20.01.2023

As the date of 1 January 2024 approaches the topic of preparing for the adoption of the euro as a national currency is gaining momentum in the country’s public and political life.

We often hear the question: “Is the Bulgarian economy ready for this change?”. I can firmly say that the Bulgarian economy has advanced significantly in its preparation for the introduction of the euro and for its future successful functioning in the euro area. The process of nominal and real convergence is taking place in a sustainable way, the banking system is liquid and sustainable, public finance legislation fully complies with the EU framework and structural reforms aimed at improving the competitiveness of the economy are being implemented.

Along with the economic benefits, the introduction of the euro is also expected to lead to institutional convergence with the developed EU countries, especially as far as the quality of the Bulgarian institutions and the citizens’ confidence in them is concerned. The great importance of Bulgaria’s institutional convergence with euro area member states is conditioned by the expectation that the improvement in the quality of Bulgarian institutions will have both social and economic benefits.

I believe that our country’s accession to the most developed economic and monetary union in the world and the introduction of the second global reserve currency as ocial currency will make Bulgaria more prepared for both the current and the subsequent crises that it may face. Achieving long-term sustainability will be facilitated if our country is a member of the euro area.

The deepening of the integration processes on the common market, capital and financial markets and the availability of a number of supranational policy instruments expands the ability of governments to plan their actions and address the challenges of the future. All this leads to predictability and greater stability, which favours businesses by galvanizing investment, which in turn benefits citizens, as it leads to increased employment and improved quality of life and well-being.

And yet, it is important to underline that we need to be careful about the potential challenges of euro area membership. They mostly result from the “incompleteness” of the Economic and Monetary Union, in view of the absence of a fully-fledged fiscal union. It should be noted that the Economic and Monetary Union is an ever-evolving and developing ‘organism’ and, for instance, after the global financial crisis of 2008-2009, the fiscal governance framework underwent significant changes, with some shock-addressing mechanisms having been set up and the NextGeneration EU instrument having been created in the context of the COVID-19 pandemic. The philosophy behind structuring this instrument is the turning point in the development of the European economic governance. In this sense, it could provide the prerequisites for a decisive leap ahead in the process of European integration and the conclusions of its operation could be the basis for a future debate on the setting up of a permanent fiscal capacity to contribute to the process of completing the architecture of the Economic and Monetary Union.

These challenges can be addressed by preserving the achieved macroeconomic stability, which must continue to be protected through structural reforms and strict fiscal discipline. Although the introduction of the euro is a factor that will create preconditions for the acceleration of Bulgaria’s convergence to the developed EU countries, it is not a “panacea” for dealing with all its diculties and targeted policies are needed to increase productivity and support growth in order for Bulgaria to make the most of the introduction of the single European currency

We are entering the new 2023 year with some progress made under the Action Plan for the implementation of the subsequent commitments following the accession of the Bulgarian lev to the Exchange Rate Mechanism II. We continue our hard work towards the final implementation of the remaining commitments in the non-banking sector, some aspects of the framework of public enterprise governance, the insolvency and anti-money laundering framework, with the relevant legislative changes having been made and submitted to the National Assembly.

Another aspect where the efforts made turned out eective is the fulfilment of the nominal criteria for euro area membership. The estimated government deficit for 2022 on an accrual basis is expected to amount to around 2.9 % of GDP, which is within the criteria of the Stability and Growth Pact and provides a sound outlook for the convergence assessment in the report of the European Commission and the ECB. At this stage, the only serious challenge for us is to meet the inflation criterion.

Article by the Minister of Finance Rositza Velkova for the 73^th issue of the ABB quaterly bullietin.