The European Commission said in its convergence report released on June 7 that Bulgaria did not yet meet the conditions for adopting the euro, but that conclusion would have come as no surprise, given that Bulgaria remains outside the euro “waiting room”, the Exchange Rate Mechanism (ERM2).
Of the five Maastricht criteria, as the conditions for joining the common European currency are known, Bulgaria met the three key ones regarding economic performance – price stability, public finances and long-term interest rates convergence.
Regarding price stability, Bulgaria’s average inflation rate of -1.0 per cent was well below the reference value of 0.7 per cent and was projected to remain well below the reference value in the months ahead, the EC said. Bulgaria’s annual harmonised consumer price index, calculated for comparison with EU figures, has been negative since the summer of 2013, thanks to “an unusually strong combination of disinflationary factors,” the convergence report said.
Bulgaria’s deficit and public debt ratio were also within the thresholds set by the Commission, while its average long-term interest rate in the 12 months ending in April was 2.5 per cent, below the reference point of four per cent.
The two criteria where Bulgaria fell short was not being a member of the ERM2 – a perfunctory requirement given that the Bulgarian lev has been pegged to the euro since the launch of the common European currency in 2002 and was pegged to the German mark for five years before that – and the fact that its legislation on the central bank’s operation was not fully compliant with the Treaty on the Functioning of the European Union.
Joining the ERM2, in particular, is seen as mainly a political factor, as it must be approved by the current members of the euro zone. However, there has been little appetite for expansion in recent years, as the euro zone has struggled through several phases of the Greek debt crisis.
Among other factors that the EC considers as part of its convergence report, but which are not strictly part of the Maastrich criteria, the Commission said that Bulgaria’s external balance recorded a “significant surplus” in 2015 and its economy was “well integrated with the euro area through trade and investment linkages”.
However, its business environment still lagged behind most euro zone member states and an in-depth review earlier this year found that “Bulgaria continues to experience excessive macroeconomic imbalances”. The country’s banking system, despite being well integrated in the EU financial sector, still had “fragilities” and the Bulgarian economy was characterised by “high corporate indebtedness in a context of limited labour market adjustment.”
(Photo: Steve Ford/sxc.hu)