It will be the politicians’ fault if Bulgaria fails to join the Eurozone after missing the opportunity of January 1, 2025. According to the convergent reports of the European Commission (EC) and the European Central Bank (ECB), the country is not ready due to failure to fulfill one – only one of the four criteria – for inflation. The door stays open when ready.
The money laundering problem
In addition to this, however, the ECB points out the problem of placing Bulgaria on the “grey list” of the global supervisory authority Financial Action Task Force (FATF) for money laundering in October 2023. The report calls for speeding up efforts to implement the action plan adopted by the FATF to delist it. Bulgarian institutions have committed to carry out certain anti-money laundering reforms, but their outcome will be reviewed in autumn 2025, as the FATF reports are two years old, experts explained to Deutsche Welle.
According to the criterion of price stability, the average annual inflation in Bulgaria must not exceed by 1.5 percentage points the level in the three EU countries, where it was the lowest for the last 12 months. In May 2024, inflation in Bulgaria was 5.1% – far from the reference value of 3.3%, according to the ECB report. Caretaker Prime Minister Glavchev and Finance Minister Lyudmila Petkova reiterated that Bulgaria will request extraordinary convergence reports from the EC and ECB at the end of the year, when they hope to meet the inflation criterion to enter the eurozone from January 1, 2026. (The regular PP-DB government intended to do the same.) And Brussels announced that Bulgaria “can request a specific report to assess the fulfillment of the convergence criteria – when it decides that it has fulfilled them”.
Only BNB Governor Dimitar Radev believes that 2025 remains a possibility. But – on the condition that there is a pro-European government with sufficiently broad support and a horizon for action, he stated in an interview for BTA.
The biggest brake
However, all the good intentions and political will may crumble after another collapse of the cabinet negotiations, and also in the event that a future government does not continue with the pro-European policy and does not improve the fiscal discipline.
In the political narrative about who, how and what kind of government could be formed after the elections on June 9, there was no unification around the two strategic goals for Bulgaria – admission to the Eurozone and overland Schengen.
Such a request was not made even by Boyko Borisov, during whose third government Bulgaria entered the currency mechanism ERM-II – the so-called “waiting room”, nor by the co-chairman of the DPS Delyan Peevski, who does not stop manifesting his bright Euro-Atlanticism and has been sanctioned for corruption by the USA and Great Britain. The PP-DB coalition, which remains in opposition, also skipped the topic of the euro. In the election campaigns of the parties that declared themselves pro-European, entry into the Eurozone was defined as a visible and vivid message and theme.
At least three opponents of the euro
And now, with the endless hypotheses about a possible government, instead of the foundation – the goals and values that would unite the political forces, the achievement of mathematical majorities is being discussed. At least three of the 7 formations represented in the 50th National Assembly – “Vazrazhdane”, “BSP” and “Velichie” – are opponents of the euro. The position of the party, which first declared readiness to receive the third mandate and form a government – “There is such a people” (ITN), is controversial. On the one hand, ITN supports the idea of the eurozone, but insists on detailed discussions and analyzes before the final decision, and voted “for” the referendum on the euro together with the pro-Russian “Vazrazhdane” and BSP.
As a matter of fact, as finance minister and the co-chairman of “We continue the change”, Asen Vasilev also expressed a similar opinion about the Eurozone. In an interview with “Dnevnik” in July 2021, he stated that “a regular cabinet that will govern between now and 2024 must hold a broad public debate so that people understand what this means, in order to reaffirm the election that we want to enter the Eurozone […] so that there are no worries and society makes an informed decision”. But as finance minister in two regular governments, there was no such debate, and at the beginning of June this year Deputy Minister of Finance Metodi Metodiev reported at a forum that the communication strategy for the euro is in the initial phase, “but there is a logo, a slogan, a website”.
Fourth year in “waiting room”
Bulgaria submitted documents for the “waiting room” of the euro in 2018, they accepted it in the summer of 2020, when the protests against GERB also broke out, and for the fourth year it has failed to meet the criteria. During this time, the country never emerged from the political crisis that led to the sixth early parliamentary elections. By comparison, Croatia, admitted to ERM-II in 2020 along with Bulgaria, stayed for two years – and was confirmed as a member of the eurozone in July 2022, and Bulgaria follows the path of the Baltic republics, which remained in the mechanism the longest .
The result of the change of governments ruling for several months is high budget expenditures and budget deficits approaching the maximum permissible threshold of 3% according to the Eurozone criteria, weak execution of capital expenditures, deteriorated tax collection – especially VAT. About pro-inflationary pressure – if the 2024 budget is implemented, the IMF mission also warned in March of this year. Even then, the IMF doubted whether Bulgaria would meet the inflation target because of the “expansive budget” prepared by Asen Vassilev and recommended reducing the budget deficit by 1% of GDP along with reforms to increase revenues. The governor of the BNB recommended the same – “reducing the fiscal expansion and limiting the budget deficit in 2024 by 1 percent”, but omits the role of the BNB in cooling inflation with measures to limit lending.
A temporary truce over the euro?
To all this, there is still unfinished business – the Law on the Euro, which was prepared for almost two years, the public discussion of which ended at the end of April, failed to enter the 49th Parliament. But at its meeting yesterday, the caretaker government approved the bill and will submit it for consideration in the 50th National Assembly.
The three political forces assembled months ago – GERB, DPS and PP-DB – have the necessary votes for its adoption. For this common goal, they could conclude a temporary truce. Even if a government is not formed, the two readings of the draft would not take more than a month to approve the rules for currency conversion and rounding, the designation of the prices of goods and services, the dual circulation of the two currencies and others.
The question is whether the euro remains a strategic goal.
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