Lost EU funds force new look at Bulgaria's corruption problems

(SOFIA) - Bulgaria's loss of hundreds of millions of euros in EU funding last week for failing to tackle corruption could be a blessing in disguise, according to analysts.

The EU newcomer, which joined the bloc in January 2007, has been closely monitored by Brussels over food safety and aviation security, but has come under most criticism over its justice system and failure to stem crime and corruption.

"Bulgaria differs from other European countries tainted by corruption in that the institutions do not punish the culprits," Ognian Minchev, a political expert with anti-corruption NGO Transparency International, told AFP.

Two years ago, the European Anti-Fraud Office (OLAF) alerted Sofia about a joint Bulgarian-German group that had syphoned off 7.5 million euros (9.67 million dollars) from the EU's pre-accession farming aid programme SAPARD.

While the Germans have already been sentenced at home, the trial of the Bulgarians has yet to start.

This week, one of several court cases against the former director of Sofia's heating company, accused of money-laundering, failed to begin due to procedural errors.

The trial against Bulgaria's road agency chief, Vesselin Georgiev, who allegedly granted contracts worth hundreds of million of euros to his brothers' companies, has not started either.

It was that case, as well as the arrest in January of two road fund officials who demanded a 50,000-leva (25,500-euro) bribe to approve an architect's project, that led the European Commission to first suspend subsidy payments to Sofia.

The two men were sentenced to jail this week, but are seen as "small fish".

Even the interior ministry was marred by a scandal in early 2008 after revelations that high-ranking officials scuppered police investigations by leaking sensitive information to key crime suspects.

Interior Minister Rumen Petkov resigned after admitting to having contacts with shadowy businessmen, sparking calls for "urgent action" by the European Union and angry commentary in the international press.

These repeated scandals and concerns of possible fraud prompted the EU's executive arm to freeze 825 million euros in farm, road and regional development subsidies in July.

But Brussels's move last week to cut off 220 million euros earmarked for Sofia nevertheless came as a shock, prompting fears from financial analysts that this would harm foreign investment.

The move "harms the country's image and threatens to influence foreign investors already hesitant" because of the economic crisis, said Dimitar Chobanov, an analyst with the Institute for Market Economy.

Bulgaria had voiced confidence recently that the EU could unfreeze the funds after it set up a special unit of prosecutors to investigate the mismanagement of EU money, and passed the country's first conflict-of-interests law.

"I am deeply disappointed. The decision is extremely unjust and it does not take into account the progress, results, changes and efforts made over the past few months," the deputy premier for EU fund management, Meglena Plugchieva, said last week.

The move will hinder further reform efforts, she added.

The Commission has already warned that Sofia could lose another 340 million euros frozen this year, as well as some of the 11 billion euros in funds earmarked to be handed to Bulgaria by 2013.

But analysts seemed far less concerned about the cuts.

"The bad news will have a positive effect in the long term," said Transparency International's Minchev.

"It's a warning to any Bulgarian government that only the appearance of reform and of respect for European norms is not acceptable."

The chairman of the Confederation of Employers and Industrialists in Bulgaria, Ivo Prokopiev, also noted: "Paradoxically, the sanctions from Brussels will be in the interests of business and of Bulgarians: if efficient institutions aren't put in place, Bulgaria cannot prosper."