Bulgaria’s Cemented Cyber Attack Toll

Bulgarian shares were upended by orchestrated electronic message runs on two oligarch-controlled lenders, one in partnership with Russia’s VTB, accounting for 15 percent of assets which prompted the authorities to seek EU aid on the heels of a successful EUR 1.5 billion Eurobond at record low yield despite a sovereign ratings downgrade to BBB-minus.  Foreign groups led by Austria’s Raiffeisen and Italy’s Unicredit own 70 percent of the system and the IMF has praised its post-2008 crisis stability as well as the currency board backing and low 20 percent of GDP public debt. Deposits are protected by the single market 100,000 euro directive but the population lined up for withdrawals given the past history of financial collapse and ruling coalition political infighting resulting in a call for fresh October elections three years ahead of schedule. The Socialists in power were pummeled in the May European Parliament runoff and the government splintered further as the South Stream Russian gas pipeline deal fell apart under Western opposition. The energy-reliant economy is at the top of the vulnerability list from Crimea annexation sanctions as car exports already suffered. European diplomats are also upset at electricity sector maneuverings sidelining Czech Republic and Austrian utilities in favor of Moscow bidders. The central bank decried the “false information campaign” and police detained the alleged perpetrators who used anonymous postings to warn of the duo’s imminent insolvency. That institution was under siege in a separate on-line “criminal conspiracy” in Poland as wiretaps from an unknown source were circulated raising questions about senior economic official behavior and forcing Premier Tusk to ask for a narrowly-won confidence vote. He stood by governor Belka as QI GDP growth at 3.5 percent was the fastest in two years with borrowing costs at a record bottom. Construction and fixed outlays picked up as the zloty firmed at 4 to the euro and government bond auctions drew eager domestic and foreign investors despite continuing spillover from Ukraine’s unrest. Geopolitics has reignited interest in joining the single currency but policymakers have refused to set a timetable and insisted on full participation in future governance and supervision.

Hungary was embroiled in its own scandal hurting stocks as the media was saddled with an onerous advertising tax presented as a budget balance device but widely believed to be in retaliation against a negative portrayal of Prime Minister Orban’s top aide. The IMF’s latest report noted economic recovery with continued shock potential including from deflation as sovereign ratings were maintained after Fidesz’s second term victory. An immediate priority which will again dent bank balance sheets is compensation for past foreign currency mortgages as officials vow to end the practice and shift the system to majority domestic hands. Initial estimates of payments owed under pending legislation come to EUR 1.5 billion equal to one-tenth of industry capital as the ECB repeated criticism of the self-inflicted attacks.