Romania, Bulgaria Join EU; Allianz Details Bulgarian Venture’s Success

Romania and Bulgaria, two of Europe’s poorest countries, officially became members of the European Union on New Year’s Day, bringing the total to 27. Celebrations in Bucharest and Sofia greeted the two countries’ new status.

The EU now numbers nearly half a billion people and stretches from Ireland’s Atlantic Coast to the Black Sea. While its guiding principle has been economic integration, enormous gaps remain between the older members – France, Britain, Germany, etc. – and the newer ones, such as Poland, The Czech Republic and Hungary. It will take many years, and involve significant economic changes to achieve a true convergence of the original EU and its more recently admitted members, mostly from Eastern Europe.

Fifty years of Communist rule left the economies of many newer EU members far behind their Western neighbors with GDP half that of the West. But they are catching up, and the EU’s financial sector, led by banks and insurance companies have long recognized the growth opportunities in the East.

Germany’s Allianz released a report on its progress in Bulgaria timed to coincide with that country’s accession to the EU. In 1990 it backed the efforts of Dimitar Zhelev, who, along with four colleagues “gave up a secure job at the state-run insurance company Bulstrad to embark on a great adventure into which he put his entire life savings.”

The detailed story of his success on the Allianz web site (www.allianz.com) reveals the problems and confusion East block countries faced in the changeover to a market economy. “For a while there were over 100 ‘insurance companies’ in a country with a population of eight million,” the report notes. “The market only began to free itself from the grip of criminals when a new law was passed in 1998, which demanded high capital reserves from every company in the sector.”

Allianz admitted to being hesitant about entering Bulgaria, but, led by Klaus Junker, who was responsible for Allianz’s business in Central and Eastern Europe, it did so. JUnker convinced the managers in Munich that Zhelev had potentially the “right stuff” to succeed.

Although the German giant didn’t’ immediately or directly enter the market, it supported Zhelev’s new insurer, Bulgaria, with expertise, advice and a “generous reinsurance capacity and helped to develop new insurance cover concepts for major Bulgarian companies.”

Allianz eventually took a 51 percent stake in the enterprise, and later increased its holding to 66 percent. Zhelev holds the other 34 percent.

The value of that stake looks set to increase in the coming years.

Topics Europe Allianz Germany