Unlock the Editor’s Digest for free
Roula Khalaf, editor of the FT, selects her favorite stories in this weekly newsletter.
The eastern expansion of the European single currency has suffered a setback after Bulgaria and Romania failed to meet the economic criteria needed to adopt the euro.
The decision announced by the European Central Bank and the European Commission on Wednesday means Bulgaria’s ambition to join the eurozone early next year will be frustrated. Their assessment also confirmed that Romania’s hopes of joining the euro remain as remote as ever.
The ECB and the commission said the two Black Sea countries – which are among the poorest EU members – had inflation that was too high compared to the rest of the bloc and expressed doubts about whether their institutions were strong enough to tackle corruption and money. money laundering.
Both countries are trying to follow in the footsteps of Croatia, which became the twentieth country to adopt the euro in early 2023.
Bulgaria is the country closest to joining the eurozone. The country has pegged its lev currency to the euro for years, kept its largest banks under ECB supervision and kept its debt and budget deficits relatively low. Had Bulgaria met the necessary conditions, Bulgaria could have joined the euro in early 2025.
In the commission’s assessment of the willingness of six non-eurozone EU countries to join the single currency area, Bulgaria met all criteria, except for bringing inflation back to EU levels.
Inflation in Bulgaria averaged 5.1 percent in the year to May, compared with 5.9 percent a year earlier, but still well above the maximum threshold of 3.3 percent calculated against other EU member states, according to the ECB.
Although the outcome of the assessment was as expected, Bulgaria’s previous government had hoped that the EU executive would show leniency as Sofia is expected to meet the price stability criterion later this year.
Instead, the commission has agreed to reassess the country’s suitability to join the euro at Bulgaria’s request, rather than waiting for the next regular review in two years, EU and Bulgarian officials said .
Bulgarians are divided over joining the euro. Recent opinion polls show that 49 percent are in favor and a similar percentage are against.
The ECB also said that Sofia is still “working towards” fulfilling a number of commitments, including “strengthening the anti-money laundering framework”, and expressed concern about a constitutional change that would make the president the governor or deputy Governor of the Bulgarian Central Bank as President. interim prime minister.
Institutional quality and governance improved but were still “relatively weak” in Bulgaria, Romania and Hungary, the ECB said. The ECB cited “weaknesses in the business environment, inefficient public administration, tax evasion, corruption, a lack of social inclusion, a lack of transparency, a lack of independence of the judiciary and/or poor access to online services.”
Former Bulgarian Prime Minister Nikolai Denkov recently told the Financial Times that corruption is also a way for Russia to exert influence in Bulgaria, a major concern for Western allies.
The country has been plagued by ongoing political unrest, while corruption and organized crime have prevented the country from closer integration with other EU countries, allowing only partial access to the border-free Schengen zone earlier this year.
Sofia has had six elections in just over three years since former strongman Boyko Borisov was ousted in 2021 following anti-corruption protests. New elections are considered likely this year after a vote in June failed to produce a stable government. Bulgaria remains the poorest member of the EU, with a gross domestic product per capita a third below the bloc average.
Inflation in Romania was well above the required level, after price growth averaged 7.6 percent last year. The country also failed to meet the ECB’s budget assessment as it has breached EU debt rules since 2020 and had a budget deficit of 6.6 percent last year – well above the EU limit of 3 percent – and little prospects were that the deficit this year would fall below the Brussels target. .
Overall, the ECB said “limited progress” had been made by non-members of the eurozone in convergence towards the single currency bloc, due to “challenging economic conditions” caused by the fallout from Russia’s invasion of Ukraine.
The other four countries assessed – Poland, the Czech Republic, Hungary and Sweden – also had inflation above the level needed to join the euro, and all but Sweden breached EU budget rules. However, the quartet does not aim for membership of the euro.
Romania set a target last year to join the euro in 2029, but President Klaus Iohannis has questioned setting a definitive date for the country.