Nations Next in Line to Adopt Euro Eye Balanced 2020 Budgets

(Bloomberg) --

The governments of Croatia and Bulgaria approved balanced budgets for 2020, continuing their efforts to clean up public finances as they push forward with their efforts to adopt the euro.

While both countries meet the criteria to switch to the single currency, they must overcome potential reluctance from euro-area countries to accept new members in the wake of the Greek sovereign debt crisis and Latvia’s money-laundering scandal.

Bulgaria’s government said it would address weaknesses in its lenders found by the European Central Bank and is vying to join the single currency’s ERM-2 waiting room by April. Croatia is aiming for ERM-2 entry by mid-next year and euro adoption by 2023 after slashing 10 percentage points off of its public debt in the last three years.

“Croatia’s economy will continue to grow at a solid rate,” Finance Minister Zdravko Maric said before the cabinet approved the draft budget at a meeting in Zagreb on Thursday. “The government will use additional revenue to further lower public debt levels and for additional tax easing.”

Euro Obligation

If they switch to the euro, Bulgaria and Croatia will follow Estonia, Latvia, Lithuania, Slovakia and Slovenia which, like all ex-communist countries that have joined the European Union since 2004, pledged to ditch their national currencies.

Of the bloc’s largest eastern members, Hungary, Poland and the Czech Republic have no immediate plans join the euro zone despite being bound by EU law to eventually do so. Romania expressed an interest in May last year after shelving previous plans.

Bulgarian Finance Minister Vladislav Goranov announced the cabinet’s approval of the budget, which returns the Balkan state to deficitless public finances after a military-jet purchase widened this year’s fiscal gap to 2.1% of economic output.

After a bank run five years ago raised the Black Sea state’s deficit beyond EU limits, Bulgaria has been narrowing its budget gaps since 2016 and has one of the bloc’s lowest levels of debt, projected at 17% of gross domestic product by 2022.

Pegged Currencies

Croatia has also successfully overhauled public finances after a record recession that ended in 2014. It exited the EU’s excessive-deficit monitoring procedure last year after running balanced budgets since 2017 and slashing public debt by 10 percentage points to a projected 68% of GDP for 2020.

Both nations’ governments have formally expressed their intention to join the ERM-2. The mechanism limits exchange-rate moves against the euro for two years, which should pose no problem for the Bulgarian lev and Croatian kuna, as they’ve already been synced to the euro for decades.

If the countries meet the convergence criteria at the end of the period, they’ll adopt the euro.

The draft budgets will now go to each country’s respective parliaments for approval.

To contact the reporters on this story: Jasmina Kuzmanovic in Zagreb at jkuzmanovic@bloomberg.net;Slav Okov in Sofia at sokov@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Michael Winfrey, Andrew Langley

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