Bulgaria will not achieve its self-imposed goal of adopting the Euro on January 1, 2024 because, according to the other Eurozone members, the country is lagging behind with the adoption of the relevant legislation and also does not meet the inflation criterion. So said caretaker Finance Minister Rossitsa Velkova on Friday, 17 February on her return from a Eurogroup meeting where she was due to relate Bulgaria's progress towards the adoption process at a (canceled) hearing.
Sofia's new concrete (intended) adoption date is unclear. This depends on whether and when the country fulfills the requirements for joining the common currency and, in Ms Velkova's words, could happen as early as mid-2024 - but could also be delayed to 2025 or even later. So far, all countries have joined the eurozone from the beginning of the calendar year, but, as Ms Velkova pointed out, there is no legal requirement for this and an agreement could realistically be reached for the first date of any month.
Any postponement, however, could lead to a downgrade of the country's rating, a rise in interest rates on the country's debt and ultimately to an indefinite deferral that might last as long as a decade. Thus, the responsibility falls on the next parliament and the potential ruling majority to adopt the requested legislative changes and ensure that the country fits the criteria for a low budget deficit. That is, Bulgaria is being asked to show its European partners that it is not only willing, but also capable of doing its homework.
You are not ready, the Eurogroup saysAt the Eurogroup meeting on 13 February, attended by the finance ministers from the Eurozone, Bulgaria was supposed to present its readiness to join the currency union. Although the item was on the agenda, the hearing never took place.
After talks with European Commission Vice-President for Economic Affairs Valdis Dombrovskis and Eurogroup President Pascal Donahue, it was decided that Sofia would not submit a request for a Convergence Report - a document, which assesses a country's readiness to join the single currency union - in February, Ms Velkova explained.
Even preliminary talks indicated that other Eurozone members believed that Bulgaria had not met all the criteria. The official reason is high inflation. A country is considered to meet the price stability criterion if, over a one-year observation period, its average inflation rate does not exceed by more than 1.5 percentage points the inflation rate in the three best-performing EU member states. The average Harmonised Index of Consumer Prices (HICP) in the euro area was 8.5% in January, compared to 14.1% in Bulgaria.
Ms Velkova also pointed to another reason - Sofia failed to adopt four legislative changes that it had committed to when it joined the ERM-II mechanism in 2020. These include sections in the insolvency part of the Commercial Law, parts of the Anti-Money Laundering Measures Law, the National Bank law and the notorious changes to the Insurance Code. A boycott by MPs from GERB, MRF, BSP, Vazrazhdane and Bulgarian Rise torpedoed the necessary addendum to the law, which aimed to solve the well-known problems with late payments in the Green Card system, to the benefit of the leading insurer in the "Civil Liability" policy "Lev Ins."
According to Brussels sources, another - unofficial - reason for the delay has been the absence of a stable government in Bulgaria. As there is no horizon for the formation of a regular government at least until the autumn, this proves to be an additional obstacle to the adoption of the EU single currency. For both Schengen and Eurozone entry, in addition to meeting technical criteria, a subsequent unanimous vote in the Council (in this case by eurozone countries) is required. That is, such a vote should show a clear commitment from the Bulgarian government that it can cope with fully meeting the Maastricht criteria (even if a concession is made for high inflation at the beginning), and that it will follow a prudent fiscal policy in the future.
According to sources, a kind of informal additional obstacle has become the new round of Magnitsky Act sanctions imposed on Bulgarian individuals for corruption and especially the inclusion of former GERB finance minister Vladislav Goranov.
When can Bulgaria try again?
The next regular Convergence Report is due in the spring of 2024, but Bulgaria can ask for one earlier than that. We will submit a request for a Convergence Report as soon as we meet our criteria, Ms Velkova said (and reiterated over the weekend, after significant backlash from supporters of euro adoption), adding that if the necessary legislation is passed by the new parliament, the application could be submitted there and then.
Bulgaria is also being asked to produce a draft budget for this and the next two years, where the consolidated deficit would be below 3% of the country's GDP. It also remains to keep an eye on inflation - so far it is forecast to start falling this year. National Statistics Institute data shows that the peak of price increases had already taken place in September of last year. However, the decline from the peak has been very slow so far.
According to Ms Velkova, Eurozone membership could be pushed back to 1 July 2024, 1 January 2025 or a later date. "The new target date is January 1, 2025, but the assessment could be requested this year," said the Finance Minister.
First reactions: trading accusations and taking the "credit"
The declared supporters of the Euro adoption and their opponents reacted to the news very differently. The latter, especially Vazrazhdane, which claim to have collected almost 250,000 signatures for a national referendum for maintaining the Bulgarian lev, applauded the government's decision not to ask for a Convergence Report. They called it a "demonstration of respect for the will of the hundreds of thousands of Bulgarians" who signed their petition, which is a de facto call against the euro. BSP leader Kornelia Ninova also applauded the decision, claiming that the required curbing of inflation to under 3% would have meant shrinking the income of workers, increased poverty and wider inequalities.
On the other spectrum, GERB and the parties of the reformist bloc traded blows over who is to blame for the delay. "The colleagues from Vazrazhdane should know that it was not them, but Kiril Petkov and Assen Vassilev who postponed Bulgaria's membership of the euro area. They are the ones who should take the credit," GERB politician Toma Bikov said. On the other side of the barricade, Democratic Bulgaria blamed the blockage of the Insurance Code amendments and the role of GERB and MRF in it for the delay.
Finally, WCC politician and ex-PM Kiril Petkov claimed that it is not too late for Bulgaria to join the Euro on 1 January next year if the country gets a regular cabinet after the 2 April vote, and urged Finance Minister Velkova to "show leadership" and demand a Convergence Report as soon as possible.