* Joins list of European governments felled by austerity
* PM will not seek to form new government
* Election will probably be brought forward from July
By Sam Cage and Tsvetelia Tsolova
SOFIA, Feb 20 (Reuters) - Bulgaria’s government resigned on Wednesday after mass protests against high power prices and falling living standards, joining a long list of European administrations felled by austerity during four years of debt crisis.
Prime Minister Boiko Borisov, an ex-bodyguard who took power in 2009 on pledges to root out graft and raise incomes in the European Union’s poorest member, faces a tough task of propping up eroding support ahead of an expected early election.
Wage and pension freezes and tax hikes have bitten deep in a country where earnings are less than half the EU average and tens of thousands of Bulgarians have rallied in protests that have turned violent, chanting “Mafia” and “Resign”.
Moves by Borisov on Tuesday to blame foreign utility companies for the rise in the cost of heating homes was to no avail and an eleventh day of marches saw 15 people hospitalised and 25 arrested in clashes with police.
“My decision to resign will not be changed under any circumstances. I do not build roads so that blood is shed on them,” said Borisov, who began his career guarding the Black Sea state’s communist dictator Todor Zhivkov.
A karate black belt, Borisov has cultivated a Putin-like “can-do” image since he entered politics as Sofia mayor in 2005 and would connect with voters by showing up on the capital’s rutted streets to oversee the repair of pot-holes.
But critics say he has often skirted due process, sometimes to the benefit of those close to him, and his swift policy U-turns have wounded the public’s trust.
The spark for the protests was high electricity bills, after the government raised prices by 13 percent last July. But it quickly spilled over into wider frustration with Borisov and political elites with perceived links to shadowy businesses.
“He made my day,” said student Borislav Hadzhiev in central Sofia, commenting on Borisov’s resignation. “The truth is that we’re living in an extremely poor country.”
The prime minister’s final desperate moves on Tuesday included cutting power prices and risking a diplomatic row with the Czech Republic by punishing companies including CEZ , moves which conflicted with EU norms on protection of investors and due process.
CEZ officials were hopeful on Wednesday that it would be able to avoid losing its distribution licence after all and officials from the Bulgarian regulator said the company would not be punished if it dealt with breaches of procedure.
But shares in what is central Europe’s largest publicly-listed company fell another 1 percent on Wednesday.
If pushed through, the fines for CEZ and two other foreign-owned firms will not encourage other investors in Bulgaria, who already have to navigate complicated bureaucracy and widespread corruption and organised crime to take advantage of Bulgaria’s 10-percent flat tax rate.
Financial markets reacted negatively to the turbulence on Wednesday. The cost of insuring Bulgaria’s debt rose to a three-month high and debt yields rose some 15 basis points, though the country’s low deficit of 0.5 percent of gross domestic product means there is little risk to the lev currency’s peg against the euro.
Borisov’s interior minister indicated that elections originally planned for July would probably be pulled forward by saying that his rightist GERB party would not take part in talks to form a new government.
GERB’s woes have echoes in another ex-communist EU member, Slovenia, where demonstrators have taken to the streets and added pressure to a crumbling conservative government.
A small crowd gathered in support of Borisov outside Sofia’s parliament, which is expected to approve his resignation on Thursday, while bigger demonstrations against the premier were expected in the evening.
Unemployment in the country of 7.3 million is far from the highs hit in the decade after the end of communism but remains at 11.9 percent. Average salaries are stuck at around 800 levs ($550) a month and millions have emigrated, leaving swathes of the country depopulated and little hope for those who remain.
GERB’s popularity has held up well and it still led in the latest polls before protests grew in size last weekend, but analysts say the opposition Socialists should draw strength from the demonstrations.
The leftists, successors to Bulgaria’s communist party, have proposed tax cuts and wage hikes and are likely to raise questions about public finances if elected.