Bulgaria Committed to Euro

Views on BG | September 9, 2011, Friday // 18:13|  views

From The Wall Street Journal

By Joe Parkinson

SOFIA, Bulgaria—Bulgaria remains committed to adopting the euro as quickly as possible despite the crisis engulfing the bloc, Bulgarian Finance Minister Simeon Djankov said in an interview Friday, offering a rare vote of confidence in the single currency's long-term future.

The backing from the European Union's newest and poorest member state, which has become the picture of fiscal discipline since the center-right GERB party swept to power in 2009, represents good news for policy makers in Brussels. Mr. Djankov had previously been reported as saying talks with Brussels on euro-zone accession had been frozen indefinitely but the finance minister said Friday that recent developments—specifically the government's progress in passing new fiscal-stability legislation and a cooling of calls for euro-area tax harmonization—had assuaged Sofia's concerns, meaning talks could restart "in months."

"It may not be the fashion, but we're going ahead with our plans to enter the euro ... We see the problems and naturally we're concerned about them, but this remains our strategic goal to ensure our country is on a European path ... Our currency is pegged to the euro, so why wait?" Mr. Djankov said, but he also expressed concern that other EU members' swelling debt burdens may end up foiling Sofia's aspirations to join the euro as early as 2014.

"Our fiscal discipline is changing perceptions in Brussels and beyond. We hope policy makers will judge us for our actions and not block our entry because of the fiscal crimes of others," he said.

Bulgaria, whose currency board forces the government to adhere to strict fiscal policy, has embarked on a feverish budget-tightening program to strengthen its bid to adopt the euro. While governments across the euro-zone periphery are on the ropes or have been felled by the economic crisis, Prime Minister Boyko Borisov's government has drawn international accolades for cutting spending while maintaining high levels of public support.

Spearheaded by Mr. Djankov, a former World Bank economist, Mr. Borisov's government has slashed government spending by 20%. And in February the government proposed a constitutional change to cap the budget deficit at 2% of gross domestic product, one percentage point lower than the limit called for in the Maastricht Treaty, which underpins the euro. Rating firm Moody's upgraded Bulgaria's sovereign credit rating last month one notch to Baa2.

The result this year is likely to be a full-year deficit of "significantly less" than the 2.5% of gross domestic product forecast by the finance ministry, one of the lowest in the EU, said Mr. Djankov

Before entering the currency bloc, Bulgaria would need to meet several criteria covering currency stability, public-sector debt, interest rates and inflation and secure approval from euro-zone heads of government and the European Central Bank president.

But Brussels' needs to decide whether to keep expanding amid the struggle to prevent the debt crisis from engulfing the euro zone.

On Thursday, the head of the Eurogroup of euro-zone finance ministers, Jean-Claude Juncker, indicated that the bloc could still welcome new members, stressing that he would welcome an application from Bulgaria if the country continued to satisfy membership criteria, although he refused to speculate on a date for application.

Still, there are clouds on Bulgaria's economic horizon. The economy, which expanded at 2.0% in the second quarter compared with a year ago, hasn't rebounded as quickly as hoped. And there are concerns that Bulgaria's banking system—in which all major Greek banking groups own subsidiaries—could be exposed to the debt crisis in Athens.

It is also unclear whether Mr. Djankov and Prime Minister Borisov's cautious optimism over the euro is shared by other top policy makers. Earlier this year, the central bank deputy governor, Kalin Hristov, said the Balkan country was in "no rush" to join the currency bloc, which he likened to running into a "burning building."

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Tags: euro, euro zone, Eurozone, Euro Area, Euro Group, Jean-Claude Juncker, Simeon Djankov, Kalin Hristov, finance minister, Bulgarian National Bank


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