Bulgaria dropped plans on Friday to apply to join the pre-euro ERM-2 waiting room because of a larger than expected 2009 deficit caused by unaccounted procurement deals in the European Union's poorest nation.

Prime Minister Boiko Borisov, whose far-right GERB party came to power last July, said the previous Socialist-led government had signed dozens of deals which were not budgeted for so far and increased the 2009 deficit to 3.7 percent of gross domestic product (GDP) under EU rules from an initial 1.9 percent gap.

"We officially give up the plan to bid for ERM-2 because it will be offensive given this deficit," Borisov told a news conference. "We have in fact lied to our (EU) colleagues about our readiness for the euro zone being unaware of this trap."

Finance Minister Simeon Djankov told the same news conference the cabinet would take additional measures to cut spending this year to keep the fiscal shortfall below the EU required 3 percent of GDP.

The new government initially aimed to keep the deficit below 2 percent this year, among the lowest in the EU, to avoid possible pressure on Bulgaria's lev currency peg to the euro and improve its bid to join the ERM-2.

But it said last week that it discovered unaccounted procurement deals signed by the former cabinet -- voted out last July amid widespread accusation of incompetence and failure to stamp out corruption.

Prosecutors have started investigating ex-ministers and other senior officials over suspected abuse of power in signing some 150 deals, varying from construction works to arms supplies, worth 2.16 billion levs ($1.49 billion).

Borisov has said the disputed deals might increase the deficit to 6-7 percent this year if payments on them had to be made this year.

But former finance ministers say Borisov exaggerated the impact of those contracts, while analysts have said he threw more blame on his predecessors to avoid a further fall in public support, hurt by policy blunders and the economic pain.


Reuters