Bulgaria and the Euro: What Happens to National Monetary Sovereignty?

One of the most debated topics around Bulgaria’s upcoming transition from the lev to the euro is whether the country is giving up its sovereignty. This concern is less about economic data and more about feelings and assumptions. Still, it remains an important point to clarify.

Since July 1, 1997, Bulgaria’s lev has operated under a Currency Board arrangement, which drastically limits its independence in monetary matters. Under this system, the Bulgarian National Bank (BNB) no longer has the power to conduct an autonomous monetary policy. It cannot weaken the lev or set a key interest rate that would influence the economy. In fact, the lev’s value is fixed by the euro, which backs the lev in reserves and essentially dictates its price.

This means the BNB is unable to use traditional tools to manage the economy - such as adjusting interest rates to combat inflation or to stimulate growth. The possibility of devaluing the lev to boost exports has also been removed.

The only tool still available to the BNB is regulating the minimum reserves that commercial banks must hold. This reserve acts as a buffer and influences how much money banks can lend. By requiring banks to hold a higher percentage in reserve, the BNB can limit the credit circulating in the economy.

Once Bulgaria joins the eurozone, the governor of the Bulgarian National Bank will sit on the Governing Council of the European Central Bank (ECB). This gives Bulgaria a direct vote in shaping the monetary policy for the entire euro area.

In contrast to the current situation - where Bulgaria is fully exposed to decisions made about the euro but has no say - joining the eurozone places the country “at the table.” However, Bulgaria will be the 21st member, and once the 22nd member joins, the ECB will introduce a system of rotating voting rights among member states.

The ECB’s Governing Council, the highest decision-making body, sets interest rates and oversees monetary policy. It consists of the Executive Board plus the governors of national central banks from eurozone countries.

Under the rotation system, countries will be grouped based on the size of their economies and financial sectors. The top five (Germany, France, Italy, Spain, and the Netherlands) will collectively have four votes, while the remaining 15 members will share 11 votes, with governors rotating monthly who can cast votes. Despite this rotation, major decisions will be made unanimously, ensuring all member states, including Bulgaria, have a voice.

In a technical sense, yes. Bulgaria could legally dismantle the Currency Board and return to an independent monetary policy. However, even the most skeptical voices in Bulgaria recognize this would be a risky and undesirable path.

Joining the eurozone means transferring monetary sovereignty to the European Central Bank. Yet, it also guarantees Bulgaria a role in shaping policy alongside stronger economies. More importantly, adopting the euro brings with it stability, strength, and increased competitiveness for the country’s currency.

In sum, while sovereignty in monetary matters will shift to a European level, Bulgaria gains influence in decision-making and joins a currency union that promises economic benefits and security.