BNB Governor Dimitar Radev expects Bulgaria to maintain its political and fiscal discipline even after its accession to the eurozone expands its borrowing capacity.
“Fiscal discipline has been a cornerstone of our macroeconomic framework for more than a quarter of a century, and that should not change. The convergence process should strengthen, not weaken, our long-standing commitment to fiscal stability,” Radev said in an exclusive comment to POLITICO.
Previous enlargements of the eurozone have led to economic booms followed by downturns in newly admitted countries. This is due to the fact that ECB interest rates are usually too low for low-debt, high-growth economies, which are often new members, compared to more developed Western European countries.
While the most striking example is Greece, economic downturns have also affected countries that, like Bulgaria, had communist rule in the past with its inherent underdeveloped financial systems and regulations. However, fears of debt-fueled spending after achieving more favorable financing conditions and easier access to international capital markets are unfounded, Radev assured.
„We are aware that joining the eurozone means adopting a monetary framework designed for the entire monetary union. The solution lies in strengthening national policies, especially in the fiscal and structural areas, to ensure sustainability within the common monetary regime,” he said.
The European Commission and the European Central Bank gave their final opinion last week that Bulgaria meets the criteria for joining the eurozone, paving the way for the country to adopt the euro on January 1, 2026, becoming the 21st member of the monetary union. It is a historic moment for the Balkan country of 6.4 million, which committed to the move in 2007 but has suffered years of delays, most recently due to inflation following the pandemic and Russia’s invasion of Ukraine, POLITICO notes.
To join the eurozone, Bulgaria had to achieve average annual inflation between April 2024 and April 2025 that was within 1.5 percentage points of the three lowest-inflation EU countries. Inflation jumped to 4 percent on an annual basis at the start of the year after various anti-crisis measures expired, such as VAT exemptions for restaurants, bread and flour. However, annual inflation slowed in April, mainly in terms of administered prices, with average annual inflation reaching 2.7% in April.
While the numbers now look satisfactory, Brussels noted that Bulgaria still faces challenges in fighting corruption and improving judicial independence.
Radev was adamant that the country's new status would not fundamentally change its economic philosophy. "The key challenge is not whether we can borrow more, but whether we remain committed to using debt in a sensible and growth-oriented way," he said.
New challenges
The BNB is also facing an important change. Under a currency board regime, inflation is kept under control primarily not through monetary policy using interest rates, which Sofia cannot conduct, but through fiscal discipline and tax policy.
The Bulgarian National Bank's main instruments are the bank reserve requirements, currently 12%, and the interest rate on those reserves, which is zero. But from next year it will no longer exercise direct control over these instruments, which is not without potential consequences, since the ECB's minimum reserve requirement is only 1%. This means that, all other things being equal, Bulgarian banks will have much more money to lend, and this risks accelerating the credit boom that has already begun: mortgage loans grew by 26% in the year to April, and consumer loans by 14%.
Joining the eurozone and ending the currency board will replace the automatic discipline mechanism with the rules of the Stability and Growth Pact - a framework that the EU has deliberately made more flexible - as the ultimate limit on fiscal policy. These rules are also enshrined in national law, but in its convergence report the ECB noted that “further progress is desirable“ to ensure that the Bulgarian fiscal council, which monitors the government's compliance with the rules, can provide sufficient accountability.
“A structural feature of the monetary union is that monetary policy is common, while fiscal policies remain national“, Radev said, pointing to potential asymmetries. “We should not expect the ECB to adapt its policy to individual economies - it is the responsibility of national authorities to coordinate and adapt“.
Digital euro and monetary innovation
Bulgaria joins the eurozone at a unique moment: the possible introduction of the digital euro. Banking associations across the zone worry that if poorly designed, this could make their members more vulnerable to a run on deposits and limit their ability to lend. This could be particularly problematic for Bulgaria, where banks play an even larger role in financing the economy than in most parts of the eurozone, due to the lack of a sufficiently developed internal capital market.
Radev dismissed concerns that the digital euro would complicate Bulgaria's entry into the eurozone, although he pointed out that it introduces "an additional strategic dimension, especially in the areas of payments and technology."
He added that Bulgaria was actively participating in discussions within the Eurosystem on the design of the digital euro, stressing the need for a model that preserves financial stability and guarantees the protection of personal data. "Any digital euro must respect European values, including the right to privacy," he said, calling for a "fine-tuned approach" to prevent potential risks related to the protection of personal data.
He said Bulgaria's experience with the currency board, which imposed conservative reserve management and strict liquidity discipline among commercial banks, puts the country in a good position to deal with the risks associated with the future digital euro.
A conservative force
As Bulgaria prepares to take its place at the table in Frankfurt, Radev signaled that the BNB will maintain a conservative, stability-focused approach to monetary policy.
Without identifying himself with the traditional labels of "hawkish" or “dove“, Radev made it clear that he would support policies that strengthen resilience, reduce fragmentation and preserve price stability in the eurozone.
“I lead one of the more conservative central banks and we have no intention of changing this course,“ he said.