Bulgaria Determined to Enter Eurozone; EU Reluctant
In January, Bulgaria ramped up its campaign to adopt the Euro as its currency. The country is determined to submit a formal application to join the Eurozone in June. Since joining the European Union in 2007, Bulgaria is ready for this step-toward greater economic and fiscal convergence.
However, the European Commission and European Central Bank are uncertain. Not only does Bulgaria have the weakest economy in the EU, but fear of repercussions due to their high level of corruption and ongoing struggle to enact judiciary reform, has hindered their application to the eurozone.
For Bulgaria, joining the Eurozone’s exchange rate mechanism is a mandatory part of its EU membership, and it has long met this exchange criteria. The Exchange Rate Mechanism was adopted by the European Union in 1999 in order to stabilize and centralize the process as member states created a single currency: the Euro. The procedure included fixing exchange rates and centralizing in the European Central Bank.
Bulgaria has remained adamant about its qualifications. Prime Minister Borissov has consistently asserted that “We have done our homework for the eurozone... any moment they invite us we will enter”. The criteria for entrance are: price stability, government budget deficit, exchange rate stability, and its long term interest rate. Bulgaria's economic situation is well within the Eurozone’s standards: twenty years of stable exchange rate between the Bulgarian Lev and the Euro, one of the lowest levels of debt in the EU, 1.8% inflation rate, and a current budget surplus.
Yet, the EU continues to have reservations over Bulgaria’s Eurozone membership. Despite its stability, Bulgaria has the poorest economy in the EU, measured by a GDP that is half of the EU average. Stronger Eurozone Economies, such as Germany, believe it would not be wise to fiscally converge with Bulgaria. Germany fears it would create an opportunity for a potential second Greek economic crisis but in Bulgaria this time.
Eurozone member states are also fearful of negative effects from high rates of Bulgarian corruption. These concerns skyrocketed after the Latvian banking scandal. Bulgaria claims this excuse is unfounded noting that recent Eurobarometer corruption data marks Bulgaria’s corruption rate lower than that of other Eurozone countries, such as Spain.
The Eurozone is further deterred by long time questions regarding Bulgaria’s legal standards. Bulgaria is still being monitored by the EU for the effectiveness and the independence of their judiciary. The Eastern European country is determined to complete judicial reform. In the meantime, they see the issue as separate from fiscal Euro convergence.
Bulgaria is determined to apply in June regardless of anticipated Eurozone rejection. For Bulgaria, adopting the Euro is not only a necessary step but one that will strengthen their economy and stabilize Bulgarian investment.
For the EU, apprehensions over Bulgarian Eurozone membership hazard furthering EU faultlines. The EU is based on a system of strict regulation and requirements, but there is growing thought of politicization and bending of these rules. Under EU regulation, Bulgaria can and must adopt the Euro. Continued deferral brings a level of subjectivity that questions the validity of EU regulations. Second, if denied, the EU risks furthering East-West tensions. Denial of the request would exacerterbate a pattern of what Eastern European countries criticize as being treated like “second class” EU countries. These tensions would further strain EU unity.
As the events develop and June approaches, the EU struggles to define its stance, noting the potential detriments of both denial and acceptance of Bulgaria’s imminent Eurozone application.