Another euro-pegged government defending an overvalued exchange rate bites the dust, a reminder that the underlying economic and social disaster across the Europe's Arc of Depression is still getting worse.
Bulgarian prime minister Boiko Borisov resigned Wednesday morning after days of mass protests against austerity across the country.
"I will not participate in a government under which police are beating people. Every drop of blood is a shame for us," he said. "Our power was handed to us by the people, today we are handing it back to them."
This follows the defenestration of the free-market finance minister earlier this week.
Bulgaria is of course a complicated country, still grappling with the legacy of communist rule and a police state. It is a stronghold of organised crime, offspring of the old security services. It went through near hyper-inflation in the 1990s and does not want to flirt with that again.
The immediate protests are as much about Mafia control and soaring electricity prices as about spending cuts.
But Bulgaria is also in much the same position as Greece, Portugal, Spain, and Italy, trapped in the ante-chamber of monetary union with a misaligned currency, forced to undertake an internal devaluation.
As you can see in the IMF's Article IV Report, real unit labour costs and productivity levels are both going the wrong way:
The government has bent every sinew to hold Bulgaria's euro peg. It has succeeded, helped by a currency board structure that imposes discipline.
But be careful what you wish for. The peg itself is a key reason why Bulgaria has failed to reach its full potential as a catch up economy and will almost certainly languish in deep crisis for years to come. Output is still 2.5pc below 2008 levels.
"Government has been heroic," said Lars Christensen from Danske Bank. "But the fact is there hasn't been any real growth for five years. They have lost their policy levers and are importing a monetary crunch from the ECB's tight policies and a credit crunch due to links to Greece. They now face years of deflation."
Turkey is doing much better. So is Ukraine. So is Moldova. In fact, the lesson is that if you want to prosper as a developing economy on Europe's fringes, keep well-clear of the EMU Project.
The European Commission said in its annual report on the EU social crisis that "severe material deprivation" in Bulgaria has surged to 44pc of the entire population since the crisis in 2008, by far the worst in the EU. Latvia is next at 31pc.
Bulgaria's official unemployment rate of 12.3pc does not tell the full story. A further 7pc that wants to work but has dropped off the rolls (compared to 2pc in the UK or Germany). Putting the two together, the real rate is over 19pc.
Аs the commission said, a string of countries on the periphery (either in EMU or pegged) "seem trapped in a downward spiral of falling output, fast rising unemployment and eroding disposable incomes The waive of austerity policies raise important questions about the viability of Europe's welfare states."
Bulgaria's export recovery in 2011 proved to be a false dawn. This from the IMF's Article IV report:
The official mantra from Brussels, Frankfurt, Berlin, and other centres of the EU power-structure, is that peripheral EMU and ERM or quasi-ERM countries must tighten their belts, do their micro-reform homework, and tough it out.
As readers know, I regard this as morally suspect and scientifically false. Those catch-up economies in Eastern Europe like Poland that allowed their currencies to take the strain during the crisis have fared much better, ceteris paribus (adjusted for the particular circumstances).
Yes, I know, Latvia is recovering on its EMU peg, but its output is still 7pc below the 2008 peak and the country ought to be doing even better with a Swedish Big Sister propping up the banking system, a slot in the prosperous Baltic region, and per capita income still less than half the EU average.
That Latvia should have a combined jobless rate of 23pc – official, plus discouraged – more than two decades after the fall of communism and nine years after the joining the EU is a national policy failure. (And don't forget how Latvia's government won re-election. It played the race card, whipping up hostility to ethnic Russians to split the vote. Not pretty, and not without consequences.)
Bulgaria has a harder row to hoe. It is not in booming Baltic. It is cut off from wealthy neighbours. It has been suffering from Greek spill-over. But that is precisely why it needs exchange rate freedom. If the currency is not allowed to take the strain from economic shocks, the unemployed will, and they spoke this morning.
Needless to say, Bulgaria let its middle classes leverage themselves to the hilt on euro and foreign currency mortgages during the heyday, like the rest of Europe's Arc of Depression. That was a recipe for trouble, yet more fall-out from the Maastricht system. It raises the cost of devaluation.
Yet at the end of the day, Bulgaria is not trapped in the same way as Greece and Portugal. It can break free. It does not do so because the whole governing class is in thrall to the EMU Project.
There is a marvellous way to rid of governing classes: Democracy.