Bulgaria’s PM Boyko Borissov with the President of the European Commission Jean-Claude Juncker during the opening of the Bulgarian EU Presidency. Photo: Bulgarian government press service

Despite public fears that adopting the single currency will cause prices to rise in Bulgaria, analysts believe the country’s plan to apply to the ERM II mechanism – known as the eurozone’s “waiting room”, will bring benefits to the country.

“Right now, it seems that the opinion is that the benefits for Bulgaria of joining the eurozone are greater than the risks, both among politicians and economists”, Desislava Nikolova, an economist in the Sofia-based Institute for Market Economy, told BIRN.

The decision to speed up adoption of the single European currency by applying for the ERM II by June was announced by finance minister Vladislav Goranov on Thursday.

It won the formal backing of the President of the European Commission, Jean-Claude Juncker, who said at the ceremony marking the start of Bulgaria’s six-month EU Presidency on Friday that the country “will have to join the mechanism as soon as possible”.

“I did not say that Bulgaria will be automatically the next member of the euro zone but it is heading in the right direction,” Juncker said, noting that the country’s public finances are stable and the unemployment is dropping.

“It is not quite enough yet”, the President of the Commission added.

Since Bulgaria joined the EU in 2007, joining the eurozone has been on the agenda of the different governments, but Goranov’s announcement is the first formal commitment from the cabinet to launch the process.

Candidates for the eurozone spend at least two years under the ERM II mechanism, which prepares them for adopting the single currency. In order to enter the euro club, EU member states have to fully meet the so-called Maastricht criteria, which set specific requirements for the public finances of the countries, covering spheres such as public debt, budget deficit and inflation.

“We can wait until we are ready, as many years as needed”, Goranov said.

According to Desislava Nikolova, one of the greatest benefits for Bulgaria of joining the eurozone would be effective European supervision of its banks, which would serve as a guarantee for the stability of the banking system.

“On documents, we cover all standards, but after all, the collapse of the Corporate Commercial Bank [in 2014 – the greatest bank failure in Bulgaria’s history], proved in practice the serious failures of supervision”, she noted.

As a potential drawback from adopting the euro, the economist pointed out that participation in the safeguards against collapses in the eurozone would require financial commitments, as well as fiscal policies that would not be in Bulgaria’s interest, such as the harmonization of taxes.

According to Dimitar Brankov, an economist in Bulgaria’s Chamber of Commerce, Bulgaria’s decision to apply for the ERM II is “a very late measure” due to Bulgaria’s delayed reforms since it joined the EU in 2007.

He pointed out that adopting the euro would cause Bulgaria’s structural risk to fall, which would ease public funding and tax rates for both families and businesses.

He and Nikolova agreed that public fears of high inflation are ungrounded, as the recent experience of the Baltic countries has shown.