23.11.2011

SOFIA, Nov 23, 2011 (AFP) - It\'s not easy being Greece\'s neighbour. But non-eurozone Bulgaria hopes that strict financial discipline will help it survive and possibly also profit -- as long as its banks hold up.

\"Investment, trade and tourism have already suffered the negative consequences of Greece\'s instability,\" Deputy Finance Minister Boryana Pencheva told AFP in an interview this month.

\"But we have been holding pretty well and managed to maintain fiscal and macroeconomic stability. From now on it is a matter of keeping the balance.\"

On the negative side, foreign direct investment, around 10 percent of which has traditionally been from Greek firms, has slumped to an expected 1.0 billion euros ($1.3 billion) this year from more than nine billion euros in 2007.

Falling exports to Bulgaria\'s main markets in the EU, Greece included, and weak domestic consumption were also forecast to bring economic growth down to 2.8 percent in 2011 -- a far cry from pre-crisis levels of five to six percent.

But on the positive side, EU\'s poorest newcomer Bulgaria says it might actually profit from proximity to the biggest casualty of the eurozone debt crisis.

  

According to the finance ministry, 2,000 small and medium-sized Greek companies have registered here over the past year.

  

A Sofia-based accounting firm with close ties to Greece confirmed to AFP they have seen a rise in enquiries from Greek entrepreneurs, although most sought ways to avoid tax rather than relocate production.

 

Recent months have also seen a rise in Greek individuals and companies depositing money in Bulgarian banks, Pencheva said.

  

\"Bulgaria can emerge a winner from the Greek crisis as the closest safe haven for Greek capital,\" financial expert Emil Harsev said.

  

A series of austerity measures has allowed the government to keep its own public finances relatively sound, meanwhile.

 

Bulgaria is on course to wrap up 2011 with one of the best ratios of national debt to economic output in EU\'s 27, of just 16.0 percent.

 

The budget deficit is also expected to fall below 2.5 percent of output this year, 1.3 percent in 2012 and zero in 2013.

  

\"Ironically, Bulgaria might turn out as the EU country that best meets eurozone criteria this year,\" economist Georgy Ganev from the think-tank Centre for Liberal Strategies said.

  

Bulgaria\'s plans to join the two-year waiting room to adopt the euro in 2011 already fell victim to the eurozone crisis and Pencheva said the government was \"not talking about concrete dates (to join) in the short-term.\"

 

International analysts have pointed at Bulgaria\'s banking sector, where a quarter of the assets are controlled by Greek banks, as another potential victim of the Greek debt crisis.

  

The government and local analysts were however categorical that the worries were overdone.

  

Severe banking sector regulations were imposed in Bulgaria after its worst financial crisis in 1996-1997 when 14 banks went bankrupt. The country set up an IMF-imposed currency board regime, severely controlling the money supply and pegging the lev to the euro at a fixed rate.

  

\"The so-called Greek banks are separate legal entities registered in Bulgaria and subjected to the regulatory requirements of the Bulgarian National Bank,\" Pencheva said, adding they were \"just as secure as any other bank.\"

 

The local units of Greece\'s NBG Group, Eurobank EFG, Piraeus Bank, Emporiki Bank and Alpha Bank do not hold toxic Greek debt, analysts said.

 

Bankers were meanwhile certain that strict central bank regulatory mechanisms can limit excessive repatriation of funds, while changes in ownership -- even if possible -- would not necessarily affect business.

  

\"Notwithstanding the strength of the banking system, we cannot entirely rule out some kind of panic such as a deposit run,\" Fitch ratings agency however cautioned last week.