Vasil Velev: No doubt, we are headed for another financial crisis

Record level of indebtedness globally and inflated stock indices suggest a much more serious imbalance than the one of 2007

Photo: Krum Stoev

The question is not whether there will be another crisis or how deep it will be but rather when its onset will be. There is no doubt that it is coming. It is clear that the current debt-to-GDP ratio is quite unsustainable. I would not want to go into speculations as to how it will be corrected. I just hope it is in a peaceful manner because history remembers violent corrections of such imbalances, Chairman of BICA Vasil Velev says in an interview to Europost.

Mr Velev, has the global economy fully recovered from the deep financial crisis that befell us 10 years ago?

Yes, I think it has recovered. At least that is what some fundamental indicators like gross domestic product (GDP) of countries, employment rates, income levels, real estate prices and financial assets prices show. For reference: prior to the crisis, the Dow Jones stock market index was at 13,000, fell to 7,000 during the slump, and now it stands at 26,000. DAX plummeted from 8,000 to 4,000, and now it is at 13,000. Japan's Nikkei followed a similar path.

Do you believe that it was all somehow designed? To this day, observers are still telling the media that everyone knew what was transpiring and even enjoyed the ride.

I think few knew exactly what was going on. But a lot of people were aware that something was not right. Nevertheless, driven by greed and a feeling of impunity, they turned a blind eye and did nothing to prevent the disaster. And some truly did get away with it.

While the crisis was raging, a group of European countries was labelled with the derogatory acronym PIGS (Portugal, Italy, Greece, and Spain) because of their poor financial discipline. How legitimate was this accusation?

Poor financial discipline and the erroneous notion that consumption can exceed production, that expenses can exceed earnings, and for a long period of time at that, are the logical precursors to such results. These countries learnt valuable lessons.

Were they the solely responsible?

We, Bulgarians, have a wise saying that literally goes: “Those who eat all the pudding are not to blame so much as those who gave it to them,” meaning that you do not have to be the perpetrator to share the responsibility. Inarguably, the bulk of the blame should land at the feet of the people governing those countries, as well as their creditors who looked to profit from this dependency knowing full well that the debts would sooner or later become unserviceable. Of course, there was a lot of malfeasance, corruption, stealing and profligate spending involved.

Greece, the last of those countries to regain its footing and the hardest-hit one, officially has come out of the crisis. Is it safe to say that the Eurozone is stable now?

Yes, it is more stable than it was prior to and during the crisis. But the process of stabilisation is far from over. Much more needs to be done in terms of consolidation and creating institutions that would not allow similar events. The European banking union is only the first step. The appointment of a Eurozone finance minister is also being discussed. There is ample logic to these projects. When there is a single currency but no common approach to fiscal policy, disruptions lurk around the corner.

How might the rise of far-right and populist parties in Europe affect this rediscovered stability?

Populism gaining traction could set economy and development back, slow them down, but it cannot stop them or change their direction. With laws of economy in play, you can only make a certain mistake once when it comes to actual government. The next election results will reflect those and affect change. Even so, the danger of a slowdown or even regress is real. But not everything that does not sit well with the establishment should be deemed populism. New policies are obviously emerging to the fore and EU leaders would do well to make note of it.

How will Brexit impact the economic state of the EU?

It will certainly have an adverse effect, and not only because we are talking about a major economy. Let us not forget that the UK is a source of policies improving the EU business environment so the country's exit will deprive the bloc of this valuable source.

Some observers predict another, more severe liquidity crisis due to the record levels of indebtedness globally, compared to 2007. According to IMF data, debt amounted to $164 trillion in 2016, or 225% of global GDP. Is there room for concern here?

The inflated stock market indices I mentioned earlier suggest as much. The question is not whether there will be another crisis or how deep it will be but rather when its onset will be. There is no doubt that it is coming. It is clear that the current debt-to-GDP ratio is quite unsustainable. I would not want to go into speculations as to how it will be corrected. I just hope it is in a peaceful manner because history remembers violent corrections of such imbalances.

Do you mean a world war?

It is not out of the realm of possibility. Raging greed, the lack of leadership in Europe, the strain in US-Russia relations, and the unwelcomed collapse of the unipolar global political landscape - all of this does not make for coordinated action to prevent a new crisis.

Will the trade wars that US President Donald Trump has waged with China, Europe, Mexico and Canada lead to a spike in inflation?

With such significant increase in tariffs, it is inevitable that inflation rises and that consumption, one of the drivers of GDP growth, falls. Perhaps this is why the Organisation for Economic Cooperation and Development (OECD) reduced its spring outlook for global economic growth from 3.8% to 3.7%. The downgrade is even bigger for the Eurozone - from 2.2% to 2%. Brexit and the lack of predictability and perspective in EU management because of the upcoming elections are also factors in play.

In your view, are rumours of the death of cash greatly exaggerated? South Korea plans to part ways with paper money altogether by 2020. The Scandinavian countries are also mulling such move. What can we expect once control over money transfers from banks to technological companies?

It is quite a stretch to anticipate the end of cash in the foreseeable future. Many countries, including Germany and Switzerland, still prefer cash payments and place no limitations on their maximum amount. It is a matter of tradition, and besides, people feel more independent and freer outside of the matrix. For other reasons, the idea sounds rather fantastical when applied to entire continents such as Africa and South America. However, there is an undeniable trend to limit cash payments. In that respect, Bulgaria is following a consistent policy too. Our association supports this. We believe that reducing cash payments helps combat the informal economy. As far as control over money is concerned, I believe it is better left to central banks. They are independent of governments but their governors are elected by public authorities, meaning that central banks are still under the control of the sovereign. In contrast, cryptocurrencies created by technological companies as universal medium of exchange are not under the sovereign's control. This latter set-up has its advantages but also carries a lot of risks. I do not think that banks will be supplanted by technological companies. They will simply evolve, banking itself and client interactions will change. The perspective for cryptocurrencies as global currency and replacement for gold is rather murky. I would not bet on them.

Are we seeing the beginning of digital capitalism?

Yes. The 20th century belonged to oil and the 21st century belongs to big data. High-tech companies are in the Top 10 in market capitalisation. They are changing the world.

Is there a risk that this change might push a lot of people out of the labour market, with them being replaced by robots?

No, this is too far-fetched. Our world is material and not everything is destined to become digital. We will always dress in clothes not in zeros and ones, we will always need means of transportation that are made of solid materials because teleportation via waves is impossible. Manufacturing is here to stay. How can we talk about people becoming dispensable when even now there is a huge shortage of manpower? In Bulgaria, for example, besides the gloomy demographic trends, we have a negative net migration - meaning that more people leave the country than come to it. The economy is in dire need of not only highly-qualified employees, engineers, but also of people that have graduated from vocational high-schools specialising in technologies, and even of unskilled workers. This applies across the region of Central and Eastern Europe as well as to many Western Europe countries. It was the reason why Germany opened its borders not only to refugees but to economic migrants as well. So visions of machines doing everything, making people obsolete and allowing for minimum wages to be paid to citizens without them having to work are pretty bold. Such an experiment is being conducted in Finland, while in Switzerland the idea was rejected with a referendum. In such a situation people have no stimulus to work and without gainful employment people lose their human identity. Who will create goods if everyone receives enough not to work? This is an impossible utopia.

At this point, the richest 1% own 50% of global wealth and inequality is growing. Should we expect “bread riots”, real-life hunger games, soon?

New technologies are contributing to the growing inequality as well. They serve as a huge catalyst. The income gap between a highly-skilled employee in the IT industry, for example, and an unskilled worker is much wider than it was 20 years ago. We are strictly speaking of salaries here, not income from stock market speculations or investments. In some traditional sectors in Bulgaria, such as industrial sewing, the average wages are six times lower than those in the IT sector. In other words, a well-qualified person in a fast-developing industry has the opportunity to earn much higher pay. There are already two companies with market capitalisation of over $1 trillion in the world. This is more than the GDP of a medium-level European country. But the people in these companies earn their money with hard work, talent and entrepreneurial spirit, not through embezzlement or illegal actions. These people are actually changing the world and many of them donate billions to research and development. Of course, they are a force that is hard to control, if at all, and it is hard to tell whether they are changing the world for the better or the worse, and to what extent. As for the “bread riots”, I doubt there will be such. Technological companies are rich because they have many customers. If a person can afford a smartphone, they can certainly afford bread, right? If the billions of clients of these companies could not afford neither bread nor smartphones, these businesses would not be so rich. After all, someone has to use their services and pay. To me, such a consequence of technological advances is not possible. It is more likely that efficient use of resources, improvement of productivity, and the evolution of artificial intelligence will expand humanity's capabilities, making basic needs such as food more easily satisfied. There will always be opposition to new technologies. After all, they concern the redistribution of power, profit and businesses. The wealthy oil companies of yesterday, which until recently were in the Top 10 in market capitalisation, are being supplanted by the new-age high-tech companies. Electric cars, for example, will lead to a drop in the consumption of oil products in the foreseeable future and therefore to lower profits from hydrocarbon-based products. Renewable energy sources and the circular economy are also changing the world. At the end of the day, progress is an unstoppable force. It can be slowed down or temporarily contained but not altogether stopped.


Vasil Velev was born in 1959 in Haskovo. He is an alumnus of the Technological University in Sofia and has a second Master's degree in economics. He has been in the private sector since its very inception in Bulgaria following the country's transition to democracy in 1989. Velev is one of the founders and the executive director of Stara Planina Holding. He also co-founded the Bulgarian Industrial Capital Association (BICA) and chairs its Governing Board. The association represents a collection of Bulgarian and foreign entrepreneurs who manage over 10,000 companies. BICA is an active participant in the trilateral discussions between employers, trade unions and the Bulgarian cabinet. It is also a member of the European Centre of Employers and Enterprises providing Public Services (CEEP).

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