A Euro Aspirant Backpedals as Worries Weigh on Prices and Banks

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(Bloomberg) -- Bulgaria postponed a key part of its bid to adopt the euro and will advance only if its banks are ready and there’s a wide consensus among citizens.

After redoubling efforts to join the single currency following a snub in 2018, the Balkan country had planned to enter the ERM-2 -- the euro’s ante room -- by end-April. But with banks continuing to shore up their books and opinion polls showing voters may not be ready, Premier Boyko Borissov said his government was now pushing that back until July.

The delay is a setback for the country of 7 million, which has struggled to overcome being labeled as one of the poorest and most corrupt members of the European Union. While Borissov has envisioned euro adoption as a way to boost living standards that are at about half of the bloc’s average, burgeoning concern among richer EU states about letting less-developed countries integrate deeper is also threatening to stifle his ambitions.

“We’re moving toward the euro-zone waiting room only if it’s with the current exchange rate and only if there’s an absolute consensus within the country,” Borissov said in Brussels Friday.

A Euro Aspirant Backpedals as Worries Weigh on Prices and Banks

Borissov signaled the delay for the first time on Monday amid public concern about a potential devaluation of the lev, which is pegged to the euro. Bulgaria has operated a currency board since the end of a banking and hyperinflation crisis in 1997, when about a third of its lenders collapsed, inflation topped 1,000% and people hoarded goods after many shops rejected the national currency.

Devaluation Worry

In power almost continuously since 2009, Borissov’s Gerb party holds a narrow lead in polls over the opposition Socialists. But the premier has faced criticism from socialist-backed President Rumen Radev, one of the country’s most popular politicians, for failing to fight corruption. A number of Borissov’s former and current ministers have been investigated or charged for abuse of office.

The cabinet survived a fourth no-confidence vote last month. Beset by challenges, Borissov is now also trying to quash concerns about a potential price jump tied to euro adoption -- the main goal in his economic platform.

“If the public sees Borissov as the one imposing the euro amid risk of higher prices, this could have serious negative consequences,” Evelina Slavkova, a researcher at the Trend polling company in Sofia, said by phone.

Banking Sector

Worried that Bulgaria may get sidelined in EU decision making after Brexit, Borissov has been pushing toward the euro since 2016. With memories still tender among euro capitals of Greece’s sovereign debt crisis and the Baltics money-laundering scandal, the state of Bulgaria’s banks has remained a sticking point.

Bulgaria tumbled into crisis in 2014 when the fourth-biggest lender collapsed in a case that brought charges against 18 people, including two central bank deputy governors. Now, two locally owned lenders have been asked to raise additional capital to meet the requirements of the European Central Bank.

Four fifths of Bulgarians are worried that the switchover to the euro may prompt abusive price hikes from retailers, according to a Eurobarometer survey, and more than half think that adopting it will be negative.

Borissov, however, hasn’t abandoned the plan. He said EU institutions will discuss the euro candidacies of both Bulgaria and Croatia in July.

“For the past ten years, the ERM-2 membership would be Borissov’s biggest political success,” Lyubomir Datzov, a member of Bulgaria’s Fiscal Council, said by phone. “A downfall will be his personal failure.”

©2020 Bloomberg L.P.

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