ECB: Bulgaria Does Not Fully Comply with Euro Convergence CriteriaBulgaria in EU | June 7, 2016, Tuesday // 16:24| views
In its latest Convergence Report released on Tuesday, the European Central Bank (ECB) concluded that Bulgaria does not fully comply with the euro convergence criteria.
Apart from Bulgaria, the report examine the six other member states which do not participate in the exchange rate mechanism (ERM II), namely the Czech Republic, Croatia, Hungary, Poland, Romania and Sweden.
According to the report, the seven countries comply with most of the quantitative economic criteria, but none fulfills all the obligations featured in the Treaty, including the legal convergence criteria.
The report, which examines both economic and legal convergence, states that in none of the seven member states the legal framework is fully compatible with all the requirements for the adoption of the euro.
As regards, Bulgaria the country fulfills three out of the five criteria necessary for adoption of the euro, namely price stability, public finances and long-term interest rates.
Legislation in Bulgaria is not fully compatible with the Treaty and the country does not fulfill the exchange rate criterion.
In April 2016, Bulgaria registered twelve-month average deflation of 1 %, which was well below the reference value of 0.7 % for the criterion on price stability.
Over the past decade, Bulgaria's inflation rate has fluctuated, ranging from deflation of 1.7 % to inflation of 12.6 %, with the average inflation for the period standing at 3.6 %.
The ECB expresses concerns about the sustainability of Bulgaria's inflation convergence in the longer term.
The report notes that the country's general government deficit and debt complied with the Maastricht criteria in 2015.
ECB reminds that Bulgaria has been subject to the preventive arm of the Stability and Growth Pact since 2012.
Although Bulgaria's deficit exceeded 3 % of GDP reference value in 2014, the European Commission viewed the excess deficit as exceptional and temporary and did not warrant the opening of an excessive deficit procedure.
The report warns that Bulgaria faces medium risks to fiscal sustainability in the long run, partly as result of the expected increase in age-related expenditure on health care and long-term care, which requires further reforms in these areas.
Over the past decade, Bulgaria's current and capital account improved, with the country's net liabilities remaining high.
During the reference period (May 2015 to April 2016), the long-term interest rates in Bulgaria stood at 2.5 % on average and were below the 4 % reference value for the interest rate convergence criterion.
According to the report, there is need for stability-oriented economic policies and wide-ranging structural reforms in order to achieve an institutional and business environment which is conducive to sustainable convergence.
The European Commission selected Bulgaria for an in-depth review in its Alert Mechanism Report 2016, concluding that the country is experiencing excessive macroeconomic imbalances.
In order to safeguard financial stability, the report notes that it is essential to complete the asset quality review and stress tests of the financial sector and improve supervision.
The report concludes that Bulgarian law does not comply with all requirements for central bank independence, monetary financing prohibition and legal integration into the Eurosystem.
Read the full report here.
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