EU's Moscovici Urges Bulgaria Not to Rush With Euro Adoption

(Bloomberg) -- Bulgaria will be the next euro-area member, but it should take time to strengthen its economy and institutions to avoid a Greek-crisis scenario, European Union Economic and Monetary Commissioner Pierre Moscovici said.

The Balkan nation, which holds the EU’s rotating presidency through June, is seeking to advance its euro aspirations this summer by bidding to enter the exchange-rate mechanism, the precursor to the single currency. It’s expecting a road-map to euro adoption, Prime Minister Boyko Borissov said Thursday after meeting Valdis Dombrovskis, the EU’s financial-services policy chief. Speaking Friday to Bulgarian television, Moscovici declined to discuss a time frame.

EU's Moscovici Urges Bulgaria Not to Rush With Euro Adoption

“Let’s not talk about timetables -- Bulgaria must be well prepared and this doesn’t happen overnight,” Moscovici said. “Looking at Greece, they didn’t have enough time to prepare, joined the euro area unprepared and this led to a crisis. Bulgaria must join with a strong economy. Convergence is fundamental. It must have strong institutions and be part of the banking union.”

The EU’s poorest member by per-capita economic output meets the formal criteria for admittance into the ERM-2. Its currency, the lev, is already pegged to the euro, public debt is well below the euro-area average and the EU cap, and the nation has a budget surplus. Approval has become a matter of political will from the bloc’s authorities.

Sequencing Issues

While Bulgaria’s bid to become the euro region’s 20th member has garnered support from the leaders of Germany and France, some EU finance officials point to issues ranging from convergence of incomes to governance and the need for the country to put it’s main lenders under the European Central Bank’s oversight.

The European Commission supports Bulgaria’s work toward euro accession, but there are new conditions now, according to Dombrovskis.

“When we discuss euro-area enlargement, we must keep in mind some new elements, for example, now joining the euro area also means joining the banking union,” Dombrovskis told reporters in Sofia. “There are some discussions on how exactly to do the preparatory works both toward joining the euro and joining the banking union because nowadays those two things are closely linked.”

Bulgarian Finance Minister Vladislav Goranov said the country is working on the two accession processes in parallel, but rejected suggestions that banking-union entry should happen before ERM-2 accession. Borissov said Thursday that Bulgaria is prepared to join the banking union after being accepted into ERM-2.

‘Disproportionate Approach’

“Those who share the opinion” that ERM-2 entry should be preceded by joining the banking union “are imposing a disproportionate approach which treats member states unequally,” Goranov told the same briefing. He said the plan to apply for ERM-2 by June hasn’t changed.

The central bank sees risks in joining the banking union before becoming a euro-area member as Bulgaria would have to contribute to the Single Resolution Mechanism without access to funds for bank recapitalization or ECB liquidity.

A country that’s not using the euro “will face hugely asymmetric treatment” in joining the banking union, Deputy Governor Kalin Hristov said in an article in the Eurofi Magazine, according to the bank’s website.

Goranov said Thursday that rejecting his country’s application for ERM-2 would mean the EU is applying double standards and breaching the Treaty principle of equal treatment for all members.

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