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Published: Friday June 13, 2014 MYT 6:43:24 PM
Updated: Friday June 13, 2014 MYT 6:44:48 PM

Bulgaria's government likely to quit with gas pipeline dilemma unresolved

(Reuters) - Bulgaria's coalition government survived its fifth no-confidence vote on Friday but is still expected to resign soon after a poor showing by the ruling Socialists in May's European Parliament elections.

Friday's vote was just the latest chapter in a prolonged period of political instability dogging Bulgaria, the European Union's poorest member state, which has stymied urgently needed economic reforms and efforts to tackle pervasive graft.

The next government must also walk a diplomatic tightrope over the fate of the Russian-led South Stream gas pipeline, whose proposed construction has thrust Bulgaria into the middle of a dispute between Moscow, its Cold War overlord, and the EU.

Prime Minister Plamen Oresharski's coalition scraped through its latest parliamentary test with 114 votes to 109, although the nationalist Attack party voted with the centre-right opposition after propping up the government over the past year. Opposition lawmakers chanted "resign" as Oresharski walked into parliament.

"This government is exhausted, it cannot continue to govern," Attack party leader Volen Siderov said before the vote.

Despite winning the vote, the government is due to resign within days or weeks after the Socialists bowed to calls from their coalition ally, which represents Bulgaria's ethnic Turkish community, and the opposition to hold the second snap election in little more than a year.

President Rosen Plevneliev is then expected to appoint a caretaker government until the election. Analysts expect the centre-right opposition GERB party to win, though it may struggle to cobble together a stable coalition government.

Underlining how construction of the Bulgarian section of the gas pipeline may be held hostage to domestic politics, GERB says it will scrap a contract worth more than 3.5 billion euros (2.8 billion pounds) awarded to a consortium led by Russia's Stroytransgaz if elected.

Stroytransgaz is owned by businessman Gennady Timchenko, who was put on a U.S. sanctions list after Russia's annexation of Ukraine's Black Sea region of Crimea.

Both Washington and Brussels have threatened to punish Bulgaria if it continues work on the project, which aims to pump Russian gas to European markets by circumventing Ukraine.

Serbia, which is seeking entry into the EU but like Bulgaria has historical ties to Russia, has insisted construction on its leg of the pipeline will go ahead as planned.

Oresharski on Sunday said Bulgaria had stopped work on the project until it gets a green light from Brussels to continue.

"The South Stream pipeline cannot be stopped with one statement," said Socialist leader Sergei Stanishev, during a debate on South Stream that followed the no confidence vote.

"What is important actually is to take into account the political environment, to give a clear explanation (to the EU Commission) and see how to move this project forward because it is important for Bulgaria."

RATINGS VERDICT LOOMS

Bulgaria has enjoyed mostly stable governments since the fall of its Communist regime in 1989. But street protests in 2013 toppled a GERB-led administration then nearly felled its Socialist successor.

The technocrat Oresharski has ruled in a minority coalition government and for much of its brief time in office faced down calls by protesters and the opposition to resign. The next government will inherit sluggish economic growth of 1.3 percent, persistently high unemployment and plummeting foreign investment flows.

The International Monetary Fund mission in Bulgaria on Thursday cited instability as a key risk to its outlook after predicting a modest pick up in Bulgaria's economic growth.

The global agency Standard & Poor's is expected to deliver its ratings verdict on Bulgaria later on Friday, having changed its outlook to negative in December, also citing political instability among the risks to growth.

Bulgaria's political parties have yet to agree on when the election should be held. The Socialists want it in July, a date that other parties dismissed as unrealistic.

"The early elections will be most probably held in late September and we can expect the life of this cabinet to continue until mid-July," said Kancho Stoichev, an analyst with the pollster Gallup. "This would be a logical step and it will allow the preparation of the elections in August and September."

(Writing by Matthias Williams; Editing by Gareth Jones/Ruth Pitchford)

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