Bulgaria, a Balkan nation with a population of 6.4 million, is set to transition from its national currency, the lev, to the euro on January 1st. This significant financial shift marks its entry into the Eurozone, a union of countries that share the euro as their currency.
What is the Euro?
The euro is a collective currency and monetary system that was officially introduced in 1999. Initially, 11 EU member states fixed their currencies to the euro, transitioning fully to euro banknotes and coins by 2002. The European Central Bank (ECB) was established to oversee monetary policy and set interest rate benchmarks for member countries, akin to the role of the US Federal Reserve.
How Do Countries Join the Euro?
Joining the euro requires meeting four essential criteria: maintaining low inflation, keeping deficits and debt manageable, sustaining low long-term interest rates, and ensuring a stable exchange rate with the euro. Countries must first spend two years in a “waiting room” where their currency’s fluctuations against the euro remain minimal, proving economic alignment with the Eurozone.
Approval for membership is determined through a qualified majority vote by EU member governments, needing at least 55% approval from member states, representing a minimum of 65% of the EU population. Post-admission, nations must follow regulations that limit debt and deficits, safeguarding the integrity of the euro.
Bulgaria’s Situation
Recently, the European Commission confirmed that Bulgaria meets the necessary requirements for euro adoption, with support from the ECB. A vote among EU finance ministers is scheduled for July 8, and officials indicate that this vote is expected to pass.
Bulgaria’s unique position stems from its early peg of the lev to the euro during the monetary union’s inception in 1999, even before EU membership in 2007. With a debt-to-GDP ratio of only 24.1%, significantly beneath the Eurozone’s 60% criteria, Bulgaria has notably stabilized inflation rates, ensuring they remain below the established benchmarks.
Despite these positive indicators, concerns about corruption and money laundering within the country persist. However, both the European Commission and the ECB recognize Bulgaria’s advancements in addressing these issues.
Public Opinion on the Euro in Bulgaria
According to the latest Eurobarometer poll, public sentiment is mixed; 50% of Bulgarians oppose the euro while 43% support it. Citizens express concerns about inflation, a lack of trust in governmental institutions, and conflicts of information circulating on social media.
This debate has been fueled by nationalist politicians promoting a return to the lev. President Rumen Radev recently suggested a referendum, which parliament rejected, while misinformation claims the euro might lead to confiscation of dormant bank accounts or surveillance through a digital euro.
Following the January 1 transition, cash machines will dispense euros exclusively. However, both currencies will co-circulate for a month, with lev notes exchangeable at banks for 12 months and indefinitely at the Bulgarian National Bank.
Advantages of Euro Membership
Adding the euro to its economy could lead to lower interest rates for individuals and businesses, simplifying cross-border trade within the Eurozone. Companies will benefit from reduced currency exchange risks, and travelers will enjoy commission-free exchanges when visiting other EU countries.
Becoming a member also grants representation on the ECB’s council, giving countries a voice in shaping monetary policy across the Eurozone.
Potential Disadvantages or Risks
One downside of euro adoption is the loss of certain economic controls, including the ability to set independent interest rates and flexibility in government spending and deficits. Countries can no longer devalue their currency to remain competitive.
The memories of the Eurozone crisis from 2010-2015 still resonate. After Greece revealed inflated debts, the resulting market instability prompted bailouts for several countries that required strict austerity measures, leading to significant hardships for many citizens.
Has the Euro Strengthened Since the Crisis?
Under the leadership of ECB President Mario Draghi, the Eurozone crisis was mitigated in 2012 when he asserted the central bank would do “whatever it takes” to preserve the euro. Various protective measures were established subsequently, including a Eurozone bailout fund and enhanced banking oversight by the ECB.
Why Aren’t All EU Members Using the Euro?
While countries agree to adopt the euro upon joining the EU, not all have pursued the necessary economic objectives. There’s no set timeline for adoption. Denmark has an opt-out, while Sweden rejected the euro in a 2003 referendum and lacks a target date for entry. Other non-adopters include Czechia, Hungary, Poland, and Romania.
Poland, the largest EU economy not using the euro, shows little urgency to join, particularly as its economy has significantly grown since the fall of communism, nearing Western standards of living.
Photo credit & article inspired by: Euronews
