Bulgaria’s path to the euro area was already mapped out with the signing of the Treaty for Bulgaria’s accession to the European Union. Through it, Bulgaria committed to adopt the euro as its national currency as soon as it met all the numerical Maastricht criteria.
In 2021, our country was accepted as a member of the ERM II exchange rate mechanism and the banking union. ERM II is called the “waiting room for the euro area” as it is the last step before introducing the euro.
According to the original plan, Bulgaria and Croatia were to adopt the euro together from 1 January 2023. The main reason for this was high inflation, an uncovered membership criterion.
In the aftermath, it was thought that eurozone entry could take place from 1 January 2025. In June, however, the caretaker prime minister announced that a realistic date was 1 July 2025.
Caretaker Finance Minister Lyudmila Petkova hinted that the need for technological lead time could mean euro entry from early 2026.
It is also expected that the main obstacle on our path to the eurozone – the inflation criterion – will be covered by the end of 2024 or early 2025.
Bulgaria’s accession to the euro area and the replacement of the Bulgarian lev by the euro is a long-awaited event that will significantly change the economic picture in the country. However, the question of how exactly this will affect the Bulgarian economy is complex and multi-layered. In the following lines, we will look at some of the main aspects of the impact of the euro on the Bulgarian economy.
-
Macroeconomic stability
The entry of the euro could strengthen Bulgaria’s macroeconomic stability. By adopting a single currency, the country will benefit from the European Central Bank’s policy, which implies lower interest rates and more accessible financing. This will help stimulate economic activity and investment. However, the stability of the economy also depends on domestic fiscal policy, which must be regulated and disciplined.
-
Inflation and purchasing power
One of the main concerns related to euro entry is potential inflation. Historically, after the adoption of the euro in other countries, price increases have been observed. In Bulgaria, this trend could also occur and high inflation could affect the purchasing power of citizens. It is important to devise mechanisms and measures to prevent a sharp rise in prices.
-
Impact on business
The adoption of the euro will facilitate trade and the business environment, especially for businesses with partners in the euro area. Reducing exchange costs and the risks associated with exchange rate fluctuations could increase the competitiveness of Bulgarian companies. However, it will be important for small and medium-sized enterprises to adapt to the new conditions and invest in innovation and technology.
-
Social aspects
The euro may also affect the social fabric of the country. The increase in economic activity and employment may lead to an increase in incomes and an improvement in living standards in the long term. However, attention needs to be paid to the social inequalities that can be exacerbated in the context of rapid economic transformation.
-
Challenges and risks
Despite the many advantages, the entry of the euro for Bulgaria brings with it several challenges. The need to adapt the economy, the functionality of the financial system, and maintain public confidence in the new currency are just some of the tasks facing the country. In addition, global economic instability may affect the successful adoption of the euro.
Bulgaria’s joining the euro area and adopting the euro is a strategically important step that can lead to several positive effects on the economy. However, it is also associated with risks. The government and economic agents must work actively to minimize these risks and create the conditions for a smooth transition to the new currency. Adequate preparation and a focus on sustainability and social responsibility will be key to Bulgaria’s successful integration into the euro area.