The EU’s eastern political landscape faces a decisive moment, with two key member states gearing up for elections that could reshape their positions in Europe.
After June’s snap vote failed to produce a stable government, Bulgaria is set for its seventh parliamentary election in only three years on 27th October.
Given Sofia’s ongoing political instability, advancing bold governance reforms is seen by many political leaders as the way out of the current crisis.
The ensuing weeks will equally see regional neighbour Romania hold presidential and parliamentary elections on 24th November and 1st December, respectively – just months after US officials spotlighted Bucharest’s entrenched public corruption and misuse of funds issues.
Regardless of the electoral outcomes, the next Bulgarian and Romanian governments will have to mobilise a broad coalition of parties to deliver successfully on any commitment to good governance.
Moving forward, both countries’ political leaders will need to work with key stakeholders – particularly in the banking sector – if they are to realise their goals of accession into key EU institutions, namely the eurozone, and drive inclusive, sustainable growth.
Sofia and Bucharest at political crossroads
Reflecting on Sofia’s current political impasse, Bulgarian economist and former Chairman of the country’s National Economic Association, Professor Boyan Durankev, recently warned that if “there is no change, unfavourable processes will begin to develop, such as the delay of the so-called European integration process” and a complete loss of public trust in democratic governance.
Indeed, Sofia’s political paralysis has rendered the Bulgarian government incapable of responding to its challenges. The country’s persistently high inflation has largely contributed to the delay of its eurozone accession to 2026 at a minimum, while Bulgaria remains the EU’s poorest member state in terms of GDP per capita.
What’s more, Bulgaria’s ongoing governance issues have hindered the country’s economic recovery and created an environment where radical political voices are successfully undermining public support for euro adoption – now evenly split.
In Romania, the coalition government has faced ongoing difficulties managing the country’s public finances, with popular discontent over these failures similarly opening the door for increasingly-popular far-right parties. Approaching the EU’s 60% of GDP threshold, Bucharest’s public debt is also hindering the country’s long-time objective of joining the eurozone – a situation exacerbated by Romania’s problems with misuse of public funds.
In June, Romania, as well as Bulgaria, failed to meet the European Central Bank and European Commission’s economic criteria for adopting the euro, with Brussels citing excessive inflation and institutional deficiencies in tackling financial corruption.
Banking sector a key ally to progress
In this turbulent political climate, the region’s banking sector has a crucial role in ensuring both countries’ political and economic development as reliable members of the eurozone and supporting domestic policy agendas.
Founded by seasoned bankers and entrepreneurs Tseko Minev and Ivaylo Mutafchiev in 1993, First Investment Bank (Fibank) is leveraging its position as Bulgaria’s largest independent bank to help accelerate the reforms needed to unlock eastern Europe’s economic potential, with its governance leadership, entrepreneurial culture and strong vision for the country’s development making it particularly well-placed to lead the charge.
Over the course of its history, Fibank has been shaped by moments that tested its governance strength and commitment to transparency. In facing these trials, the bank has not only upheld its integrity but emerged stronger, with its core values and practices validated.
Fibank successfully passed through the Bulgarian banking crisis of 1996-1997, in large part thanks to its business model at the time, which focused almost entirely on corporate banking and currency trading, rather than retail banking.
The bank’s business model has shifted slowly but steadily over the next two decades, with its emphasis now placed on retail and SMEs, a shift which has been accompanied by numerous initiatives to boost the bank’s profile and corporate governance following in the footsteps of Western banks.
In 2007, coinciding with Bulgaria’s EU accession, the bank completed its initial public offering (IPO)—which remains the largest IPO on the Bulgarian Stock Exchange—showcasing its willingness to submit to exponentially increased public and regulatory scrutiny in the name of progress. The bank has also cooperated for years with the World Bank’s International Finance Corporation (IFC) on corporate governance issues.
Asked to comment on the right formula to ensure good corporate governance while remaining competitive in the tough EU market, the CCO of Fibank explained: “Ambition to improve and willingness to change— even drastically, if needed— in the course of achieving such real improvement, is most important. Then, you just follow the path: from the smallest step through to the major structural change.
“Over the years, Fibank has done a lot to become better and has gradually improved. It has learned a lot. For instance, Fibank took advantage of its cooperation with the IFC and the consulting giant Bain just like it benefited from the experience of EBRD, which used to be its shareholder some 20 years ago.
“Fibank has also engaged numerous external auditors and consultants to help it on the way. But our journey is not over. We continue to evolve and I trust that we are becoming even better.”
Over the course of this journey, Fibank, like most banks especially in the CEE region, has faced not only ever-increasing regulatory requirements but also significant pressure from fraudsters and money launderers. Starting in 2013, the bank became caught up in a controversy involving a case of alleged misappropriation of public funds, involving the Romanian Agency for Payments and Intervention in Agriculture (APIA).
Fibank swiftly notified authorities about the suspicious activity, which notably supported the subsequent property searches and arrests of senior APIA officers by the Romanian Anti-Corruption Agency, the Secret Service of Romania and OLAF.
However, this did not prevent the Romanian agency from initiating significant lawsuits against the Bulgarian bank; Fibank’s continued positive engagement with the investigation over nearly a decade culminated in favourable resolutions to all court proceedings.
The APIA matter is just one example from the CEE region which demonstrates that a commitment to excellent governance tends to secure positive outcomes, in this case on an institutional level. Ambitious governance reforms, however are also required on a governmental level for both Romania and Bulgaria— which can hardly be achieved if the recent political stalemates are not overcome.
Unlocking long-term benefits
Maintaining and expanding this kind of regulatory ambition on the path to eurozone accession in 2026 will enable Romania and Bulgaria to deliver clear socioeconomic benefits to citizens, thus providing a strong rebuttal to opportunistic radical parties. Indeed, robust corporate governance in the banking sector provides domestic economies vital stability in turbulent periods or decisive moments such as those currently unfolding in both countries.
As Romania’s largest bank in terms of financial assets and biggest lender, Banca Transilvania has leveraged its significant resources and constantly improving internal frameworks on anti-bribery and corruption to position itself at the core of the country’s development.
While Romania’s governance and compliance with EU financial standards have not yet reached the level necessary for eurozone accession, innovative banks such as Banca Transilvania have led the country’s progress towards this goal in recent years.
Having long established its presence as a major lender for Romanian SMEs, Banca Transilvania’s recently-signed synthetic securitisation of roughly €400 million with the European Investment Bank Group will significantly enhance its lending capacities to SMEs and mid-caps deploying job-creating green economy projects.
Beyond strengthening its cooperation with the EU’s leading financial institutions, this agreement will help Banca Transilvania drive sustainable growth and further contribute to the fiscal and economic climate needed for eurozone membership.
In an additional sign of Brussels’s confidence, the European Bank for Reconstruction and Development (ERBD) reduced its stakes in Banca Transilvania last June, commending the “innovative, fast-expanding” bank for its fiscal stability and “capability to navigate challenges swiftly and transparently.”
With Sofia and Bucharest at a pivotal juncture ahead of their respective elections, their future governments will need to act swiftly to restore credibility, ensure stability and safeguard their countries’ futures.
Working ambitiously with EU partners and the broader international community, political and financial leaders in Bulgaria and Romania can progress their intertwined European journeys and create the conditions for the region’s sustainable development.