For example, if an entrepreneur wants to start a new business in Spain, he or she has to go through 10 separate procedures, while doing so in Slovenia requires only two.14 In Latvia, incidentally, the figure is 4 procedures. Our economic structures in Europe also tend to be less conducive to technology adoption than in the US, a channel which has been found to be highly favourable for productivity growth.15 Indeed, an important explanation why, from the 1990s onwards, Europe has lagged behind the US in terms of productivity growth is the slower adoption of information and communication technology, in particular in the services sector.16 The reasons for this are several, but two themes are worth highlighting for the current policy debate. One is the relatively closed nature of services markets within Europe, which slows down the diffusion of new technologies. Given the relative importance of services in our economies, this weighs on aggregate productivity growth, as well trickling down to other sectors.17 This calls for the completion of the single market in services. A second theme is the relative rigidity of national labour markets. Reaping the productivity gains from adopting new technology tends to require fundamental organisational restructuring – for instance, due to the automation of certain tasks. This means that firms need to have the flexibility to reallocate workers to different tasks, which in turn requires them  13  Bartelsman, E.J., J. Haltiwanger and S. Scarpetta (2013), “Cross-Country Differences in Productivity: The Role of Allocation and Selection”, American Economic Review, vol. 103(1).
From the position of the BNB and in view of the goals for controlling inflation, it is very important that the country does not assume significant additional permanent expenditures, which are not backed by permanent revenues. There are two groups of risks associated with such an approach: (i) the risk of an inflationary spiral and (ii) the need for painful fiscal adjustments in the near future, whether in terms of revenue, i.e. by increasing taxes, or by cutting costs. Along with external factors, this would lead to a significantly more complicated macroeconomic environment for the Bulgarian banks. In terms of the external factors and their further complication and deterioration because of the war in Ukraine, most important will be the decisions of the big leading central banks, primarily the ECB in our case. There are already clear statements about three things that will happen during the third quarter of this year: (i) the ECB will effectively end net asset purchases from the beginning of July; (ii) subsequently the ECB intends to raise its key interest rates; and (iii) will do it again in September so that by the end of the quarter we will move away from negative interest rates. Obviously, in the following months and at least a year ahead we will be facing the challenge to find the very difficult balance between the measures to control inflation and the measures to prevent recession. How is our banking sector meeting the new challenges? Our starting position remains very good.