During the Economist Conferences’ Eighth Business Roundtable with the Government of Bulgaria, PM Borisov declared his government would make every effort to adopt the euro as the country’s currency before its term expires in 2014. Bulgaria has begun negotiations to join the European Exchange Rate Mechanism II (ERM II), meaning it may be able to join the Eurozone in as little as two-and-a-half years, the prime minister said.
Analysis and forecast: decreasing risk
The government’s decision to pursue membership in ERM II and the Eurozone is a step toward long-term economic stability that will boost confidence among foreign investors and financial institutions. Any delay or hesitation on the road to euro adoption may turn back the advantages Bulgaria has attained through its decade-old currency board, which pegs the lev to the euro and keeps currency speculators at bay. Bulgaria already meets almost all the Maastricht criteria; if the country maintains a prudent fiscal policy, it will soon meet the last requirement: taming inflation. In other words, the country could completely fulfill the Maastricht criteria during its time in the ERM II, a two-year test of currency stability that is considered a “waiting room” for Eurozone entry. Many analysts note that Bulgaria, unlike other Central European countries, has survived the financial crisis without support from abroad. This indicates that Bulgaria poses no risk to the common currency, they say. Of course, euro adoption is not just a technical question of getting into the ERM II and fulfilling the Maastricht criteria -- it is also a political process. The GERB government needs to demonstrate that the country deserves the confidence of the Eurozone member states, the European Central Bank and the European Commission. Since Bulgaria’s Eurozone entry depends on politics, it is unclear how long the process will last.
Maastricht Criteria Fulfilment in Bulgaria (2005-2008):
Source: Bulgarian Statistics Office, Bulgarian Finance Ministry