Bulgaria’s caretaker Prime Minister Ognyan Gerdzhikov said on March 1 that his government had the “ambition” to submit a formal application to join the Exchange Rate Mechanism (ERM2), sometimes referred to as the euro “waiting room”.
Speaking to reporters to present the government’s record one month after taking office, Gerdzhikov said that Bulgaria met three of four criteria, but the issue was political and would require consultations with the current members of the euro area. It was a tough task and there were no guarantees of success, Gerdzhikov said, as quoted by public broadcaster Bulgarian National Television.
Bulgaria joined the EU in 2007 and is required, by the terms of its accession treaty, to adopt the common European currency, although there is no deadline for it to do so, nor does the country have an official euro zone entry target.
Of the five Maastricht criteria, as the conditions for joining the euro zone are known, Bulgaria met the three key ones regarding economic performance – price stability, public finances and long-term interest rates convergence.
The two criteria where Bulgaria falls short are 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.
The topic of euro zone accession has not been a major issue in Bulgaria’s relationship with the EU in recent years, overshadowed by the ongoing migrant crisis and, before that, the global economic crisis.
But in recent days, it has become the subject of public discussion, after caretaker Foreign Minister Radi Naidenov raised it last week during a public discussion on the priorities of the upcoming Bulgarian presidency of the EU. The country is scheduled to hold the rotating presidency of the block in the first half of 2018.
Among those pitching in, former prime minister Ivan Kostov, whose government put in place the currency board agreement in 1997 following the banking crisis a year earlier, said that Bulgaria should consider scrapping the currency board unless given the prospect of joining the euro area soon, or risk falling behind in terms of economic growth.
The statement was surprising given that the topic of abolishing the currency board agreement is one of the few issues on which all major Bulgarian parties are in agreement, namely that the currency board guarantees Bulgaria’s financial stability.
Former socialist deputy finance minister and MP Georgi Kadiev was among those critical of the idea, saying on February 28 that although Bulgaria met some of the macroeconomic criteria, the European Commission’s latest convergence report released in June 2016 pointed out “excessive macroeconomic imbalances” and raised questions about the “fragilities” of the country’s banking system.
Kadiev described Gerdzhikov’s recent statements on the issue as politically motivated and questioned the reason why the caretaker cabinet was tackling this long-term issue instead of focusing on “organising the [parliamentary] elections, which is its job.”
(Photo: Steve Ford/sxc.hu)