Djankov for BBC: Bulgaria Has the Euro Negatives, Now We Want the Benefits Too

Finance | November 27, 2010, Saturday // 12:39|  views

Djankov is pictured here at the Bloomberg Businessweek European Leadership Forum in London this week. Photo by BGNES

Along with attacking Europe's failing framework amids the euro crisis, Bulgaria's finance minister has made it clear the country will pursue with zeal entry into the currency union, so that it can reap its benefits as well.

"The Bulgarian currency the lev has been tied to the euro since 1999, so in a way we are already in a situation where it is as if we have the euro and all of its recent negatives. But we don't have the main positive, which is actually having the euro bills," Simeon Djankov told BBC World Service's Business Daily on Friday.

On the markets investors have been demanding ever higher interest rates for lending money to other eurozone governments, which are also saddled with huge deficits. The cost of their borrowing has risen to record highs this week and the value of the euro itself has fallen.

Bulgaria would and does want to join the currency union, despite its disturbing problems and the warnings that it is in danger of cracking up, Djankov assured. He pointed out that some recent entrants like Slovakia have shown that once we have that interest rates fall quite considerably.

Djankov defended the view that the budget of the European Union should not be increased.

"Instead, within this budget the various institutions should show that they can have tighter control and only after that go and ask for more money," Djankov said.

Djankov, a former senior World Bank expert, had some harsh words to say about the institutions, which lead Europe.

"The response of the European Union has been fairly bureaucratic – asking finance ministers to build more supervisory institutions for banks, for insurance companies, etc. But nobody has dared to ask what has happened to the current institution, to the European Commission, where every country deposits the so-called stability program. What about the European Central Bank – they also check every country every three months. It seems that these processes do not work well."

Asked to comment euro skeptics' suggestions that a currency union with such diverse members will never work, Djankov said:

"I don't agree with these critics. Look at the United States and China, where there are huge differences among the regions and the model works. Why not Europe? I think this is not the real issue. The real issue is that once you design a new currency, you need the institutions to go with it. The recent troubles show that we don't have quite the institutions. In other words the institutions themselves need health checks and changes."

According to Djankov Bulgaria entered the European Union as the poorest economy, but now it is the second poorest after Romania surpassed it in the negative way.

Bulgaria's center-right government revived this month its plans to apply to join the bloc's exchange-rate mechanism, the so-called Eurozone waiting room, after it was forced to drop the euro bid in April this year over a larger than expected 2009 deficit.

The country is expected to apply to join ERM II in the second half of 2011 after it has demonstrated that next year's budget deficit will fall below the European Union's ceiling of 3% of gross domestic product in line with the Maastricht criteria.

Countries must be members of ERM II for two years before they can formally join the eurozone.

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

MORE about Djankov's interview for BBC World Service READ HERE

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