Bulgaria is not ready for eurozone, say European Commission and ECB

Sofia: Bulgaria is not ready for entry to the eurozone in January 2025 as it does not meet the inflation criterion, the European Commission (EC) and the European Central Bank (ECB) said in convergence reports issued on June 26.

The decision was expected by the authorities in Sofia, which have said a new convergence report might be requested in the autumn when the country should meet the last criterion. However, given the political instability and the slim chances of a regular government being formed in the current parliament, Bulgaria has little chance of joining the eurozone any time next year.

“In May 2024 the 12-month average rate of HICP inflation in Bulgaria was 5.1%, i.e. well above the reference value of 3.3% for the criterion on price stability. This rate is expected to decrease gradually over the coming months, as pipeline pressures and supply bottlenecks continue to ease,” the ECB noted in its report.

It expects core inflation to remain persistently high, mainly due to strong wage pressures in the country where labour market remains tight.

“There are concerns about the sustainability of inflation convergence in Bulgaria over the longer term. The catching-up process is likely to result in positive inflation differentials vis-à-vis the euro area, since GDP per capita and price levels are still significantly lower in Bulgaria than in the euro area,” the ECB noted.

Meanwhile, Sofia needs to complete policy commitment set in 2020 when the country was accepted in the eurozone’s waiting room, the ERM II.

“Bulgaria is currently working towards completing these post-entry commitments and is encouraged to accelerate its efforts to fulfil the elements of the action plan that was adopted by the Financial Action Task Force (FATF) after Bulgaria was placed on the FATF’s “grey list” of jurisdictions under increased monitoring in October 2023,” the ECB said.

The EC also concluded that Bulgaria does not meet the criteria for eurozone entry.

“In light of its assessment on legal compatibility and on the fulfilment of the convergence criteria, and taking into account the additional factors relevant for economic integration and convergence, the Commission considers that Bulgaria does not fulfil the conditions for the adoption of the euro,” the EC said.

Bulgaria’s 12-month inflation as of May this year was by 1% higher compared to the reference value and is projected to remain higher in the following months. Bulgaria can catch up at the end of 2024 or in the beginning of 2025, according to EC’s estimations.

Bulgaria’s central bank commented in a statement that the authorities will keep working on fulfilling all criteria for eurozone membership. Caretaker Prime Minister Dimitar Glavchev said the country still has a chance to become a member of the eurozone later in 2025.