Public Opinion in Bulgaria Back Hanke against Euro

Finance | December 17, 2012, Monday // 13:05|  views

The Euro sculpture is seen in front of the European Central Bank (ECB) headquarters in Frankfurt, Germany, on 04 August 2011. Photo by EPA/BGNES

Steve Hanke, the architect of Bulgaria's currency board regime, has recently taken a firmer than ever stance against the country's eurozone aspirations, a view shared by a whopping majority of Bulgarians.

"It would be a complete disaster if you did not have the currency board, " Hanke said in an interview for bTV private channel during his visit to Sofia last week.

"Bulgaria has a system, which is working perfectly right now. Why do you want to fix something that's not broken?  I don't think you should be in the euro zone, period," the Johns Hopkins economist, who designed the currency board in Bulgaria and in several other east European countries in the 1990s, said.

"Bulgaria's monetary arrangement is much better than Europe's monetary arrangement. You have monetary sovereignty; you have control over your money. What if the euro blows off? Bulgaria can just switch to the US dollar!"

According to Hanke adoption of the euro would trigger "a real mess" in Bulgaria.

He firmly denied allegations that the rigidity of the currency board system prevents economic development and ruled out the need for Bulgaria to phase out its currency board

"Of course you are poor, but you were poor to begin with. But the trajectory is relatively good. During the crisis the Currency Board has been the key to hold the economy stable," Hanke said.

Bulgaria's currency board has forced its government to control spending, as the central bank is not free to print money to support government borrowing.

"The stable Bulgarian lev and the Currency Board is an institution that puts hard budget constraints. This means that the Bulgarian National Bank can not use the printing press to finance everyone. With this big constraint and that bigger system behind the finance ministry, the finance minister can control the budget," Hanke pointed out.

He praised Bulgaria's Finance Minister Simeon Djankov for "doing a very good job of controlling the budget, especially in the crisis".

Bulgaria today would not only meet the Maastricht Treaty's criteria for joining the euro zone - it would be one of its star members, a point that Hanke stressed upon.

"If you look at the European Union countries, Bulgaria's debt and deficit are very good, may be one of the best. That's another reason why the rating, reputation and bonds sale are good, there are prerequisites for growth."

The renowned economist vehemently rejected suggestions that devaluation of the lev will serve as incentive to the local economy and boost exports.

"This is absolute stupidity! If devaluation was such a wonderful thing, South America would be the richest continent in the world, because there they are continually devaluating."

"If Bulgaria starts to devaluate, there will be a lot of instability in the economy and the economic growth will be much slower."

"Why there has been a big boom in Turkey? The Turkish lira has been stable and strong since 2001. Stability might not be everything, but everything is nothing without stability."

Hanke, who served as an adviser to President Petar Stoyanov from 1997-2001, recommended shrinking further the state, saying this is the only way to fight corruption.

He also urged people not to forget that before Bulgaria installed its currency board system, there was hyperinflation, which had peaked with a monthly inflation rate of 242% in February 1997.

Public support for Bulgaria's eurozone membership has been seriously dented over the last year and a half following the troubling developments in the monetary union.

While at the end of 2010 the Bulgarian society was cut in two over calls for immediate introduction of the European single currency, recent surveys have found out that those who oppose euro adoption now are a huge majority.

A survey by bTV private television shows that a total of 77% of the respondents want the country to continue operating in the Currency Board regime.

According to analysts the Currency Board regime enjoys great public support in Bulgaria and is one of the few and most trusted institutions.

The people prefer to use the lev instead of switching to the euro, even though the local currency is pegged to the euro since Europe is falling short of providing Bulgarians with confidence that it can handle the crisis stemming from unsupportable debt loads in countries like Greece.

Indicatively the highest levels of support for adopting the single currency were seen as far back as in 2008-2009.

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