Bulgarian Prime Minister Boyko Borissov said he apologises for revealing a secret, but that the Bulgarians should know about the main additional condition for the country’s accession to the eurozone. Krassen Nikolov has the story.
Krassen Nikolov is a journalist specialised in judiciary affairs. He works for Mediapool and is a regular contributor for BulgarianPresidency.eu for the six months of the Bulgarian Presidency of the Council of the EU.
At the beginning of the Bulgarian Presidency of the Council of the EU, Finance Minister Vladislav Goranov announced that by June this year Bulgaria should apply for admission to ERM 2, popularly called the eurozone waiting room. His initiative was judged to be too ambitious, but it was nevertheless accepted positively. Now Prime Minister Boyko Borissov poured cool water, announcing that by June the country cannot meet all the conditions.
On Thursday (26 April), Borissov disclosed that a condition had been imposed on the country for acceding to ERM2, namely to join the Banking Union. He apologised to the European Central Bank and the eurozone leaders for publicly announcing this detail of the talks, adding that the Bulgarian society should know what the government is doing.
The prime minister said talks currently focused on the EU’s insistence that Bulgaria first joins the Banking Union and only then ERM2. The Bulgarian position is that Bulgaria should enter ERM2 first, and “the next day” the country would file an application for the Banking Union. The official Bulgarian position is that the country will become part of the Banking Union at the moment of joining the eurozone, not earlier.
The five official conditions for adopting the euro are the levels of public debt, inflation, budget deficits, interest rates and ERM2 membership. Bulgaria meets these conditions, and therefore its membership in ERM2 should be a formality. The problem for the country is that there are two unofficial conditions that will be hard to meet.
The difficult conditions
Through the Bank Union, the European Central Bank has the right to directly control the three largest banks in the country, but it can also check the smaller ones. The largest banks in the country are the Italian Unicredit Bulbank, DSK (owned by the Hungarian OTP) and Bulgarian FIBANK, which in recent years had serious problems and had to be bailed by the state.
The second condition is the so-called economic convergence. The main problem facing Bulgaria is the convergence of the living standards with that of the Eurozone countries. The nominal GDP per capita in the country is about $8,600 in 2017, which is 25% of the EU average. Things are better if the GDP is considered und the criterion of (PPP) purchasing power parity, which primarily measures the standard of living. By this indicator, the Bulgarian GDP is just over $ 22,000 per person or about 53-55% of the EU average. One of the main, albeit unofficial criteria, is that the candidate meets at least 70% of the EU average for this indicator. Bulgaria needs at least another five or seven years of good economic growth to meet this requirement.
Reportedly, Sofia has negotiated with EU Vice President for the Euro Valdis Dombrovskis to be given a roadmap to help the country in its efforts to meet all the criteria for membership in the eurozone. The Commission has no formal role in the process but promised political support for Bulgaria if it fulfills the criteria. The roadmap will contain specific deadlines.
Rare political unity
Bulgaria’s eurozone candidacy highlighted a rare manifestation of unity in the country’s political circles. Borissov made this statement at a conference in Sofia, organized by the leader of the Party of European Socialists (PES) Sergey Stanishev (who is a former Prime Minister and former leader of the Bulgarian Socialist Party) and the MEP Eva Maydell (EPP, formerly Eva Paunova). Stanishev is also part of the circles that favour the rapid adoption of the euro.
Earlier this week, EU Economic and Monetary Affairs Commissioner Pierre Moscovici welcomed Bulgaria’s enthusiasm for the euro, but reminded the convergence criteria. Speaking to Dnevnik website, he explained that it is important not only to have formal but also real alignment with the countries with a single currency, because in his words Bulgaria needs to be well prepared.
‘We work with Brussels’
“Together with the European Commission, we are currently working on preparing the euro area application documents [the application for ERM2], to file them, to receive a roadmap, as we have agreed with European Commission Vice-president and finance commissioner Valdis Dombrovskis. Out of the criteria we have completely met four out of five, and the fifth is formal”, Borissov said.
Responding to a question why Bulgaria is giving up the ERM2 application this year, Borissov explained that the European institutions do not like to be given deadlines.
“Life there is running slower”, Borissov said, adding: “I am not so optimistic that within 2-3 months this will happen. I am optimistic that within a year we can be successful, because the attitudes are now more about dividing Europe than removing barriers”.
Dombrovskis said in Bulgaria that the new term is “much better and more realistic”. He reminded, however, that the Commission has no formal role in this process.
According to Borissov, European societies are still afraid to allow Bulgaria to move closer to joining the euro. “The fears after the Greek crisis and the huge debts that countries in the south have are fueling fears among Europeans. In the roadmap there are deadlines and criteria – what they expect from us, first to join the Banking Union and then the “waiting room” of the euro area”, Borissov said.
The biggest fears are in Germany, which assumed the lion’s share in the Greek bailout. The official circles of Germany know that Bulgaria now respects discipline, but are not sure that this will continue after the adoption of the euro. The main doubt is about the role of the Bulgarian institutions, which must ensure stability. The Bulgarian Central Bank suffered a loss of confidence over the bankruptcy of the Corporate Commercial Bank, and the deputy governor at that time is even charged for not having kept control.
‘Historic window of opportunity’
“There are issues on which it is important to have united positions. If, for the future of Europe, the eurozone, Bulgaria’s membership in Schengen we are not united, we will not be successful”, Stanishev said. According to him there was now a “historic window of opportunity” which Bulgaria should use, because in his words the price of non-entry into the eurozone would be enormous.
“We share the understanding that the time has come for Bulgaria to take concrete steps to enter the eurozone,” Stanishev said, adding: “If we now miss the momentum of taking the first step, we risk delaying this process indefinitely. He reminded that the European Parliament elections will take place in a year’s time and it is not clear how the political situation in the EU will change.
Finance Minister Vladislav Goranov mentioned the “hypocritical” attitude of the European leaders, which put additional conditions to Bulgaria for joining the euro area. “If European leaders were sincere in their intentions, such unwritten criteria should not be used,” he said.