1. Why does Bulgaria want to join the euro?
Bulgaria began working towards eurozone membership shortly after joining the EU in 2007 – as required by its accession treaty. But that was suspended three years later, amid the European sovereign debt crisis, which nearly bankrupted neighboring Greece and some other eurozone countries. In a new dynamic since 2016, the Sofia government said adopting the single currency would help the Balkan country avoid being marginalized in the bloc’s decision-making process and further integrate its export-oriented economy.
2. What is the economic logic?
Since the hyperinflation crisis of the 1990s, Bulgaria has operated under a currency board system that links the lev to the euro. With little room for independent monetary policy, the country depends on the decisions of the European Central Bank. The government and central bank have argued that adopting the euro would reduce transaction costs, lower interest rates and improve Bulgaria’s credit rating, making it more attractive to investors. It will also help the tourism industry, which contributes more than 12% of the country’s economic output, in part by eliminating the need for many visitors to exchange currency.
3. Are there opposing views?
The idea was met with skepticism from some political parties, including pro-Russian socialists, who insisted on a more thorough cost-benefit analysis before setting a firm date. The nationalist Renewal party, also pro-Russian, has called for a referendum on the subject, saying Bulgaria is ceding too much sovereignty. In addition, some analysts, including a deputy central bank governor, have warned of the euro zone’s structural problems and high debt levels among some of its members and have criticized some of the ECB’s past policies.
4. What is the public mood?
A November poll showed that only a third of Bulgarians supported adopting the single currency. More than two-thirds said they feared it would lead to higher prices. Several hundred people gathered in Sofia at the beginning of December during a demonstration against the euro organized by the Relaunch party. Such doubts are not unusual for new members: in Latvia, for example, half the population opposed change when the country joined the euro in 2014.
5. What has Bulgaria done to prepare?
Considered the most corrupt state in the EU in a ranking compiled by Transparency International, Bulgaria has faced a lot of skepticism from other eurozone countries – particularly after the Greek debt crisis and money laundering scandals involving banks in the Baltics have exposed the risks of new members entering the EU. club. After a national banking crisis in 2014, Bulgaria strengthened its financial supervision to be able to join the EU banking union as well as the exchange rate mechanism, known as ERM-2. Lawmakers also updated the legal framework governing Bulgaria’s central bank after the ECB highlighted a list of shortcomings. For years, Bulgaria has kept its budget deficit and debt levels within EU requirements.
6. What remains to be done?
The country is set to pass three bills regarding insolvency, money laundering and insurance. A lingering political crisis is hampering the process, however, as Bulgaria heads towards its fifth general election in less than two years. Furthermore, it could be difficult for it to meet the inflation criteria, with Finance Minister Rositsa Velkova calling the requirement “the only serious challenge” in an interview published in late January.
7. What are the odds?
The tight timetable and growing political divisions mean Bulgaria faces an uphill battle, despite the overwhelming parliamentary majority in favor of the euro. President Rumen Radev, who ran as an independent, has seen six attempts to form a government fail since July 2022; He scheduled an early vote for April 2. Central Bank Governor Dimitar Radev warned that the country needed a stable government that demonstrated clear political commitment. To meet the January 1, 2024 deadline, Bulgaria must ask the ECB for a report on its preparedness “by early spring at the latest,” according to Velkova, but it will only do so if it is ready, says She. said. The authorities will need several months to prepare for the effective deployment of the new currency.
8. Who else wants to join the Eurozone?
Romania has expressed interest, although it no longer has an official deadline. While all EU member states are forced to join the eurozone, Poland, the Czech Republic and Hungary are reluctant to take formal steps, saying an independent monetary policy is vital for them, especially during economic crises such as the current surge in inflation. Denmark – which obtained an exemption before the advent of the currency – and Sweden are not moving either.
–With help from Peter Laca, Andra Timu, Aaron Eglitis and Zoe Schneeweiss.
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