TARGET2: The Payment System That Keeps The Euro Going

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TARGET2 is the Eurozone national and cross-border payment system, which is used between Eurozone National Central Banks (NCBs) to settle transactions in Euros. It is little known to the general public but it is a very important component of the Eurozone financial system and in understanding the credit surpluses and deficits between the NCBs of each Eurozone country.

A simple and easy-to-understand way of explaining how this system works is featured in the following article here. Taking the example of two eurozone countries, Spain and the Netherlands, a Spanish tourist from Madrid travels to Amsterdam and has a 100 euro meal at a restaurant over there. Now if he had the 100 euro meal at a restaurant in Madrid, his bank in Spain would debit 100 euros from his account. Then the NCB of Spain would transfer the amount from the reserve account of the buyer’s bank to the bank of the restaurant in Madrid. The bank of the restaurant then credits their customer’s account. In this financial transaction, the money remains in the Spanish banking system enabled by Spain’s NCB.

However since the restaurant is in Amsterdam, the transaction is less simple. Since TARGET2 transactions involve the NCBs of Eurozone countries, both the NCBs of Spain and the Netherlands are involved in the transaction. The Spanish tourist’s bank has a reserve account at the NCB of Spain (Banco de Espana) and the bank of the restaurant in Amsterdam has a reserve account at the NBC of the Netherlands (De Nederlandsche Bank). The transaction is settled via the European Central Bank (ECB) between the two eurozone NCBs.

To summarize; 1) The Spanish tourist pays 100 euros to the Dutch restaurant. 2) The two transactions between the NCBs of both countries means an asset of 100 euros to the NCB of the Netherlands and a liability of 100 euros to the NCB of Spain.

Having given a basic example how the TARGET2 payment system works between Eurozone countries, one can better understand the current TARGET2 balances between the different countries in the Eurozone. This complete information of this can be found here from the official website of the ECB.

The figures from the latest TARGET2 balances report indicate that as of May 2019, Germany’s NCB, the Bundesbank, was running a surplus with other Eurozone countries of EUR 934.6bn whilst the NCBs of both Italy and Spain were each running a deficit with other Eurozone countries of – EUR 486.5bn and – EUR 405bn respectively. These figures indicate enormous TARGET2 imbalances between certain eurozone countries. In fact, according to the information provided on the website of the NCB of Germany, the Bundesbank, as of June 2019, the total amount of the Bundesbank’s TARGET2 claims are EUR 942.3 billion euros or to be exact EUR 942,319,065,584.45.

In 2012, less than three years after the start of the European Debt Crisis, the recently departed president of the ECB Mario Draghi stated that he would ‘do whatever it takes to preserve the euro’. From 2009-12, Germany’s NCB had a TARGET2 credit surplus which had increased from EUR 177.7bn to EUR 655.7bn between those years whilst Spain’s NCB was carrying a deficit, which had increased from EUR – 41.1bn to EUR -337.3bn during that same time frame.  In 2009, Italy’s NCB had a credit surplus of EUR 54.8bn yet by 2012 it was carrying a deficit of EUR -255.1bn. Today, Italy’s NBC’s deficit of – EUR 486.5bn is the largest TARGET2 deficit in the Eurozone.  Since Draghi’s pledge seven years ago, these imbalances have gotten even bigger. What is also interesting, is that since 2012, the TARGET2 deficit of the ECB itself has gone from just EUR -2.2bn to EUR -249.8bn (as of May 2019).

These TARGET2 imbalances today are important as their current levels are greater now than those during the height of the last financial crisis in the Eurozone. The question now is whether these current levels are a precursor to another financial crisis in the Eurozone or, more seriously, a potential breakup of the Euro? We are currently living in times of great global uncertainty. The rise of populism, especially in countries in Europe, is worrying. The emergence of Matteo Salvini in Italy and his fraught relationship with Brussels is unlikely to improve the already fragile economic situation in his country nor will it help to fortify the Eurozone in these difficult times. For a long time the ECB has been kicking the proverbial can down the road but as the former head of the Bank of England, Mervyn King, stated in his excellent book ‘The End of Alchemy’: ‘muddling through may continue for some while, but eventually the choice between a return to national monies and democratic control, or a clear and abrupt transfer of political sovereignty to a European government cannot be avoided’.

For countries such as Italy, Spain, Greece and Portugal, having a fixed currency like the Euro has handicapped their economic growth. Both Italy and Spain have large industries, yet not having the ability to devalue their own currencies or set their own interest rates has impacted their global competitiveness and thus their economic standing. Both countries suffer from high levels of unemployment with many young people from these countries searching for opportunities in other countries like Germany, UK, USA and Australia. The current substantial TARGET2 deficits of both Italy and Spain highlight the flaws and consequences of adopting a one-size-fits-all currency. While adopting the Euro has increased Germany’s competitiveness it has done the opposite for other large economies in the Eurozone like Italy and Spain. Hence why Germany’s NCB is running an enormous credit surplus with the NCBs of other eurozone countries.

It can be deduced, therefore, that the survival of the Euro is more important for Germany than it is for Italy and Spain. In the event, God forbid, that the Euro were to breakup and all the former Eurozone countries were to go back to their old currencies, Germany would lose its economic competitive advantage that it had as a Eurozone member since it would now be stuck with a new overvalued Deutschmark and this would thus likely effect its balance of trade. What’s more, in the event of such a Euro breakup, both the NCBs of Italy and Spain would likely default on their deficits with the NCBs of other former Eurozone countries in their new currencies meaning a huge potential financial loss for Germany’s NCB of the TARGET2 surplus monies it is owed. The upside though of any short term pain for Spain and Italy though would be that by finally having their own currencies back they would be free not only to devalue them and set their own interest rates, but they would have the chance to finally break out of their current economic stagnation, regain their competitiveness and return to higher levels of economic growth.

 

By Nicholas Peart

(c)All Rights Reserved

 

 

 

 

 

SOURCES & FURTHER READING…

 

PAPERS:

Blake, D. (2018) : Target2: The silent bailout system that keeps the Euro afloat

Lyddon, B. (2018) : The Euro’s Battle For Survival

 

BOOKS:

King, M. (2016) : The End Of Alchemy – Money, Banking and the Future of the Global Economy

 

ARTICLES:

https://www.moneyandbanking.com/commentary/2018/7/8/target2-balances-mask-reduced-financial-fragmentation-in-the-euro-area (Good article explaining how TARGET2 transactions work)

TARGET2 imbalances and the stagnating political economy of Europe

https://www.theguardian.com/business/nils-pratley-on-finance/2018/may/29/italys-eurozone-crisis-no-easy-fixes-for-the-european-central-bank

 

MISC:

http://www.csfi.org/2019-06-11-target-2-imbalances

 

 

BUNDESBANK TARGET2 Link:

https://www.bundesbank.de/en/tasks/payment-systems/target2/target2-balance/target2-balance-626782

 

ECB TARGET2 data link:

https://www.ecb.europa.eu/stats/policy_and_exchange_rates/target_balances/html/index.en.html

 

 

Image: flagpedia.net

What Makes A Country Poor Is Her Wealth

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‘What makes a country poor is her wealth’. Those are the words of a 16th century Spanish economist commenting on his homeland. One time many moons ago when I was having breakfast at a tourist café in southern Mexico, I overhead an American telling his friends, ‘Mexico is so rich in natural resources yet it is a poor country’. At the time I pondered over these words. Yet it was not until I reached Venezuela later on during my extensive trip of Latin America that those words began to have more weight with me.

Venezuela has one of the largest deposits of oil on the planet yet its history since it first gained independence from Spain has been rocky. As of today the country is in chaos with most of the population barely able to regularly access basic quotidian necessities. One story that famously did the rounds for some time was the one involving a shortage of toilet paper. Stories like these are inconceivable to outside spectators like myself. How could a country with such levels of natural wealth, fall so low? Venezuela is a breathtakingly beautiful country and I am fortunate to have some great and generous friends from this part of the world. In addition to its abundant natural resources, it has some of the most beautiful beaches on the continent (its entire coastline faces the Caribbean), rich and fertile land, pretty mountain towns and Spanish style colonial towns, a vast and diverse geographical topography etc – I could go on. But lets go back to those immortal words; ‘What makes a country poor is her wealth’. In 1973 and more than two decades before Hugo Chavez came to power, Venezuela experienced an unprecedented boom owing to a freak surge in the price of oil. The country’s oil revenues for that year alone were greater than all the previous years combined. Yet the former Venezuelan oil minister and co-founder of OPEC, Juan Pablo Perez Alfonso, refused to party denouncing oil as, ‘el excremento del diablo’ or ‘the devil’s excrement’. Furthermore he chillingly prophesized, ‘Ten years from now, twenty years from now oil will bring us ruin’.

With the exception of a small handful of nations, who had the foresight to diversify their economies away from natural resources, many natural resource rich nations are not as fortunate. Africa is loaded with natural resource rich nations that today still remain poor and underdeveloped. Angola and Nigeria’s vast oil and gas deposits have created more misery than prosperity for most of the population. Today Nigeria has one of the fasting growing economies in the world yet much of its future prosperity will depend less on oil and more on diversifying its economy and stamping out corruption. Norway and Qatar are two oil rich countries. Yet both countries also have a substantial sovereign wealth fund. This means that when the price of oil is depressed, they have a cushion to land on during the lean times.  Saudi Arabia, arguably the most oil rich country on the planet, for too long was overly reliant on its number one export yet in recent times it has followed in Norway and Qatar’s footsteps by establishing its own sovereign wealth fund to diversify away from the black stuff. Hopefully Venezuela, once it is finally able to free itself from the destructive Nicolas Maduro regime, will follow suit.

It is a blessing in disguise that the UK (barring the North sea offshore oil and gas deposits in Scotland) is not a natural resource rich country. This means that in order to maintain financial prosperity, it has to retain a dynamic and business friendly economy.

 

By Nicholas Peart

(c)All Rights Reserved

 

Sources/Reading material:

‘The Devil’s Excrement’ by Jerry Useem (2003)

 

Image: Aljazeera.com

 

US Stock Markets Are Looking Frothy

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Back in December 2017, I wrote an article focusing on the toppy valuations of equity markets around the world. Back than the NASDAQ stock exchange in the USA, which consists of mostly growth stocks, was trading at around 7000 points. Considering that the NASDAQ was at less than 1500 points just over 8 years ago during the Financial Crisis, I thought 7000 points was an extraordinary valuation over such a limited timeframe.

However 2018 was the first year in a while to really test global markets. The first wobble occurred in February followed by a more rocky period between the months of October and December of that year. During the latter time period, the NASDAQ fell to around 6,300 points having reached an all time high of over 8000 points earlier in the year. Yet what is extraordinary is that since December 2018, the US stock markets have rallied back towards all time highs. As I write this article, the NASDAQ is currently trading at close to 8,200 points, whilst the S&P 500 (featuring the 500 largest publicly traded US listed companies) has just hit 3000 points for the first time ever. Much of these rises have been driven by the performance of large tech companies such as Amazon, Google, Netflix, Facebook, Microsoft and Apple. Amazon is back to trading at its all time high of over $2000 a share on a very high P/E (a company’s share price to its earnings per share ratio) multiple of over 80. Amazon along with Apple and Microsoft currently have market caps close to $1trillion – in fact, as I write, Microsoft is now trading at $1.05trillion. Microsoft has a lower P/E than Amazon (around 30), whilst Apple has the lowest (17). The P/E metrics of this trio of trillion dollar behemoths mean currently Apple is generating the most cash.

Yet what is interesting when analysing the multi year charts of the NASDAQ and S&P 500 indices, is that they have both been in a bull market for ten years. This is the longest bull market of all time for a stock market. The reason why I am currently rather concerned and on my guard is due to multiple factors. I cannot neglect that a low interest rate environment for many years coupled with quantitative easing have contributed to this lengthy bull market. Yet when I look at many tech companies and other growth companies that make up the NASDAQ, I cannot help but feel that a lot of them are being propped up by positive sentiment and lots of goodwill in relation to their fundamental net asset valuations. Some companies are just simply too powerful and potential amounts of thorough government regulation in the future cannot be overlooked. Facebook, Google and Amazon, no matter how much it may be denied, are in their own ways powerful monopolies. Facebook has the largest social media empire in the world, Google the largest search engine and Amazon the largest e-commerce business. Because of these unique characteristics, to some, their valuations are justified, and some would even argue that in spite of their already high valuations, the scope for even further upside continues to be vast. This belief in the continuing bright futures of these companies, is also taken into account in their current valuations.

When I wrote my article in December 2017, I mentioned the well known British fund manager Neil Woodford who at the time went on record to say that many growth companies were trading on very high valuations and that value investing had been neglected. Over the last couple of months Woodford’s funds have run into problems regarding unquoted and illiquid investments and his main fund is currently suspended. I am surprised with some of these unquoted and non-dividend paying companies in his portfolio, especially as they contradict his value investing philosophy, which has in the past set him in good stead. However, I do believe that value investing has currently gone out of fashion, like a has-been popstar. Some of the largest holdings in Woodford’s portfolio at one point (before he had to sell large chunks to generate liquidity) were Imperial Brands and housebuilders like Barratt Homes and Taylor Wimpey. These are stocks in unfashionable industries paying large dividends. The tobacco industry has had a torrid couple of years with the main companies trading at depressed valuations yet paying very high dividend yields. Fears over a declining number of smokers and more regulation on the tobacco industry have spooked investors. Yet what I find deliciously ironic is that many high growth publicly traded cannabis companies like Tilray and Canopy Growth are trading at very high valuations and neither pay any dividends. Dividends are an important source of income, especially in a low interest rate environment with low yielding government bonds. Investing in high growth tech companies often deprives one of this valuable source of income and even when tech companies do pay a dividend, it is not very much (Apple pays a very modest dividend of 1.50%). I can understand that tech companies that start to generate cash prefer to reinvest much of their profits to further grow their businesses and there is nothing wrong with that. In fact I admire this, yet all this means is that for solid dividend income one has to look elsewhere.

Black Swan events aside, perhaps the greatest thing to derail this current bull-market is another financial crisis related to the enormous levels of global public and private debt, which are at all time high levels. The current debt in the US is at a record $22.5 trillion. It’s quite funny for this record US debt level to correlate with new record highs for both the NASDAQ and S&P500 stock markets. At some point the resident party DJ will have to pull the plug on the beats. When this will happen don’t ask me. Furthermore, I hesitate to predict when as I’ve been wrong more times than I have been right. I do believe though, that in times like these it is always a wise move to have some insurance assets. Some say one should have 5% of their assets in gold bullion. Others prefer safe government bonds, arguing that the price of precious metals are driven by sentiment and there is no guarantee that their prices will go up in the event of a financial crisis. They are of course not wrong and I will even further add that precious metals don’t pay any income. Yet I like gold and silver. Silver even more since it is fundamentally more undervalued than gold. Instead of the conventional wisdom that one should allocate 5% of their portfolio to gold bullion, I would allocate at least 10% of ones portfolio towards precious metals with 70% in silver and 30% in gold. For more information on why I am particular bullish on silver, you can read my last article here.

 

By Nicholas Peart

(c)All Rights Reserved

 

Disclaimer: This article reflects my opinions and should not be taken as professional financial advice.

 

Image: golf.com

Why Silver Is Currently Fundamentally Undervalued

Silver-Bars

Silver is currently an interesting commodity and precious metal to be watching. During the last spike in the price of gold over the previous two weeks, the silver price barely moved. In fact, the silver price has been depressed for some time now.

Below I am featuring three charts. The first chart shows the silver price per ounce in dollars over the last 50 years, the second chart shows the gold price per ounce in dollars also over the last 50 years, whilst the last chart shows the silver to gold ratio over that same time frame. The last chart is more interesting to me, as the current silver to gold ratio stands at 92. In other words, one unit of gold is currently equal to 92 units of silver. During the last 50 years this ratio has traded at a range between 100 and less than 20.

 

The silver price per ounce over the last 50 years (as of 9th July 2019)

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The gold price per ounce over the last 50 years (as of 9th July 2019)

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Silver to gold ratio chart over the last 50 years (as of 9th July 2019)

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Silver has been derided many times as a ‘poor man’s gold’. It is a misunderstood commodity and is currently not very fashionable. In fact, precious metals generally are not really in vogue, especially amongst a lot of younger people who have more of an interest in cryptocurrencies. I am also interested in cryptocurrencies, but they are very hot right now, whereas precious metals are generally not. The recent price rise in gold was very modest when one compares the price rise of Bitcoin over the last few months, which propel some to deem Bitcoin and other cryptocurrencies as the new store of value assets and gold and silver as store of value assets of the past. Bitcoin has many times been hailed as the new gold or ‘digital gold’; a supply-capped gold powered by electricity. On the other hand, one could also argue that gold is Bitcoin without electricity or the internet.

But all the noise aside, lets get back to the fundamentals. There is an insightful article on the Royal Mint website regarding the scarcity of precious metals on this planet. The article entitled, How Rare Are Precious Metals?, discusses the ‘mass fraction’ of precious metals or how many kilograms of precious metals exist in the Earth’s crust per billion kilograms of crust material. According to the statistics in the article, gold represents 4kg per billion kg of crust material and silver 75kg per billion kg of crust material. This means that gold is around 18-19 times scarcer than silver. Yet today it is priced 92 times higher. One reason for the depressed price of silver could be that in many countries the purchasing of silver coins or bullion from a registered dealer such as Sharps Pixley incurs additional VAT costs. This also explains why the price of silver coins and bars in those countries are higher than the spot price of the metal. However in some cases silver is exempt from VAT charges if it is kept in a vault provide by the dealer. Gold, on the other hand, is exempt from VAT either way, which explains why the price of gold coins and bars is closer to the spot price.

Both gold and silver are insurance assets in an unstable, unpredictable and financially indebted world. Yet right now it is silver that arguably has greater potential upside. Even though gold is used to a small degree in industry, silver is used on a far greater scale, meaning it is not purely just a store of value. As with crude oil, a severe disruption to its supply would cause the price to spike in a very short space of time.

As silver can be quite impractical and costly to store in great quantities, an alternative way of investing in pure silver is via an Exchange Traded Fund or ETF. It is important though to select an ETF where each unit is directly backed to a physically held unit of silver. The added beauty too of a silver ETF is that you are investing in silver at pretty much the spot price. The ETFS Metal Securities Ltd Physical Silver (PHSP) is a good one with a modest annual charge of 0.49%. Vanguard specialise in ETFs and their silver ETF may have even lower charges. I also highly recommend purchasing silver via Bullion Vault. You can invest in silver very close to the spot price and have it stored in a vault in selected cities around the world. Their monthly storage charges are also very reasonable.  Yet one of the advantages of a pure ETF is that it can be put in an ISA meaning you want have to pay capital gains tax.

Investing in silver mining companies is another way of gaining exposure to the price of silver. Sometimes the gains can be higher than owning physical silver or an ETF. Yet you take on additional risk such as political risk and also company mismanagement. One of the largest publicly traded silver mining companies is the Mexican based company Fresnillo (FRES). There are also a bunch of smaller publicly traded silver mining and exploration companies, but these carry more risk.

There are many places to purchase physical silver coins and bars. I like Sharps Pixley and Bullion By Post. The latter is a little more expensive but has a greater range of silver products. The Royal Mint is the UK’s official precious metals mint but prices are also not cheap. A smaller silver trader I like very much is the Newcastle based Silver Trader run by Martin Whitehouse. He sells silver coins and bars, which other leading dealers don’t stock. Furthermore, he also sells silver coins and bars via Ebay and has lots of positive feedback.

 

By Nicholas Peart

(c)All Rights Reserved

 

 

Sources:

Main image: atlantagoldandcoin.com

Graphs extrapolated from the website Bullion By Post

How Rare Are Precious Metals?

 

 

 

Fooled By Randomness

dice - luck

In one of my previous posts I talk about how hard work is more important than talent when it comes to achieving success. As much as I don’t want to believe it there is a kernel of truth to this. But is it the whole truth? What if it is the power of randomness that is the principle factor in all this? At least this is what the Lebanese-American writer and former financial trader Nassim Nicholas Taleb believes whose seminal books Fooled By Randomness and The Black Swan expand on this idea.

One of the most interesting aspects of success, especially in creative fields, is that it often comes to people we least expect it to. It is not unusual to watch an unknown band live and think ‘what on earth is this crap’. Then several months later that same band is flying high in the charts and many people are fawning over them. On the other hand, you can see an unknown band live who you are totally blown away by and are convinced the band will go on to greater things but success sadly eludes them and they continue to drift into obscurity. These typical scenarios give a lot of weight to Taleb’s theory of randomness.

Even though, at least at a practical level, hard work seems to be the best way to increase one’s chances of getting lucky is that really where it’s all at? Again in the context of musicians, some singer/songwriters worked their butts off on the open-mic night circuit playing at everyplace they could get a gig and then slowly after years of toil and sweat, they were rewarded. The supremely successful singer/songwriter Ed Sheeran is a perfect example here. But he does not escape the laws of randomness. Many other singer/songwriters also break their backs for years trying to make it, but alas their time never comes.

On the other side of the scales one can look at the pre-fame story of Oasis. They’d barely been going for a year or two before they were discovered in 1993 by the head of Creation records, Alan McGee, at a gig in Glasgow. From that point on success came to the band almost overnight. It was as if their success and destiny were written in the stars. The Oasis story is a perfect one of randomness and demolishes the adage of ‘if one works hard one will be rewarded’. Whether one likes Oasis or not, one cannot deny the powerful magnetism the Gallagher brothers possessed; something that seemed God-given and effortless, and millions of people lapped it up.

Life is never linear. Our predictions regarding the life trajectory of others often collapse like a house of cards. Random events beyond our control destabilizes these paths. When we look at the following world events; the Chernobyl nuclear explosion, the 1987 Black Monday stock market crash, 9/11, the recent Genoa bridge collapse etc; they are examples of events which weren’t anticipated and took people by surprise. Taleb calls them Black Swan events.

It is not uncommon to weave a narrative around these events and try to rationalise and justify them, but the truth is they were ruled by randomness and caught everyone off-guard.

 

By Nicholas Peart

(c)All Rights Reserved 

 

image: PIRO4D

 

Could LockTrip Disrupt Airbnb And Booking.com?

Locktrip

We are living in a world where things are changing very fast. Not that long ago, Airbnb was a little known peer to peer booking platform for accommodation. Today it is used by millions and has revolutionised the accommodation industry.

As convenient a service as it is, it is a middleman service business, which takes a commission on each booking from both the host’s and customer’s end. It is an internet business yet it’s model is centralised.

This is where Locktrip comes into play. Locktrip is a little known decentralised booking ecosystem platform for renting hotel rooms, property and all kinds of accommodation. The entire accommodation industry is a huge $500billion industry. Already Airbnb has had a huge effect on this industry in the process becoming a business valued in excess of $30billion and not owning a single property. It is a very clever business model making all its money via all the commissions it earns from all its bookings.

The reason why Locktrip has such disruptive potential is, because it offers all the services the likes of Airbnb, Booking.com, Expedia.com etc offer without taking any fees from both parties. It is a decentralised platform with no middleman. It is a pure peer to peer platform between both the host and the customer with no centralised middle entity in the mix.

The technology it employs to make this work is blockchain technology, which is what the likes of Bitcoin, Ethereum and Litecoin are built on. Bitcoin is the world’s first digital currency created almost ten years ago and has had a very big impact on the world of money by enabling people to bypass global financial institutions to make payments.

LockTrip is also a cryptocurrency with its own supply of tokens. Yet whereas Bitcoin is just for payment transactions, LockTrip offers a ground-breaking service platform in the world of accommodation as well as other kinds of travel and cultural experiences. Once more hotels, guesthouses and other hosts register their services on LockTrip and more people also register themselves on LockTrip, the other current centralised commission-charging internet accommodation services will find their users diminishing. It is still early days and this is a very new concept. It will take time. Furthermore, a better decentralised version of LockTrip could also come on the scene even though LockTrip is an early mover in this field.

It is all very exciting and I will continue to monitor its progress

 

By Nicholas Peart

(c)All Rights Reserved

 

FURTHER READING:

LockTrip website

LockTrip whitepaper

 

Wonderings In The Northwest Bulgarian Town Of Vidin

The Bulgarian town of Vidin is located in the northwest corner of the country on the border with Romania. Separating the two countries is the river Danube and a modern bridge. Vidin is an overlooked town, which not many people visit. In fact, during my stay I didn’t encounter a single tourist. Entering the town from the train station one is not immediately taken by the town. But spend a day on foot exploring what this town has to offer and one starts to view it in a whole new light. It’s jewels don’t immediately reveal themselves and require a dose of curiosity.

Arriving in Vidin was my first taste of Bulgaria. Unlike Romanian, Bulgarian is not a roman language, but a Slavic one using the Cyrillic alphabet. Fortunately I can decode most of the alphabet even if I can’t speak a word of Bulgarian. I also learn that the Cyrillic alphabet is a derivative of the Glagolitic alphabet founded in the AD 850s by the Saints Cyril and Methodius and then later introduced in AD 886 by the Bulgarian Empire. Today the Cyrillic alphabet is used in many Slavic countries including Russia, Serbia, the Ukraine, Macedonia and even in Mongolia, which is a non Slavic country.

After locating a place in the town to change my remaining Romanian Lei into Bulgarian Lev, I focus on finding the address of my accommodation with the help of the Google Maps app on my phone. I am glad I didn’t take a taxi. Not only is my accommodation located not so far away, through walking the distance to it, I develop a feel for where I am.

My accommodation is situated in an old grey Communist-era low rise building. Inside the building, it’s less austere. On the level where the flat is located there are several plants on the balcony. Plants never fail to lift one’s spirits. The hosts, a middle age Bulgarian couple, are very warm with big hearts. Their flat is homely and aesthetically tasteful. Its light and warm. My bedroom I discover is very spacious and I have a double bed. It is perfect. I am offered Bulgarian tea. Ten minutes later Krasi one of my hosts returns carrying a vintage traditional blue tray containing a cup of tea, a pot of sugar and a separate plate with a generous wedge of homemade milk cake. It is awfully good and I feel very touched to be at the receiving end of such generous hospitality.

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Bulgarian hospitality

I’ve been up since 5.45am this morning and the temptation is very strong to go back to bed. But I want to seize the remainder of the day. After an interval of time spent in my room having my tea and trying too warm myself up, I leave my room to hit the streets of Vidin. Most of my neighbourhood is full of brutal boxy communist era flats. One could maybe be in a non descript middle Russia suburb. Yet with a smattering of more vintage architecture with an Ottoman tinge. Some of those older buildings look neglected. Vidin is not a wealthy town and is one of the poorer parts of the country yet it also has one of the richest and oldest histories.

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Residential housing block on the outskirts of town

 

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Crumbling Ottoman style architecture 

Back in the centre of town close to the train station, I aimlessly wonder the streets not venturing further than  and find a place to have some late lunch. I spot a canteen type diner with several different trays of local savoury and sweet dishes. I opt for the moussaka with a side of fried potatoes and another milk based cake for desert. After eating my food, I leave the restaurant and wonder some more before calling it a day and returning to my accommodation.

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St. Dimitar monastery in the centre of town

 

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In the centre of town with the Vidin Radio tower in the background

The next day is when things start to get cooking for me in this town. I walk back to the town centre and head for the old town district of Kaleto where the medieval Baba Vida fortress is located. Its the best preserved medieval fortress in Bulgaria. I approach the old town from an old walled entrance dating back to the times of the Ottoman Empire.

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The entrance to the old town 

One of the most distinct and unusual landmarks in the old town is a derelict and abandoned synagogue. The synagogue was built in 1894 and for a time was Bulgaria’s second largest synagogue. Vidin had a thriving Jewish community for five decades since the 15th century with the arrival of the first Jews from Spain. Most of the town’s Jewish population emigrated to Israel after the Second World War. There were plans to restore the synagogue back to its former glory during the 1970s and a decade later work was in fact carried out, but it was abruptly cut short with the fall of the Communist regime at the end of that decade.

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The abandoned Vidin synagogue 

Nearby the synagogue is a tall monument overlooking the river Danube. The so called ‘Monument of Freedom’ was built during the Communist regime. It is a structure in the Brutalist architecture genre and a relic from the Communist era of Bulgaria’s history.

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‘Monument Of Freedom’

What is amazing though is the view of the river Danube, the second longest river in Europe after the river Volga in Russia. The river covers most of the border between Bulgaria and Romania, before discharging itself into the Black Sea in northern Romania close to the Ukrainian border. On a clearer day one can fully see the bridge in the distance connecting Bulgaria and Romania.

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The river Danube separating Bulgaria and Romania

Only a short walk away is the town’s main landmark, the Baba Vida fortress, which literally translates to ‘Grandmother Vida’. The fortress dates back to the 10th century and was contracted on top of the site of an old Roman landmark called Bononia. The origins of the castle is based on a legend focused on a Bulgarian King and ruler of Vidin who had three daughters; Vida, Kula and Gamza. Before he died he divided his kingdom between his three daughters. His eldest daughter, Vida, was given the town of Vidin of whom the town is named after. And it is in this town that she built this fortress, where she lived unmarried and insolation. The fortress, Grandmother Vida, is named after her.

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Baba Vida fortress

Throughout the town’s history the fortress has served as an important strategic base. During the 500 year long Ottoman rule of Bulgaria, the fortress was used as a prison and a base to store weapons. It is an impressive structure and little changed since its foundation. I spend some time walking around the complex and climbing one of the narrow stone staircases to reach the top level. At one point I almost lost my balance on the steps. There are not many protection railings as it isn’t designed for mass tourism. As a result one needs to be on their guard when inside.

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At the top of the fortress

Other sites in the old town include the Krastata Kazarma museum, built in the classic Ottoman style. It was a military barrack during the Ottoman rule. Today it is the town’s ethnographic museum.

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Krastata Kazarma museum 

Else where in the old town is a mosque named after Osman Pazvantoğlu. Osman was an Ottoman soldier who was the governor of Vidin in the late 18th century. There is also a library in town named after him. Very near the mosque is an orthodox church named after St Panteleymon.

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The Osman Pazvantoğlu Mosque

 

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St Panteleymon orthodox church

On the edge of the old town by the Danube, is the Nikola Petrov art gallery. Petrov was a Bulgarian painter born in Vidin in 1881. Sadly his life was cut short by tuberculosis and he died at the age of just 35. The gallery has many of his works in its collection. However when I visited only a few paintings in one room were on display.  One small painting by Petrov on display is his painting of the Baba Vida fortress.

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Nikola Petrov painting of Baba Vida fortress

Two other paintings on display that catch my eye are a painting by Ivan Ivanov of the mosque in the old town of Vidin from 1938 and another painting by Stoyan Venev from 1960 featuring a mother and her child at the shore of the Danube by the entrance to the Baba Vida fortress

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Ivan Ivanov’s painting of the Osman Pazvantoğlu Mosque from 1938

 

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Painting from 1960 by Stoyan Venev located by the entrance to the Baba Vida fortress

After visiting the art gallery, I take a walk along the banks of the river Danube. During my walk I cross paths with two young men. One of them is very drunk and proceeds to give me a slurred a rambled discourse of the history of Vidin in broken English. His friends asks me, ‘What the fuck are you doing in Vidin, man?’. He then adds that he spent three years living in Derby. He looks at his friend already halfway through his drunken impromptu history lesson and says, ‘Just ignore my friend. He’s crazy. He doesn’t know what the fuck he’s talking about’. I wish them both goodbye and good luck and I head back to my accommodation on the outskirts of Vidin.

 

By Nicholas Peart

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