Bulgaria’s Euro Ambitions and Their Implications

During his State of the European Union address on September 13, European Commission President Jean-Claude Junker called for additional inclusion of the Balkan group of member states, stating that “It is high time to bring Romania and Bulgaria into the Schengen area” and that the “EU must offer credible membership prospects to Western Balkans.” This, however, seemed only to be the begging of his intention for certain countries such as Bulgaria, which is heavily vetted to become a member of the Eurozone. This effort seems to be supported by Euro-zone leaders, such as Macron and Merkel. They both manifested their interest in helping Bulgaria join the ERM-II mechanism (commonly referred to as the “waiting room” for the Euro and lasts 2 years) during Bulgarian PM Boyko Borissov’s trips to Berlin and Paris the last June.  

This, however, may not be as smooth a support as it may seems, especially given the reservations that Germany may hold to Macron’s multi-speed Europe proposals, due to Merkel’s present state of ambiguity in forming a coalition government. However, Merkel also stated that “Bulgaria should be able to participate in everything as quickly as possible.” Among other member countries there may be tension, as seen in the views of Poland, Hungary, and the Czech Republic, which show significantly lower belief in the EU project and proposals, with Polish President Andrzej Duda stating that a multi-speed Europe would “ultimately lead to a break-up of the European Union” if implemented. Given Bulgaria’s case specifically, proposing countries are citing its economic compatibility to the Maastricht Criteria, the official criteria for convergence to the Eurozone.

The Convergence Criteria, as stipulated on Article 140 of the Treaty of the Functioning of the European Union, are comprised of: a high degree of price stability (measured through the study of HICP inflation), sustainability of the government financial position (which is in turn divided into government budget deficit and debt-to-GDP ratio), exchange rate stability (by the participation in the exchange-rate mechanism of the European Monetary System), and long-term interest rates (measured by the average yields for 10-year government bonds in the previous year). When comparing these to Bulgaria’s data, there is a striking compliance, given its fairly low inflation, small fiscal deficit, and an extremely low public debt mark.

Bulgaria’s HICP inflation levels are well within the range of the Eurozone average, and its budget is in surplus at 1.6 per cent, compared to the limit of 3% of deficit stipulated by the Maastricht criteria. Moreover, its debt ratio is at 29%, which is excellent when compared to the 60% peg given by the Euro requirements. The country’s bonds are showing interest rates within the 4% required as well, and most importantly perhaps, as much as Bulgaria has not yet triggered the ERM II (exchange-rate mechanism) process, it has pegged its national currency, the lev, for almost 20 years. The lev was first pegged in 1997 to the German Mark, and later in 1999 to the Euro until now, with a constant rate of 0.511494. Given such compliance, it comes to little surprise that Junker stated: “I have to say bully that Bulgaria is ready [to join the Euro group]. And if Bulgaria is applying I support this heartily.”

There are unfortunately some additional things to consider from Bulgaria’s status in the EU. Skepticism may come from the country’s status of being the most corrupt country in the EU according to Transparency International. Additionally, the Balkan state is the poorest country in the Union, with a GDP per capita almost 80 per cent under the Eurozone average. Moreover, Bulgaria’s living standard values are less that half of the EU average, which together with other factors may raise eyebrows for countries that fear an iteration of the Greek scenario. This may trigger insecurity, given that the country’s low GDP per capita, as joining the Euro-area may lead to faster rates of growth and consequently higher inflation and interest rates for all member states.

At the same time, although less urgent, there is the question of the political vis-à-vis economical significance of the Convergence Criteria altogether. For example, the government debt criterion includes a proviso in case it exceeds 60%, granted that it will “diminish sufficiently and approach the reference value at a satisfactory pace,” as stipulated by Art. 104c(b). This would not include Germany, Greece, nor Austria, who had vastly exceeding debt values. Moreover, budget deficit values are fairly weak, given that countries have a way of manipulating them either by fraud, such as Greece, or alternative accounting, such as Belgium, France, and Italy; this produces temporarily low budget deficit numbers which may make the requirement less strong. Thirdly, the criterion of ERM has been overlooked in the past, such as in the case of Italy. All three, together with the evolution of inflation rates within the area, show that the Maastricht criteria may be more political tools, given the fact that even founding countries disregarded them upon formation in 1998-9, but this topic is less significant for the discussion of Bulgaria’s access in the next years, but might support the point that it is political will, more than economic, that which grants access to the Eurozone.

Bulgaria’s case, somewhat divided between its status within the EU and its economic performance within the group, is strongly in support of this project. Its Finance Minister Vladislav Goranov stating that “joining the ERM would be a good assessments of the efforts the Bulgarian society is making and the confidence it has in the common European idea.” Indeed, Eurobarometer polls show Bulgaria as being among the highest countries in favor of the Euro and of the EU as a whole, with a little over 50 percent of those interviewed being in favor, only surpassed by Romania and Croatia. Moreover, the proposal of the European Commission to offer “pre-accession” aid to governments willing to join the EU may provide the financial backing and growth opportunity to shift Bulgaria’s status more up to par. In December, EU leaders will hold a “euro” summit for all member states. That may be a significant moment to assess Bulgaria’s financial future, political stability, and belief in the EU. We are left to see if this ambition, and internal political support, will last within the European political climate in the longer term as well.