lifespan of such arrangement will depend on the BSP decision to force early elections, in order to attempt a more decisive victory. This government will maintain major policies of the present one, with some increases in spending on public sector wages and pensions. EU accession will be on the top of the agenda, in order to guarantee strong electoral support for the incumbents in the next elections.
Second, the NMS2 might opt for a broad-coalition cabinet with a specific agenda and end-date (e.g. one year from now). In this case economic policies cannot be predicted with certainty, since all parties will act as if the next election campaign is already open. With a much smaller probability, such scenario is possible even with a MRF mandate (if the NMS2 nomination fails).
Finally, the parliament might fail to elect a government, and new elections will be held in October/November. The president will appoint a caretaker cabinet. The latter will act to support BSP; however, no legal changes are possible, and all spending should be within the 2005 State Budget Act. This scenario guarantees that at least by March/April 2006 the government will be restricted by the 2005 Budget: prior to the parliamentary approval of a new budget, expenditures shall not exceed 1/12 of the 2005 limits for each month. From a short-term fiscal perspective, this scenario bears the lowest risk of all. However, this would mean an almost sure 1-year postponement of the EU membership to January 2008.
Although this means at least another 2 weeks before a new government can be approved, the overall risk for the fiscal stability and business environment did not change significantly. The BSP/MRF minority government, supported by individual MPs seemed a pro-corruption, short-term solution. Both parties had sizable public spending ambitions. Additionally, to maintain fragile support, this government would be subject to strong pressure to favor individual or specific business interests. All these considerations put serious doubts about the reliability of the announced declarations, e.g. balanced budget, public spending limited to 40% of GDP, etc.
The possible scenarios now seem to be three.
First, the NMS2 may try to form a political coalition with BSP (or part of it plus the Peoples Union, which has 13 MPs), without the MRF in the cabinet. The lifespan of such arrangement will depend on the BSP decision to force early elections, in order to attempt a more decisive victory. This government will maintain major policies of the present one, with some increases in spending on public sector wages and pensions. EU accession will be on the top of the agenda, in order to guarantee strong electoral support for the incumbents in the next elections.
Second, the NMS2 might opt for a broad-coalition cabinet with a specific agenda and end-date (e.g. one year from now). In this case economic policies cannot be predicted with certainty, since all parties will act as if the next election campaign is already open. With a much smaller probability, such scenario is possible even with a MRF mandate (if the NMS2 nomination fails).
Finally, the parliament might fail to elect a government, and new elections will be held in October/November. The president will appoint a caretaker cabinet. The latter will act to support BSP; however, no legal changes are possible, and all spending should be within the 2005 State Budget Act. This scenario guarantees that at least by March/April 2006 the government will be restricted by the 2005 Budget: prior to the parliamentary approval of a new budget, expenditures shall not exceed 1/12 of the 2005 limits for each month. From a short-term fiscal perspective, this scenario bears the lowest risk of all. However, this would mean an almost sure 1-year postponement of the EU membership to January 2008.
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