Boyko Vassilev: The world is new, the world is quite different and quite dangerous. And right now, Bulgaria is on the threshold of the eurozone, should we make sudden moves right now?
Kristalina Georgieva: The world is changing and one of the changes is that the US is withdrawing from the traditional leadership role. This creates a vacuum and creates space for Europe - to be more attractive for both investment and its role in the global economy. For the eurozone, this is an opportunity for the euro to increase its presence in the financial markets. An excellent opportunity for Bulgaria to be part of the eurozone right now. And let's tell our people, we have been de facto in the eurozone since before the eurozone existed. With the adoption of the currency board, the Bulgarian lev was pegged to the German mark in 1999, when the euro was created. We are de facto present in the eurozone with the currency board, but de jure we are not part of it yet. Why is it important to be part of it? First, because everywhere in the world, in the economy, the eurozone is recognizable. We may love the Bulgarian lev very much, but it is not. If we want to have high investment attractiveness as part of the eurozone - we can expect our investment rating to go up. This means more money in Bulgaria, more jobs, this also means possibly lower interest rates, because we have a higher rating position. Second, when we look ahead, we want to have a voice in making decisions that concern us. Since 1999, we have not had an independent monetary policy, our monetary policy is that of the Central Bank, of Europe. Let us be at the table when decisions are discussed for us. And third, it is not unimportant at all. The world is riskier, as you say, more shocks, more unexpected events, when we have a bigger buffer, the eurozone buffer – we Bulgarians are more protected.
- But do you understand people's concerns? Do you understand their fears? Because the instinct is when there is a storm – to hold on to what is yours, to find yourself?
- I understand people for two things – first, I understand them emotionally. The lev is part of our belonging as Bulgarians and therefore the transition from the lev to the euro is de facto, i.e. de jure, because de facto we are already there. This is an emotional moment for all of us, for all Bulgarians and for me included, but when we think about what we inherited from our ancestors, from whom we inherited Bulgaria – it was to look forward! Not back, to look forward – So we Bulgarians should be part of the world, with a position of strength, when we are part of the eurozone we are in a stronger position than when we are a tiny Bulgaria on our own. The second thing I understand is that people are afraid that prices will go up! And I want to tell them, don't worry, what other countries show is that - there are speculative attempts, but when the state is in place and slaps those who try to abuse people's trust, this is a temporary moment, it goes away. I come from Dubrovnik, I was in Croatia before I came to Bulgaria. The Croatians passed through us on this path, their economy is much stronger. As part of the eurozone. For tourism - a huge boom! Prices have not moved from what they were before. There have been attempts by lying traders - the Croatian state has punished these attempts very strictly. My wish is that the Bulgarian state does not fall below the Croatian one.
- But Mrs. Georgieva, we were the IMF's excellent students - now we are the only country that has to enter the eurozone, but why are people not happy with the transition?
- Let's remember what a path we have traveled since the transition began. The standard of living of Bulgarians is much higher. We have much better opportunities to work, to live wherever we want in the EU, to work, to live freely as part of this new Bulgaria. Why are people not satisfied, the first reason is objective. The world is changing very quickly and this creates much more fear, much more desire, if we could return to that calm past, when life was slow. The second reason is subjective. People always want more than what they have. This is good because it leads us to new initiatives, but it is the source of what you are talking about, there is no complete satisfaction with what we have achieved. And I can tell you, I hope we stay that way, that we want more, that we work for it.
- Bulgaria used to follow the IMF's instructions. Now you, a Bulgarian who heads the fund, give instructions to others. How did you change this role?
- To tell you about the fund, it was very good for the world that I became the boss at the time I did. Why - because I came with the unique experience of being a person from a country with a transition economy and having been the Commissioner for Disasters, for crises in the EU, right when the world was hit by Covid. The fund reacted extremely quickly, we received very good feedback, we poured $1 trillion into the global economy, to put a floor under the feet of all countries. More than 100 countries received financing from the stabilization fund and this comes precisely because I have this understanding of the needs that the world had at that time. Today, this role that the fund has and that I have the enormous responsibility to fulfill is in a very anxious world to keep 191 countries together. To be able to make decisions together, to look forward in the fog that descended on this more unpredictable world together. And to see better. It is a great joy for me to be able to represent Bulgaria, as you know from my previous positions, I never miss the opportunity to say – I am Bulgarian!
- How are US President Donald Trump's tariffs changing global trade and the global business climate?
- These tariffs have created a lot of uncertainty in a world where there was uncertainty anyway. They have led to a slowdown in global growth, which was not particularly fast anyway. We have adjusted our growth forecast for this year down by half a percentage point from 3.3% to 2.8%. Universally, everywhere in Europe, in America, in Asia. We have reduced the forecasts for this year. But the most significant impact of this decision is that we are now in a period of transition from a system that we know, the one that has been built since the end of World War II, to a new system that we do not yet know what it will be. We know that there will be many more bilateral, multilateral trade agreements. Instead of a global solution. We know that there will be more changes that come not only from the US, but also from other countries. What we don't know? We don't know exactly where the US will settle after the negotiations with other countries. To date, we calculate the effective tariffs that the US imposes on average on the world at 14%. Let's remember before this change began, they were 2.7 per 100. So almost a 5-fold increase in US tariffs. Will it be 14% or more, or less. We don't know today and we don't know the different countries and regions - where exactly they will be in this table. This creates uncertainty. Investors don't know whether to invest - consumers don't know how to plan their consumption. The second thing we don't know, and it's even more important, is what will the rest of the world do? Will the rest of the world say, we want to raise tariffs like the Americans or will it say, no, we actually want to maintain a trade regime and even the tariffs that we have - we want to lower them. Let's remember that before the Americans went down this path - they had low stable tariffs for decades. The rest of the world had much higher tariffs, they were lowering them down, but in the last decade, this lowering - stopped. That is, this difference objectively provokes the Americans to say - wait, why will we be responsible with low tariffs when the others are not. And when, say, a year, two, three passes - and we see where we are, then I hope there will be more certainty and there will be a working trade mechanism that will allow the world economy to go up. However, let's leave tariffs aside - for the Americans. I want to say to the Europeans the following, we have done an analysis of the regulatory barriers that exist in the EU, as a result of the different requirements in the different 27 countries. We have calculated what the cost of these barriers is, if we translate it into tariffs, the internal tariffs in the EU – let's call them tariffs – are for goods and are 44%. For services they are 110%. Europe must have a good deal with America. But Europe must first of all remove the regulatory burden that it has created for itself. The second thing I want to say is that the most important topic for the world, the most important for all of us is how to raise labor productivity. How to bring higher growth? Because today the growth of the world economy is low, the debt of the world economy – high. If we cannot solve this problem with loans, we can only solve it by achieving higher growth, more dynamism.
- Who is winning in the trade war between the US and China?
- The trade war cannot lead to winners. Because both sides will pursue their goals, they adapt to the outcome of the negotiations. How do they adapt? The Chinese are trying to shift their trade to other countries. And very importantly for China - they are finally realizing that they need to increase domestic consumption. The Chinese economy is much larger today than it was 10 years ago. It cannot continue to grow only based on exports to other countries. Because other countries are saying - we also want to develop our economies. It's not just the United States. The United States also has an imbalance. They consume a lot, they import a lot. They need to solve this imbalance with policies within the country, reduce the deficit, reduce foreign debt, so that the American economy can be more independent. So for me, this war between the US and China might lead to positive results based on a change in domestic policy that will reduce the need for future confrontations between the two countries.
- Who is to blame for the fact that words like liberal, free, global have become uncomfortable, painful topics today?
- I have been talking for several years about the fact that for too long we have not paid attention to the consequences of globalization for the people who lose from it. When an entire town is emptied of jobs because the factory that was there has gone somewhere else, these people cannot be supporters of globalization. If we do not pay attention to more equitable economic growth, which is based on this - the world economy should go up, but it does not leave communities behind. If we don't fix this, of course there will be protests.
- Finally, one last sentence - what did you understand from your position - what drives the world - greed, money, the conspiracy of the powerful and the rich or something else?
- I will perhaps surprise you with my answer, but what I understood from my position is that the world is very resilient, business is very resilient, people are very resilient. In the last 5 years we have gone from one shock to another, third, fourth. And yet we do not foresee a recession this year. Nevertheless, the standard of living around the world is going up. We have incredible prospects from technologies that can make our lives completely different from what it is. What it was. We should value this resilience very much and if we want to be stronger, more resilient, how do we do it - we hold hands, we walk together.