Croatia and Bulgaria Step Closer to Joining the Euro

(Bloomberg) -- Croatia and Bulgaria are set for approval to join the waiting room to adopt the euro in what would be the first step toward expanding the currency union since 2015.

The decision to allow the two eastern European countries into what’s known as ERM-2 is likely to be taken by euro-region finance ministers meeting Thursday and Friday, according to people familiar with the situation. An announcement from the European Central Bank will follow after close of business on Friday, the two people said, asking not to be identified discussing private talks.

Spokesmen for the ECB declined to comment.

The move underscores the currency’s continued allure, despite the debt crisis that followed 2008’s global financial collapse and repeated predictions of the bloc’s demise. Switching to the euro, which remains second only to the U.S. dollar as a global reserve currency, is seen in the continent’s east as a means of boosting investment and, in some cases, drawing a line under the region’s communist past.

The last country to make the change was Lithuania five years ago. The other four existing eastern members are Estonia, Latvia, Slovakia and Slovenia.

Setting Pegs

The ECB will set a base rate for the conversion of Croatia’s kuna and Bulgaria’s lev into euros as soon as Friday, the people said. After that, the two currencies will be allowed to fluctuate within a band of plus or minus 15% from this rate. Assuming the peg holds without any market pressure for at least two years, the two countries could then formally join the euro area.

A third official cautioned that the eventual adoption of the euro is a political decision, and tied to a series of criteria of which a smooth peg to ERM-2 is only a part. The earliest possible date for the adoption is Jan. 1, 2023, the official said.

The lev is already pegged to the euro, while the kuna fluctuates within a tight band as part of the two countries’ preparations for joining the currency blog. They’ve also had to keep inflation, government debt and budget deficits in check to qualify for the switch.

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