Bulgaria Axes Finance Minister

JOE PARKINSON, The Wall Street Journal

SOFIA—Bulgaria sacked its finance minister on Monday after a weekend of demonstrations over electricity prices brought tens of thousands onto the streets, raising pressure on a government that had until recently defied political gravity by retaining popularity in the teeth of an austerity drive.

Simeon Djankov, a former World Bank official who won the respect of financial markets for undertaking painful reforms but courted controversy in Bulgaria as a fiscal hawk, was relieved from his duties as finance minister by Prime Minister Boyko Borisov on Monday, the government said in a statement. The prime minister proposed Tomislav Donchev, the minister responsible for European Union funds, for the post, the statement said.

The news, which took analysts by surprise, comes as Mr. Borisov’s ruling center-right Citizens for European Development of Bulgaria party, or GERB, is facing mounting pressure after a series of antiausterity protests and corruption scandals have dramatically eroded popular support for its policies.

Sunday saw Bulgaria’s largest demonstration for more than a decade as tens of thousands of protesters gathered in more than a dozen regions, paralyzing city centers and blocking highways. Venting their anger against high electricity bills, the protesters demanded the resignation of the cabinet and the re-nationalization of power distributors. Electricity prices are politically sensitive in the EU’s poorest member state, where power bills bite off a large chunk of monthly incomes, especially during the winter.

Hewing to a tight fiscal policy and navigating the financial crisis without taking a foreign bailout, Bulgaria has stood as one of the EU’s fiscal brightspots, comparing favorably to regional economies Hungary and Romania, which have been plagued by steeper recessions and political turmoil.

But analysts warned that the removal of Mr. Djankov, the government’s most high-profile technocrat, would likely foreshadow a shift toward more populist economic policies ahead of national elections tabled for July.

“Djankov was the figure who symbolized fiscal and financial discipline. The whole economic policy was based on these priorities,” said Daniel Smilov, program director at the Center for Liberal Strategies, a Sofia-based think tank. “Now there is an expectation that some change in economic course is imminent and that may make some people nervous.”

There were signs that Czech power company CEZ AS, BAACEZ.PR -0.44% which has been the focus of popular anger at rising energy prices, could be in the cross hairs of a more populist policy. Bulgaria’s Energy Economy and Tourism Ministry said on its website on Sunday that the national energy regulator was considering whether to revoke CEZ’s license due to allegations the company violated public-procurement rules. CEZ, which insists it hasn’t breached regulations, had 9.9 % of its 2011 revenue from Bulgaria, making it the company’s second-largest market after the Czech Republic.

Bulgaria’s opposition leaders on Monday sought to build pressure on Mr. Borisov, stressing that the removal of Mr. Djankov would not alleviate public anger.

“This move means Borisov is panicking…The change is not enough, we need a new government and new rules,” said Ivan Kostov, former Prime Minister and leader of the rightist Democrats for Strong Bulgaria party was quoted as saying by Bulgarian state media.

On the periphery of the euro zone, but overwhelmingly dependent on the bloc’s larger economies for growth, Bulgaria won admiration from Brussels by reducing its budget deficit to 0.5% of gross domestic product last year from 2% in 2011. The economy managed a 0.5% expansion in the fourth quarter from a year earlier, marking its 10th successive quarter of growth

But opinion polls in recent months showed a precipitous decline in the ruling party’s ratings after three years of austerity policies, corruption scandals snaring cabinet ministers and a lack of significant results in fighting crime and graft.

A lead of 15 percentage points last year has evaporated in recent months, placing GERB level with the Bulgarian Socialist Party, according to recent polling. Analysts say that electoral arithmetic would make it very difficult for Mr. Borisov to form a single-party government at national elections and could prompt the Prime Minister to call a snap poll in the Spring. On the streets of Sofia on Monday, residents appeared polarized about the news.

Boiana Stoyanov, a 34-year old hotel manager said Mr. Djankov had been made a “scapegoat” and his ouster showed the coming election campaign “will be dirty.” Tsvetan Tcherneva, a pensioner who demonstrated in Sofia on Sunday said he was surprised Mr. Djankov lasted so long. “He brought American ideas and took an ax to pensions and to state wages. The government is in serious trouble now,” he said.