Greece's Eurobank EFG: Bulgaria Needs Tight Policy for ERM II

The Greek crisis has triggered fears about the stability of the eurozone and concerns that it may end up foiling Bulgaria's aspirations to join the euro in three years, despite the country's budgetary rigor. Photo by EPA/BGNES

Bulgaria will improve its chances for joining the bloc's exchange-rate mechanism, the so-called Eurozone waiting room, if it maintains a tight fiscal policy, says the latest report of Greece's Eurobank EFG on markets in new Europe

The report however points out that Bulgaria will have to change its development model and take steps to boost its competitiveness and exports.

There have been months of speculations over when the former communist state would formally apply to the bloc's exchange-rate mechanism, the so-called Eurozone waiting room. According to the latest plans announced by Finance Minister Simeon Djankov this should happen by July, when the Spanish presidency of the European Union ends.

Countries must be members of ERM II for two years before they can formally join the eurozone. Bulgaria believes that it could be ready for euro entry by 2013.

The Greek crisis has triggered fears about the stability of the eurozone and concerns that it may end up foiling Bulgaria's aspirations to join the euro in three years, despite the country's budgetary rigor.

Bulgaria is believed to be among the countries most at risk from potential spillovers from Greece after banks invested in central and eastern Europe. The country is more susceptible to contagion risk from than neighboring Romania or Turkey, because Greek banks control 28 percent of the Balkan country’s market.

Bulgaria, which joined the EU in 2007, posted the smallest budget deficit among the 27 member states last year, according to the finance ministry. It is expected to be the only EU nation to balance its budget in 2010.

Joining the exchange-rate mechanism would bring Bulgaria closer to the umbrella of the euro region and the protection of the European Central Bank and is conditional on whether the new government will succeed to restore Brussels trust.

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