As we reported a week ago, as a result of various political developments (and potentially other reasons, still unknown) the poorest EU country, Bulgaria, suddenly found itself gripped by the worst bank run it has suffered in 17 years, when first its fourth largest bank, Corpbank, was nationalized, followed by a second bank run slamming its third largest bank, Fibank. Promptly thereafter, in an attempt to preserve calm, Bulgaria’s central bank issued a dramatically-worded statement on Friday warning of “an attempt to destabilise the state through an organized attack against Bulgarian banks” coupled with the issuance of €1.5 billion in 10 year bonds at a 3.055% yield, to demonstrate that the country still has access to capital markets (in the biggest bond bubble in history that is a given) and has liquidity.
Alas since that too failed to preserve calm in a country in which even the leader of the opposition (which has every interest in destabilizing the economy) piled on and said the banks are essentially insolvent, Bulgaria resorted to arresting two men who were suspected of involvement in what they have described as an organized attempt to destabilise the country's financial system by encouraging citizens to withdraw bank deposits.
Which brings us to today, when moments ago, Reuters reports that the European Commission said on Monday it had approved a Bulgarian request to extend a credit line of 3.3 billion levs ($2.30 billion) in support of banks that have come under speculative attack.
“The Commission concluded that the state aid implied by the provision of the credit line is proportionate and commensurate with the need to ensure sufficient liquidity in the banking system in the particular circumstances,” the EU executive said in a statement.
The statement said Bulgaria’s banking system was “well capitalised and has high levels of liquidity compared to its peers in other member states. For precautionary reasons, Bulgaria has taken this measure to further increase the liquidity and safeguard its financial system”.
The move follows runs by jittery depositors on two major Bulgarian commercial banks in the space of a week.
And while this latest backstop of the Bulgarian bank system should provide a respite from bank insolvency fears (if only for the time being), one wonders.
Recall that as we explained earlier, Bulgaria is the critical first European leg of the Russian "South Stream" pipeline as it emerges from the Black Sea: a pipeline which the European Commission has sternly objected to, yet which Russia recently signed a deal with Austria (which balked at European demands to isolate Russia) to activate.
Which means that with Austria siding with Russia, Europe has to isolate and convert the "feeder" countries, those which the South Stream crosses on its way to central Europe.
Ludicrous? Not really. This is what we reported last week:
Recall that it was in January, two months before the Ukraine government was overthrown that the prime minister of Bulgaria - a country that has a very distinguished love/hate relationship with Russia (a relationship which the US would love to make more "hate") - Plamen Oresharski, surprisingly ordered a halt to work on the South Stream, on the recommendation of the EU. The decision was announced after his talks with US senators.
"At this time there is a request from the European Commission, after which we've suspended the current works, I ordered it," Oresharski told journalists after meeting with John McCain, Chris Murphy and Ron Johnson during their visit to Bulgaria on Sunday. "Further proceedings will be decided after additional consultations with Brussels."
At the time McCain, commenting on the situation, said that "Bulgaria should solve the South Stream problems in collaboration with European colleagues," adding that in the current situation they would want "less Russian involvement" in the project.
"America has decided that it wants to put itself in a position where it excludes anybody it doesn't like from countries where it thinks it might have an interest, and there is no economic rationality in this at all. Europeans are very pragmatic, they are looking for cheap energy resources - clean energy resources, and Russia can supply that. But the thing with the South Stream is that it doesn't fit with the politics of the situation," Ben Aris, editor of Business New Europe told RT.
It was also in January when EU authorities ordered Bulgaria to suspend construction on its link of the pipeline, which is planned to transport Russian natural gas through the Black Sea to Bulgaria and onward to western Europe. Brussels wants the project frozen, pending a decision on whether it violates the EU competition regulations on a single energy market. It believes South Stream does not comply with the rules prohibiting energy producers from also controlling pipeline access.
Therein, of course, lies the rub, because as Europe has learned the hard way so many times, its overrliance on Russia for both the production and the transit of gas means that it has absolutely no leverage over the Kremlin - something recent events in Ukraine have only confirmed.
“They do everything to disrupt this contract. There is nothing unusual here. This is an ordinary competitive struggle. In the course of this competition, political tools are also being used,” the Russian president said after holding talks with his Austrian counterpart, President Heinz Fischer, in Vienna.
So, one wonders: will a key condition for this $2.3 billion "rescue" loan be that Bulgaria turn its back on Putin, halt the South Stream permanently, and block any further work on what has suddenly become Europe's most important pipeline alternative - one which makes Ukraine (and all western investment therein) the most irrelevant country in Europe (as explained earlier today).
One also wonders if the recent escalation of troubles in Bulgaria's banking sector were not, perhaps, Brussels inflicted. After all, who had the most to win from a financial, economic and political crisis in the country?
Finally, one wonders if the above is true, and this is merely the latest act in a play starring Russian gas (as was the case with Syria and Ukraine, and so on) just how much deeper will the Bulgarian crisis will escalate until Europe gets its way, and - alternatively - just when and under what conditions will Putin step in with his own counterproposal? After all the Kremlin already got Crimea and east Ukraine, followed swiftly by the heart of Europe itself: Vienna. What is a small, former USSR satellite country to the former KGB spy?