Bulgaria C-Bank Deputy Governor Sees No Rush on Euro

Finance | June 7, 2010, Monday // 17:47|  views

“The Currency Board is doing a good job in Bulgaria. We will hardly see any rush to join the eurozone in the short term,” central bank Deputy Governor Kalin Hristov said at a financial seminar in Sofia. Photo by BGNES

Bulgaria shouldn’t rush to adopt the euro given that the currency board regime the country operates in serves it well, the central bank deputy governor commented on Monday.

“The Currency Board is doing a good job in Bulgaria. We will hardly see any rush to join the eurozone in the short term,” Kalin Hristov said at a financial seminar in Sofia, in an apparent back-down on the government's commitment to keep eurozone entry top priority.

Earlier this year the government touted plans for the country to join the euro-zone entry mechanism ERM II no later than next year with adoption of the single currency slated for 2012. It had to put off plans to join the euro area entry mechanism after its 2009 revised budget gap exceeded the 3% EU threshold.

The lev is already linked to the euro in a currency board that keeps the Bulgarian currency at 1.9558 to the euro.

“What we can do and are doing is take part in the discussions for redefining the fiscal rules of the euro zone. The situation will be much more clearer in the autumn,” Hristov said at the VIII international financial expo “Banks, investments, money”, which took place for the first time in the Bulgarian capital.

According to Hristov the biggest problem of the eurozone is the lack of fiscal policy.

“To say whether or not the euro is stable depends on how we are going to gauge this. If we consider the eurozone as an entity, a whole economy, its indicators are not worse than those in the United States,” Hristov added.

The experts were unanimous that the future of the whole European Union hangs on the fate of the single currency.

“Should the euro disappear, the whole bloc will collapse,” said Martin Zaimov, chairman of the Supervisory Board of Societe Generale Expressbank. “No country has the chance to survive on its own, if it has not managed to stabilize its economy as part of a bigger bloc.”

Zaimov ruled out the option for embattled Greece to exit the euro zone.

Asked about the way ahead for Bulgaria, the experts forecast a weaker flow of capital, lower investments and stronger exports, which will prompt the government to further cut costs.

The Bulgarian National Bank sets inflation at 2.4% by the end of 2010, driven by a rise in the prices of fuel and tobacco products.

Asked about the interest rates on credits, which many foreigners consider to be too high to venture an investment in Bulgaria, Hristov said it is not proper to make direct comparisons between Bulgaria and the other new member states, let alone the countries from the eurozone.

“The right way to make this statement is to say that the interest rates on newly granted credits in Bulgaria are higher than those in the countries, which acceded to the European Union in 2004 and Romania,” Hristov said, adding however that the credit growth in these countries is negative.

According to Hristov the only way for Bulgaria to attract foreign investments, which reached levels close to a whopping 40% of GDP three years ago only to sharply fall down this year, is to provide yields on the capital, which are higher than the country where the investments come from.

“Bulgaria's market and economy have a big advantage – relatively high yields on bank capital, which make the country a good place for investments in the financial sector,” Martin Zaimov pointed out.

“Investments should not be considered as just amounts of money, but as the participation of the foreign world in the improvement of the Bulgarian economy,” he added.

In voicing what he described as his optimistic forecast, Zaimov said the global economy is facing long years of living amidst a crisis, which will force governments to act more responsibly.

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Tags: EC, budget deficit, budget discipline procedure, eurostat, Eurozone, economic growth, Simeon Djankov, Boyko Borisov, EC, European Commission, finance minister, Convergence Program, Eurozone, ERM II, budget deficit, recession, GDP, Kalin Hristov, Banks Investment Money expo

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