Bulgaria gives up its goal to join eurozone in 2024
Bulgaria will not join the eurozone on 1 January 2024, a target date the country had announced three years ago, Finance Minister Rositsa Velkova said in Sofia on Friday (17 February), instead setting a new target date for the entry for exactly one year later.
She said Bulgaria was due to speak about its readiness to adopt the euro at a Eurogroup meeting on 13 February but was not given the floor although the item was on the agenda. The official explanation was that the country is lagging behind in adopting the necessary legislation and does not meet the inflation criteria.
Talks have been held within the Eurogroup to request a new assessment of Bulgaria’s readiness in the summer, provided all commitments are met.
“The new target date is 1 January 2025, and the assessment of Bulgaria’s readiness can be requested this year,” said Velkova.
Bulgaria has made a commitment to adopt several laws while in the eurozone’s waiting room, the so-called ERM II exchange rate mechanism. Among them is the adoption of the personal bankruptcy act, changes to the anti-money laundering act, as well as to the insurance code related to European Green Card.
All these bills were prepared and introduced by the caretaker government in the parliament, but the parliament was dissolved before they were passed. Bulgaria has been in a protracted political crisis following several inconclusive elections and unsuccessful attempts to form a government.
The biggest problem appears to be the insurance legislation.
‘Third-party liability insurance’
Since 30 January, it became clear that Bulgaria’s chances of joining the Eurozone on 1 January 2024 have been practically reduced to zero. The reason was the further postponement of the adoption of the changes in the Insurance Code, which regulates the repayment of the obligations of Bulgarian insurers for car traffic accidents abroad.
According to the latest data from the end of 2021, about nine million euros are owed to insurers in the EU.
Several parties sabotaged the parliamentary session and prevented the adoption of the changes, including former prime minister Boyko Borissov’s GERB, the mainly ethnic Turkish party DPS (both presenting themselves as pro-European), plus the pro-Russian BSP and Vazrazhdane, and the Bulgarian Rise party of former prime minister Stefan Yanev,
Alexander Ivanov, an MP from GERB, explained that his party was trying to protect Bulgarian consumers from a price increase of the “Civil Liability” insurance.
Insurers, for their part, complain that adopting the legislative changes will lead to higher insurance prices and even bankruptcy of companies.
A few days later, the Bulgarian parliament was dissolved and the country headed for the fifth parliamentary elections in the last two years, due on 2 April.
Referendum against the euro
At the start of this year, the pro-Russian and anti-European party “Vazrazhdane” (Revival) began collecting signatures for a referendum “for the preservation of the Bulgarian lev” and against the country’s membership in the eurozone. Vazrazhdane says it has collected 200,000 signatures so far, half of the required number for a mandatory national referendum.
Party leader Kostadin Kostadinov said adopting the euro could lead to “civil war” in the EU’s poorest country.
Postponing the euro adoption date for Bulgaria will give the party extra time to complete the collection of signatures and hold the referendum, which aims at delaying the eurozone membership by 20 years.
The Bulgarian society is sceptical toward the common European currency because of the high inflation of the last two years. Vazrazhdane is using the euro to increase its own political weight ahead of the 2 April parliamentary election and to spread pro-Russian and anti-European narratives.
Bulgaria is in the group of top three countries in terms of the public debt/GDP ratio – with debt at about 23% of GDP. The country also meets the benchmark for long-term interest rates with the second-best performance after Sweden.
An important Maastricht criterion for joining the European monetary mechanism is price stability, measured by inflation, which should not be more than 1.5% above the three members with the lowest inflation.
Another condition is stable and sustainable public finances, measured by the budget deficit and government debt. The country must have stable long-term nominal interest rates, which must not be more than 2% above that of the three best-performing members on this indicator.
The last condition is the stability of the exchange rate, which requires spending at least two years in the ERM II currency mechanism without a serious depreciation of the local currency against the euro, which is not a problem for Bulgaria as the country has a currency board in which the lev is tied to the euro.