27.02.2015

At the close of 25 February the European Commission published a technical assessment of the progress achieved in recommendations' implementation and the results of the in-depth reviews conducted for a 4^th consecutive year and aimed at establishing the existence of any imbalances or excessive imbalances in some Member States. Out of the 16 states, identified in November 2014 as having macroeconomic imbalances, the Commission is strengthening the procedure for three states - France, Germany and Bulgaria. Depending on the level of severity the macroeconomic imbalances procedure defines five categories of imbalances. France was moved to a higher category by one level (from 3^rd to 4^th), Germany - also by one level (from 1^st to 2^nd), and Bulgaria - by three levels (from 1^st to 4^th). The procedure this year included two other states - Portugal and Romania, and the category of Slovenia was downgraded by one level (from 4^th to 3^rd). For the other ten states no change in the level of imbalances' severity has been established.

According to the results of the in-depth reviews Bulgaria is considered to be in a situation of excessive macroeconomic imbalances requiring decisive policy measures and application of specific monitoring by the Commission. As the main reason for strengthening the procedure for Bulgaria the Commission points out the banking sector turmoil in 2014 which according to it revealed supervisory weaknesses and may influence significantly the macroeconomic stability. In addition, the slight adjustment of the labour market continues to jeopardise macroeconomic stability and for this reason monitoring in this area should be strengthened. The progress in addressing the country-specific recommendations is quite limited.

In particular, the conclusions of the Commission in regard to the challenges facing the country are as follows:

• The durable restoration of confidence in the banking system and the financial sector as a whole requires an in-depth review of the soundness of the financial system by an independent, third-party institution. Decisive actions need to be taken for improving the quality of supervision over financial institutions, while increasing confidence and transparency.
• The quality and scope of the active labour market policies should improve, paying a special attention to the introduction of a sound and economically justified institutional mechanism for setting up the minimum salary (which should not limit the employability mostly of unskilled or low skilled workers). Efforts should also be made in the area of the education and training reform, with a focus on the needs of the labour market.
• A sound and predictable business climate should be established for attracting much needed investment and for this purpose special attention should be paid to the reduction of the red tape, the low quality of infrastructure, the lack of competition and efficiency in energy as well as the efficiency of the judiciary.

In response to the risks identified by the Commission Bulgaria will take the required policy actions and measures which will be presented in the update of the National Reform Programme for 2015 as well as in the Convergence Programme (2015-2018).