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Bulgaria's Prime Minister resigns as banking crisis unfolds

Bulgaria's Prime Minister resigns as banking crisis unfolds
The Prime Minister of Bulgaria Plamen Oresharski has resigned his post. His decision came after accusations by opponents of failing to cope with the worst banking crisis in 17 years.

The decision was supported by 180 lawmakers in the parliament, only 8 voted against, and 8 abstained, reports Bloomberg.

The Oresharski government lasted for only 16 months of the 4 years it was elected for. New elections on October 5 will see the country’s fifth prime minister since Bulgaria joined the European Union in 2007.

“My cabinet worked in unprecedented conditions of hostility…Despite that we achieved good results. All business indicators improved in the year we ruled,” Reuters quotes Oresharski’s speech just before the vote.

The socialist Prime Minister resigned after the opposition, which gained in the recent European Parliament elections, accused him of bringing the country to ruin. There has been a catastrophic run on the country’s third and fourth-largest banks, which gave his political foes ammunition to force his departure.

The First Investment Bank, the country’s third-largest commercial lender, became an object of an unprecedented attack. Depositors began withdrawing cash, following a flood of SMS messages and posts on Bulgarian language websites warning the bank was close to collapse. The run on First Investment cost the bank 800 million lev ($550 million) in client deposits in one day.

Another lender - Corporate Commercial Bank AD - was placed under the supervision of the central bank on June 20 after it ran out of liquidity. It happened amid media reports of a dispute between the majority shareholder and a large depositor, a member of parliament who withdrew his funds.

The mass asset withdrawal left the banks just a step away from bankruptcy. The European Commission then agreed to extend a $2.27 billion credit line to the lenders.

This government didn’t have the needed support and strength to carry out serious reforms. It depends very much on whether the government that will come after the elections will master the support and the will for painful reforms,” Bloomberg quotes Daniel Smilov, an analyst at the Center for Liberal Strategies in Sofia.

However,the outgoing Finance Minister Petar Chobanov said they were "leaving the country with a stable fiscal reserve, which exceeds $5.5 billion, despite baseless talk of bankruptcy... It gives room for flexibility."

Oresharski's departure leaves his successor to sort out country’s worst banking crisis since the 1990s, with the fate of its fourth-largest lender undecided.

One of key objectives the new government in Bulgaria is to make a decision concerning the construction of the South Stream gas pipeline which the European Commission is trying to halt.

The socialist party supported the construction; however the process was suspended when European authorities requested a check on compliance with EU legislation.

Boyko Borisov, the most probable candidate for a post of the Prime Minister of Bulgaria has announced that should he win, he would only continue the construction of the pipeline if the contracts correspond to EU rules. He also said he intends to exclude all the companies affected by the US sanctions lists.