23.05.2018

According to the Convergence Reports which assess countries’ preparedness to join the Euro area, Bulgaria continues to sustainably cover the four numerical criteria for membership, namely the criteria on price stability (inflation), stability of public finance (budget balance and government debt) and long-term interest rate. This is mentioned in the regular 2018 Convergence Reports of the European Central Bank (ECB) and the European Commission (EC). These reports confirm the conclusions from the previous 2016 reports that our country meets all the numerical criteria for membership in the euro area.

Bulgaria successfully meets the criterion on price stability: according to data until March 2018 the 12-month average rate of inflation was 1.4%, i.e. below the reference value of 1.9%. The budget balance for 2017 is positive, amounting to 0.9% of GDP, with an established limit for the deficit of the general government sector of 3% of GDP; the gross government debt/GDP ratio of 25.4% is well below the reference value of 60%, which makes Bulgaria the country with the third lowest level of government indebtedness among EU countries. Bulgaria's long-term interest rate in the period April 2017 – March 2018 stood at 1.4% on average, again below the reference value of 3.2%.

In terms of the criterion on the exchange rate developments, the Bulgarian lev does not participate in the Exchange Rate mechanism of the European Monetary System, i.e. ERM II, but its exchange rate was fixed at 1.95583 levs per euro within the framework of the existing currency board arrangement and for this reason it did not show any deviation in the period 4 May 2016 – 3 May 2018. The country will fulfil this criterion when the Bulgarian lev joins the ERM II.

In the context of the full-fledged membership of the country in the euro area, the reports recommend that Bulgaria continues its steps towards ensuring a robust environment that is conducive to sustainable convergence by means of structural reforms and stability-oriented economic policies.

The Convergence Reports also contain findings as to the compatibility of the Bulgarian legislation, on the one hand, with the Treaty and the Statute of the ESCB, on the other hand:

• The national legislation provides for additional grounds for dismissal of the members of the Governing Council of the BNB, which do not exist in the European law. This is the possibility, laid down in the Law on Counter-Corruption and Forfeiture of Unlawfully Acquired Assets, a member of the Governing Council of the BNB to be dismissed upon ascertainment of a conflict of interests.
• The national legislation does not provide for an explicit possibility the members of the Governing Council of the BNB to appeal against the decisions on their dismissal in a national court.
• The national legislation prohibits the central bank to finance the Bulgarian government and other bodies and institutions. According to the ECB, this prohibition needs to be extended so as to clearly include a prohibition of the financing of public institutions and bodies of the EU or other Member States.

The same findings have been included in the previous Convergence Reports, too, recommending that the relevant parts of the Bulgarian legislation mirror the EU law.

The position of Bulgaria, whereof the European Commission and the ECB have been made aware in connection with this report and the previous reports, is as follows:

• The above provisions in the Bulgarian legislation reflect the higher degree of conservatism and specificities of national law in relation to the grounds for dismissal of the members of the Governing Council of the BNB.
• The general provisions of the Bulgarian national law provide for the possibility of lodging an appeal against decisions on dismissal of all members of the Governing Council of the BNB, as the ECB itself points out in its report, even though there is no specific provision therefor in the Law on the BNB or in other special laws.
• The prohibition of financing of other bodies and institutions also includes the ones of the EU or other Member States, even though this is not explicitly laid down in the Law on the BNB.
• Changes to the Bulgarian legislation aimed at creating additional legal certainty in accordance with the interpretations of the ECB, can be introduced at short notice in the period preceding Bulgaria’s accession to the euro area.