BULGARIA’S ADMISSION it had hidden the truth about the size of its 2009 deficit sent ripples across emerging Europe, raising concerns other countries in the region may have bigger fiscal problems than they are letting on.

The bombshell dropped by prime minister Boiko Borisov that Bulgaria had “lied to our [EU] colleagues about our readiness for the euro zone” hit currencies, particularly the neighbouring Romanian leu, and the cost of insuring Romanian and Bulgarian debt against default inched higher.

It evoked unwelcome memories of Greece, where an admission last year that the public deficit was more than twice previous estimates sparked steep falls in government bonds and equities and helped drive the euro to year lows against the dollar.

Greece has been battling to contain the deficit ever since.

That story, plus criticism from the European Commission that budget-shrinking plans in Warsaw, Bucharest and elsewhere may be too vague or optimistic, has already prompted some economists to wonder if eastern Europe might be vulnerable to similar slippage.

Investors will now examine data on emerging EU states with an eagle eye for any signs governments have tried to hide the true size of their deficits – something that would put the skids on any plans to join the single European currency.

“Once again a country that’s part of the EU has done this,” said Murat Toprak, emerging markets strategist at Societe Generale in London. “It will continue to fuel suspicion about the real situation of fiscal positions in these countries and fuel the risk of sovereign default in the region.”

A key event will be deficits and debt figures due to be released by Eurostat on April 22nd. A main focus of that data will be whether any costs linked to local governments, social security, infrastructure projects, or other items have been hidden, or whether one-off revenue not allowed under the EU’s ESA-95 accounting rules have been fudged.

“I’d like to very much see the figures. They’re always a bit of a surprise because you have central government but not off-budget items,” said Barclay’s Capital economist Daniel Hewitt.

“I’m suspicious that there might be some negative surprises, but there might also be some positive [ones].” He mentioned the Czech Republic had reported a better-than-expected 5.9 per cent of GDP deficit to Eurostat. The previous estimate had been for 6.6 per cent. – (Reuters)