Category: Business Support

Bulgarian membership in the Schengen zone that requires no visas has been postponed for a certain period of time. This happened in the first week of March when the Interior Minister of Germany Hans Peter Friedrich expressed his concerns about the acceptance of Bulgaria and Sofia. According to him, the two countries, which are members of the European Union, are still not meeting the criteria in order to enter the passport free Schengen zone. He postponed the two countries entrance for the future, in case they manage to control the corruption levels and arrange for better functionality of the judicial system.

How can Sofia join the Schengen zone that was established in year 1985? This can happen in case all members of the European Union make a positive vote, in favor of the application. If one of the countries is against that acceptance like Germany in that particular case, then the membership of the country is postponed until the end of the year and even further. The Bulgarian authorities and the prior Interior Minister of Bulgaria criticized the delay, but confirmed that the country is ready for an open and constructive dialogue with Brussels. He expressed his hope that the progress reports for Bulgaria, prepared by the European Commission will be positive. Currently, the Schengen zone comprises of 22 countries from the European Union plus the countries of Switzerland and Liechtenstein, Norway and Iceland.

The Interior Minister of Germany, Hans Peter Friedrich blocked the accession of Bulgaria to the Schengen zone earlier in March. He expressed his concern in connection with the economic refugees and the prematurity of the two Balkan countries – Bulgaria and Romania to gain full membership in the Schengen zone. Bulgaria has put a lot of efforts into being accepted to the passport free and border free area of Schengen, but on 7th March its acceptance was postponed for an indefinite time.

At the same time, the Bulgarian Interior Minister at that time, Mr. Tsvetan Tsvetanov announced that his country meets the criteria to be accepted into the Schengen zone. The other members of the zone accept the fact that the country can secure technically the borders of the zone, but are still worried about the shortcomings of the Bulgarian judicial system. The members of the Schengen zone want to protect it and are ready to take all measures in order for it to remain credible. That is why they want to be absolutely sure when they allow Bulgaria and Romania to be part of the Schengen area. Then, if people would like to stay in another country of the European Union, they have to show that they have work or regular income they can rely on. The aim of all the member countries of the European union however, is for people to find good living conditions in their own country and not leave their homes.

Europe without borders – actually the Schengen zone means much more than that and this is the reason why all those countries including Bulgaria with its capital Sofia are so eager to enter. In fact, Bulgarian citizens can travel freely. Even so, since the country is not a member of the Schengen zone, they have no rights to work and study without additional permission. The European Union countries have signed an agreement in 2007, according to which the transitional period for entering the Schengen zone is the end of 2013. After that, Bulgarians will have the right to settle permanently in other countries of the European Union in case they have a job or are enlisted in a University. This however is currently not valid. Sofia is still outside the Schengen zone and will remain there for an indefinite period of time.

An interesting fact to be mentioned is that Bulgaria is already part of the Schengen area and became such as it entered the European Union in year 2007. Even so, the citizens in the country have been blocked from free movement. Bulgaria has increased the border checks with its neighboring countries that are not members of the European Union. Besides, the country is also using the Schengen Information System, which allows for police authorities in the European Union to track down the entries and exits of the country. Sofia also has marked great success in preventing traffic of people, smuggling and drug related crimes. Currently, the country has border controls and this will not change before Bulgaria is accepted in the Schengen zone.

The political leaders of Cyprus are trying to make a last minute deal in order to save the economy of the country. According to the information presented by the European Central Bank, it will keep the emergency aid planned for the banks in Cyprus until Monday, however after that it will cut them off unless the local government does not issue a rescue program. Thus, the bailout deal should be signed soon, as the Emergency Liquidity Assistance offered by the European Central Bank will be valid only until the beginning of next week. After that deadline, the assistance will be offered only if the solvency of the banks is secured.

According to the new plan that the government of Cyprus wants to impose, there still will be a 2 % one-time tax on all deposits up to 100 000 Euro and 5 % one-time tax on the other deposits above the named threshold. This new bailout plan came as the finance minister of Cyprus went to Russia in search of additional help. He took this step as many of the wealthiest people in Russia hold big deposits in the banks of Cyprus. Meanwhile, the banks in the country will remain closed until the end of the week, however the authorities have ordered all ATM machines to be regularly filled with cash.

The European Commission, the European Central Bank and the International Monetary Fund, as well as other European officials hope that Cyprus will soon reach a decision and get a financial lifeline, otherwise the damage to the economy of the country will be enormous.

As of beginning of March, Sofia and Bucharest cities have remained outside the Schengen zone. Restrictions have been set again, which remind people from Bulgaria and Romania about the separation before year 1989. According to Germany, the two countries have still issues to arrange. Bulgaria’s main problems are the organized crime and the corruption. Locals however, find this blocking offensive and point poverty and the low standard of living as the real reason that made the European countries so reluctant to let Bulgaria into the Schengen zone. The country’s bid to be admitted however is postponed, but not blocked forever.

In October 2012, Germany also called for certain travel restrictions for the countries on the Balkan peninsula, including imposition of visa requirements. Even if this idea was shared by other members of the European Union like France and Luxembourg, Belgium and the Netherlands, and even by Great Britain, it was later dropped. This was so, as these countries were more afraid of the Roma population trying to enter their territories rather than the regular citizens from the Balkan countries. Thus, no such restrictions are applied today. Bulgaria is hopeful to enter the free travel Schengen zone in the future, when it finally meets the requirements of the European Union members.

According to Reuters, Cyprus will ask Russia for a new loan in order to avoid a financial bankruptcy, as the island country rejected the 10 billion Euro bailout offered from the European Union, which increased the risk of bank crash and default. The negotiations with Russia are still going on even if the Finance Minister or Cyprus has not made a deal with his Russian colleague the first time. Currently Cyprus has a 2.5 billion euro loan from Russia, but has asked for five-year extension and a second 5 billion Euros loan. At the same moment, Russia has a serious interest to help the banks in Cyprus, as a great deal of the billions is owned by Russian individuals and businesses. In case the country does not take an aid plan soon, the Central European Bank will have to take measures on the Cypriot banking sector.

Cyprus has already rejected the plan offered by the European Union, according to which a levy had to be put on all deposits in order to collect 5.8 billion Euros. Actually, not even one of the lawmakers in Cyprus voted for the bailout scheme offered by the European Union. This is the first time when a national legislature rejects the assistance of the European Union due to its harsh conditions. In the last three years the European Union had offered helping plans to Spain and Portugal, Ireland, Greece and Italy and they all have accepted the measures in order to receive the aid. In general, the European Union usually achieves the outcome they are up to by pressing the smaller countries, but Cyprus is looking for another way out of the crisis.

Bulgaria is still out of Schengen after Germany opposed to it joining the no borders area. The regime of travel without borders is left for the future, after the meeting of the interior and justice ministers of the European countries in Brussels in the beginning of March. In order for the country to be accepted in the Schengen zone, all ministers have to be unanimous in their approval. According to Germany, Bulgaria has still not met the fundamental conditions required for being accepted in the Schengen area and has to be more decisive and strict when fighting against the corruption in the country. The annual report of the European Union declared that both Bulgaria and Romania have shown progress, but still have to achieve more.

The concern of the German Minister Friedrich, there is a risk that citizens who are outside the European Union can enter Bulgaria and then go to the rest of the European countries if the borders are open and there is lack of control. He claimed that he wants to keep the European Union from such invasion of immigrants. The Schengen zone allows for free travel with no visas and no passports being checked at the borders. Besides that, all European Union citizens are allowed to remain in any state in order to study or to work. Currently, the Schengen zone covers 22 states, members of the European Union, which means approximately 400 million residents. The countries that are not included are Bulgaria and Romania, Cyprus, Ireland and Great Britain. On the other hand, four countries that are not members of the European Union are part of the Schengen agreement and these are Norway and Iceland, Liechtenstein and Switzerland.

Even if the free movement of people from the European Union within the Schengen area is now largely achieved, there are a few exceptions. Under certain circumstances, internal border checks are introduced again for a temporary period of time. For example, the moments when such check borders were used are during the Football World Cup and the European Championships, as well as during the NATO summits and the meetings of the Group of Eight. In the summer of 2012, Germany, France and several other countries used border checks when a member country of the European Union allowed refugees that were too many. Such measures however, could be used in case there is serious threat to the public safety. For example, Germany and France were afraid that Greece was no longer able to patrol its border with Turkey in an efficient way due to its inner problems and crisis. In general, the countries that are part of the Schengen zone are trying to be as careful as possible, since when a person is already inside the Schengen are, there are no more borders or other checks applied.

Currently, Bulgaria is still outside of the Schengen zone, but will eventually become one in the future. The country is trying to answer all requirements that are applied, to fight corruption on all levels and to be strict with the crime fight. The country now has a new, interim government and new elections coming in May.

The ruling party in Cyprus lacked just one vote in the parliament to push on the bailout conditions it agreed upon on Saturday. The main dispute is about the one-off tax measure on deposits in the country, that are expected to gather some 5.8 billion Euro in order to stabilize the banks. The initial reports were for two rates – 9.9% for deposits over 100 000 Euros, and 6.7% for those below this sum. Now Cypriots try to renegotiate these terms in favor of the smaller depositors. The unofficial consensus is for 12.5% on the deposits above 100 000 Euros and 3 % on those below that sum. Several authoritative business newspapers predict even a higher rate of 15% for the deposits over 500 000 Euro. According to the governor of the Cyprus Central Bank people with relatively small amounts in all banks should be exempted from tax.

Today will be organized a teleconference between the finance ministers and central bankers of the European Union area, during which shall be discussed whether the new ideas are acceptable. The European Central Bank announced that Cyprus has to decide how and by whom it will collect the sum of 5.8 billion Euro. The finance ministers and the creditors in the face of the European Commission, the European Union and the International Monetary Fund are ready to confirm their promise of 10 billion Euros, but first they want to hear the exact figures and arguments that the measure will be efficient. The financial services in Cyprus make 70% of the gross domestic product. Currently, there is no such statistics for Bulgaria.

The parliament of Cyprus is to hold an important emergency session this afternoon in order to discuss a bailout scenario. The plan is expected to save the country from bankruptcy but the deal is not to the liking of the people. The bailout deal is expected to come into force on Tuesday, 19th March, when Cyprus will get a financial packaged of 10 billion Euro as agreed with the European Union and the International Monetary Fund. The debt is expected to be 100 % covered by year 2020.

The parliament aims introduce a one-time levy on the deposits over 200 000 Euros in the Cypriot banks with 9.9 % and all the rest deposits with 6.75 %, thus aiming to collect around 5.8 billion Euros. The plan aims to compensate the owners of deposits by offering them shares in the bank. There will also be taxation on the interest rates, that generate income form the deposits. The bailout plan for Cyprus further includes an increase from 2.5 % to 12.5 % in the nominal corporate tax, aiming to collect additional 200 million Euros a year.

There are expectations that the International Monetary Fund will probably help Cyprus, but the amount is not specified yet. Russia is expected to help with the extension of five years of the loan and a reduction of the interest on it from the current 4.5%. At the same time, Nicosia may be forced to privatize its telecommunications company, ports and energy company. Until 2018, the banking sector in Cyprus should match the average size of the banking sector in the other EU countries. Currently Cypriot financial sector is eight times larger than the national economy, compared to the European Union where it is about 3.5 times. At the same time the situation in Bulgaria remains stable, with the new interim government already in charge and operating.