Bulgarian lev makes inroads in Greece

Greeks used to see Bulgarians as their destitute northern neighbours. But now, with Greek banks closed and the state lurching toward a possible euro exit, hotels and restaurants in northern Greece are taking payments in Bulgarian levs.

“Automatic teller machines in Thessaloniki had run out of cash and nobody could withdraw even five euros”, Rumen Galabinov, a Bulgarian businessman told this website, referring to his recent visit to Greece’s second city.

“After a lunch at a local restaurant, I joked, asking whether they would accept a payment in levs,” he said.

“And the owner agreed”.

Bulgaria’s lev (BGN) is pegged to the euro at a rate of BGN1.95 for €1 since mid-1997. At that time, the country was forced to introduce a currency board to deal with the aftermath of a financial crash and hyperinflation caused by government mismanagement.

Bulgaria has adhered to fiscal prudence and nurtured financial stability ever since. It has one of the lowest debt-to-GDP ratios in the EU - 27.6 percent in 2014.

The government of centre-right prime minister Boiko Borisov has appointed a working group to prepare for eurozone application. But Borisov has said his government isn’t in a hurry to file it until the single currency sorts out its problems.

“If we would join now, we’d be paying the bill for richer, but less disciplined countries like Greece”, he told reporters at last week’s EU summit.

Despite losing a quarter of their GDP in the past six years, Greeks are still three times richer than Bulgarians.

“The restaurant owner, who also had two hotels, said his Bulgarian guests would be welcome to pay in levs”, Galabinov, the Bulgarian businessman, added.

“Then, the owner would travel to Sandanski [in southern Bulgaria] and exchange the levs for euros to have cash for his daily supplies”.

As it is unclear when Greece’s capital controls will end, and since the European Central Bank has capped liquidity assistance, foreign tourists, paying in euros, dollars or Swiss francs, will be an increasingly important source of hard currency.

“Even in the most optimistic scenario after the Sunday referendum, Greece will need truck-loads of banknotes to restart its economy”, said Galabinov, who runs a financial consultancy and who used to sit on Bulgaria’s financial and insurance supervision panels back in 2003.

”Cash payments are dominant in the small tourist businesses, on which the Greek economy rests”, he noted.

He also predicted that Greek businesses and private depositors could start travelling to Bulgaria to withdraw money from Greek bank branches there.

These branches are companies established under Bulgarian law and they are not subject to the Greek capital controls. They are not allowed to transfer money to their mother companies in Greece without permission from the Bulgarian National Bank.

The Greek bank holiday could stall business in key Greek-owned industries in Bulgaria, such as steel, copper, and cement mills, Galabinov warned.

He said it could also hurt key Bulgarian exports to Greece, such as cereals.

Greece’s share in Bulgaria’s exports has slipped to 6 percent from 16-18 percent before 2009, he said.

The crisis is also threatening some 10,000 small Greek businesses which migrated to Bulgaria and which are creating thousands of jobs, he added.