site.btaUPDATED EC Says Bulgaria Does Not Fulfil Conditions for Adoption of Euro

Bulgaria does not meet the price stability criterion for adopting the euro, according to the European Commission and the European Central Bank (ECB) Convergence Reports published on Wednesday.

Commission Report

Bulgaria fulfils three of the Maastricht criteria for entry in the Eurozone but does not fulfil the criterion on price stability, the European Commission said in its report. The Commission concluded that Bulgaria does not fulfil the conditions for the adoption of the euro.

Overall, the amended legislation on the Bulgarian National Bank can, once it enters into force, be considered compatible with the relevant provisions of EU law. Bulgaria fulfils the criterion on public finances, the exchange rate criterion and the criterion on the convergence of long-term interest rates, the report says.

The 2024 Convergence Report covers five more Member States which are yet to join the eurozone: Czechia, Hungary, Poland, Romania and Sweden. None of them is ready to adopt the euro. Bulgaria is the only country which meets all conditions but one.

EC Spokesperson Veerle Nuyts said: "Joining the euro is set by a set of rules with very transparent rules and criteria which ensure the equal treatment for countries on their path to joining the euro and underpinning a successful membership. In today's report, we found that Bulgaria currently does not meet all the requirements needed to join the euro area but we we continue to work very constructively with Bulgaria and we welcome their continued ambition to join the euro area as soon as all criteria are met. And as you know, to enable euro area adoption, the Commission has to come with a positive convergence assessment. So today we came with this biannual convergence report. But the carrier could also request a specific report to assess its fulfillment of the convergence criteria when it deems it has fulfilled all the necessary criteria. At the moment, we cannot confirm any specific date."

A Eurobarometer survey published on Wednesday found that 49% of Bulgarians are in favour of joining the eurozone, 44% of respondents think the introduction of the euro will have positive consequences for Bulgaria, 71% expect the euro changeover to take place within five years, and 64% are concerned about abusive price setting during the changeover.

The Commission said that at least once every two years, or at the request of an EU Member State with a derogation, the European Central Bank (ECB) and the European Commission must report to the EU Council "on the progress made by the Member States with a derogation in fulfilling their obligations regarding the achievement of economic and monetary union".

Bulgaria warned earlier this year that it would not be ready by June to join the eurozone and that it would ask for an additional assessment in the autumn, the Commission said.

ECB Convergence Report 

The ECB said in its Convergence Report 2024 that as regards the price stability criterion, five of the countries under review - Bulgaria, Czechia, Hungary, Poland and Romania - recorded average inflation rates well above the reference value of 3.3%. The latter is based on the three best-performing Member States over the past 12 months, i.e. Denmark (1.1%), Belgium (1.9%) and the Netherlands (2.5%), taking their average inflation rates over the past 12 months and adding 1½ percentage points.

In May 2024, the 12-month average rate of harmonized index of consumer prices (HICP) inflation in Bulgaria was 5.1%. This rate is expected to decrease gradually over the coming months, as pipeline pressures and supply bottlenecks continue to ease, the ECB said. Core inflation is expected to remain persistently high, mainly reflecting strong wage pressures amid tight labour markets. Unit labour costs grew by 27.4% over the period from 2020 to 2023, which is well above the euro area rate of 9.5%. There are concerns about the sustainability of inflation convergence in Bulgaria over the longer term, according to ECB.

Bulgaria is currently not subject to a Council Decision on the existence of an excessive deficit. Bulgaria's general government budget deficit was 1.9% of GDP in 2023, i.e. well below the 3% reference value, and its debt-to-GDP ratio was 23.1%, well below the 60% reference value.

The Bulgarian lev participated in ERM II in the two-year reference period from 20 June 2022 to 19 June 2024.

Over the reference period from June 2023 to May 2024, long-term interest rates in Bulgaria stood at 4.0% on average and were thus below the 4.8% reference value for the interest rate convergence criterion.

With regard to Bulgaria's legislation, the report concludes that it is consistent with the Treaty and the Statute of the European System of Central Banks, subject to conditions and interpretations set out in the relevant country assessment.