COVID-19 convinces Bulgaria to join the euro

Bulgaria is the country closest to joining the euro. But in February, Prime Minister Borissov hesitated about moving forward. He said that Bulgaria would delay its plans to join the ERM2 Exchange Rate Mechanism, also known as the eurozone’s 2-year obligatory “waiting room”, until July.

Now Borissov says this was a mistake. He says that, in February, he believed that public opinion was not ready. But after seeing how generous the Covid-19 packages are for the eurozone countries, those hesitations have disappeared.

On Wednesday (15 April) Bulgaria’s First Investment Bank (Fibank) revamped a €100 million capital-raising plan, in a crucial step for Bulgaria to join the Eurozone.

Unlike previous accessions to the eurozone, Bulgaria is obligated to join the EU’s Banking Union simultaneously with its accession to ERM-2. The last obstacle was the re-capitalization of Fibank, but now the issue is being resolved as a matter of priority.

Borissov admitted his mistake when he delayed the accession to ERM-2 last February. He explained that at that time, the public opinion was against adopting the euro. Indeed, public opinion in Bulgaria is still divided on the issue, and many believe that prices will skyrocket once the EU currency is adopted.

Borissov said the the European Central Bank (ECB) would disburse “trillions” to support Eurozone members in the Covid-19 crisis, while Bulgaria will need to rely on its own borrowing. The Bulgarian parliament has fast-tracked legislation authorising the government to contract up to €5 billion of foreign debt, a huge sum for the country.

“This is why we will push, very forcefully until the end of April, for the Eurozone”, Borissov said, adding that he has spoken to ECB chief Christine Lagarde and to “everybody from the Commission”.

Bulgaria’s currency, the Lev, is already pegged to the euro. One Lev is equal to what previously was a Deutsche Mark. 

Meanwhile, Kristalina Georgieva, the chief of the International Monetary Fund, has said Sofia’s ambitions to join the ERM-2 mechanism and adopt the euro currency in 2023 are “completely foreseeable”.

The Eurogroup agreed last week on a number of measures worth €540 billion to help cope with the economic implications of the COVID-19 crisis. The ECB and the European Investment Bank are now offering much-needed liquidity to businesses, especially SMEs, which have been hit hard by the lockdown measures.

“Anyone in the banking union, in the ERM-2 or in the Eurozone can use trillions of euros to recover. Who is not a member, is left to cope alone,” Borissov said.

At an EU summit on 23 April, more is expected to come in terms of a Corona Fund, but it’s not clear yet how this will be financed. The European Parliament’s largest political groups back the issuing of ‘recovery bonds’ guaranteed by the EU budget.

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