Bulgaria’s Fiscal Council spells out benefits of euro zone entry

A report by Dr Bogomil Manov of Bulgaria’s Fiscal Council, posted on the council’s official website, has spelt out the benefits of the country entering the euro zone – and put several questions that opponents of euro accession will find difficult to answer.

With Bulgaria’s entry into the euro zone, the minimum reserve requirements (MRRs) that commercial banks transfer to the Bulgarian National Bank (BNB) will decrease from 12 per cent to one per cent, Manov said.

In addition, part of the current foreign exchange reserves in the BNB will flow into the country’s currency circulation.

Manov said that all of this would lead to an increase in the liquidity of commercial banks, because they will have much more funds left for various purposes.

“What purposes? Providing additional credit to businesses and households. This, other things being equal, will stimulate consumption and investment, and overall economic growth. Given the existing competition between banks and the desire for new and attracting existing clients from other banks, this will result in a reduction in the interest rate on loans,” he said.

Manov said that in addition to this, a significant portion of the current foreign exchange reserves of the BNB will also be used.

They will gradually return to the domestic credit and financial market.

“This will stimulate the investment process, allow for greater investments in public infrastructure, and stimulate economic activity in the country,” Manov said.

In order to realize all these positives, the credit process must be managed professionally so that there are no credit bubbles and deteriorated liquidity of commercial banks, he said.

Manov asked opponents of the euro:

1. How will we compensate for the losses from higher transaction costs and limited access to capital markets if we do not introduce the euro? Won’t we lose competitive advantages in the presence of these negative circumstances for business and the population?
2. How do we explain to businesses and citizens that we are giving up potentially lower interest rates on loans and an expected higher credit rating upon entering the euro zone?
3. What is our alternative to ensuring long-term financial sustainability if we remain outside the euro zone in the event of possible economic or geopolitical shocks?
4. Why do leading institutions such as the Bulgarian National Bank, the Bulgarian Ministry of Finance, the ECB, the European Commission, the World Bank, and the IMF support Bulgaria’s entry into the euro zone? The fear fueled by Eurosceptics about abandoning the euro is perhaps the worst strategy, if it can be called a strategy at all.
5. Why is it so important to have a strong currency? Why did Donald Trump threaten the BRICS countries in January of this year with 100 per cent tariffs on their American imports if they are not paid in a currency other than the US dollar?
6. Why don’t we want to be part of the big one and enter the euro zone? Fear is the worst possible tactic and the worst strategy.