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The eastward expansion of Europe’s 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 European Commission on Wednesday means Bulgaria’s ambition of joining the Eurozone at the start of next year will be frustrated. Their review also confirmed Romania’s hopes of euro membership remain as distant as ever.
The ECB and commission said the two countries on the Black Sea coast — which are among the poorest EU members — had inflation that was too high compared with the rest of the bloc and expressed doubts about whether their institutions were strong enough to tackle corruption and money laundering.
Both countries are seeking to follow in the footsteps of Croatia, which became the 20th country to adopt the euro at the start of 2023.
Bulgaria is the closest country to Eurozone membership, having pegged its lev currency to the euro for years, allowed its biggest banks to be supervised by the ECB and kept relatively low debt and budget deficit levels. If it had met the necessary conditions, Bulgaria could have joined the euro at the start of 2025.
In the commission’s assessment of six non-euro EU countries’ readiness to join the single currency area, Bulgaria fulfilled every criteria except bringing inflation down to EU levels.
Inflation in Bulgaria averaged 5.1 per cent in the year to May, down from 5.9 per cent a year earlier but still well above the 3.3 per cent maximum threshold calculated in relation to other EU members, the ECB said.
While the assessment’s outcome was as expected, Bulgaria’s previous government had hoped the EU executive would exercise leniency given that 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, according to EU and Bulgarian officials.
Bulgarians are split on joining the euro, with recent polls showing 49 per cent are in favour and a similar percentage are against.
The ECB also said Sofia was still “working towards” implementing a number of commitments, including “strengthening its anti-money laundering framework”, and raised concerns about a constitutional amendment allowing the president to appoint the governor or deputy governor of Bulgaria’s central bank as interim prime minister.
Institutional quality and governance were improving but still “relatively weak” in Bulgaria, Romania and Hungary, the ECB said. It cited “weaknesses in the business environment, an inefficient public administration, tax evasion, corruption, a lack of social inclusion, a lack of transparency, a lack of judicial independence and/or poor access to online services”.
Former Bulgarian premier Nikolai Denkov recently told the Financial Times that corruption was also a way for Russia to peddle influence in Bulgaria, a big point of concern for western allies.
The country has been beset by persistent political turmoil, while corruption and organised crime have kept it out of closer integration with other EU peers, allowing only a partial entry into the border-free Schengen zone earlier this year.
Sofia has had six elections in just over three years since strongman former leader Boyko Borisov was ousted in 2021 after anti-corruption protests. Another election is considered likely this year after a vote in June failed to deliver a stable government. Bulgaria remains the EU’s poorest member, with gross domestic product per capita a third below the bloc’s average.
Inflation in Romania was well above the required level after price growth averaged 7.6 per cent in the past year. It also fell short on the ECB’s fiscal assessment, having breached the EU’s debt rules since 2020 and run a 6.6 per cent budget deficit last year — well above the EU’s 3 per cent limit — and little prospect of it falling below Brussels’ target this year.
Overall, the ECB said there had been “limited progress” by non-Eurozone members in converging towards the single currency bloc owing 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 required to join the euro and all except Sweden breached the EU fiscal rules. The quartet are not seeking euro membership, however.
Romania last year set a target to join the euro by 2029, but President Klaus Iohannis has questioned setting any firm date for the country.
