Bulgaria's admission to the Eurozone is causing controversy both among political forces and in society. Despite the obvious progress and desire for our country to become part of this kind of "Club of the rich", there are parties and people who believe that the leva remaining as a currency brings us more benefits.
In this matter, the governor of the BNB is undoubtedly the most competent, whose direct duties include precisely this - to create the technical conditions for the adoption of the euro. Therefore, his opinion is important for those who want to hear the truth firsthand.
Here is the full text of the speech of Mr. Dimitar Radev, Governor of the BNB, at the opening of the conference “Bulgaria in the Eurozone, when?“, Sofia, May 14, 2024
I will start with the topic of the conference: Bulgaria in the Eurozone, when?
The short answer to this question is: As soon as possible.
Why? Because delaying our full integration into the core of the EU, such as the Eurozone, has its price, and it is constantly increasing.
More generally, this cost is expressed in continued marginalization in the political and economic periphery of Europe with the inherent themes of this periphery such as poverty, corruption and external dependencies. These topics are displacing the real agenda of the country, which should focus on its modernization ahead of economic growth and people's well-being.
More specifically, the cost of the delay is expressed in more difficult conditions for business, trade and investment; less favorable financing conditions; higher unproductive costs for businesses and households.
The scale of the losses is measured not in millions, but in billions.
Therefore, the short answer to the question posed by this conference is: Bulgaria should as soon as possible finalize the process of European integration by joining the Eurozone.
I will try to give a slightly more detailed answer.
To this end, I will touch on three issues: the background of the accession process, the situation at the moment, and the necessary steps to successfully finalize this process.
Bulgaria has a long history in the process of European integration with many lessons learned, but unfortunately also with some unlearned lessons. Due to time constraints, I will not go back that far, but only cover the period after 2018.
We must not forget that Bulgaria was to a very large extent the initiator and leader of the last stage of the expansion of the Eurozone, which, as a rule, began with the accession of the national currency to the European Monetary Mechanism.
The formal start was made in June 2018 with a letter of intent signed by the Minister of Finance and the Governor of the BNB to the Eurogroup, the EC, the ECB and then 19 countries – members of the eurozone.
The approach we proposed was different from the one applied until then. The main difference was that, in addition to the inclusion of the leva in the European currency mechanism, the country's accession to the Banking Union was also foreseen through the establishment of a regime of close cooperation between the BNB and the ECB.
Our partners have supported this approach, and the Eurogroup has announced that this will be the approach that will be applied to all new member countries.
By virtue of this decision and exactly one year later, this approach was also applied to Croatia, after which the two countries moved as a package in the accession process. The first historically significant result was achieved in July 2020, when a European decision was made to include the two currencies – leva and kunata – in the Currency Mechanism of both countries – Bulgaria and Croatia – in the Banking Union.
Unfortunately, since the day of the decision, the two sides have parted ways. Croatia clearly defines joining the Eurozone as a top priority and mobilizes all its political and expert capacity for its achievement. At the same time, the day of the decision marked the beginning of the political crisis in Bulgaria, which continues to this day.
The results are known to all. Croatia has been a member of the eurozone since January 1, 2023, and Bulgaria continues to wander in the labyrinth of political crisis.
What is the current situation outside of the political context?
We meet all the nominal criteria for accession except for inflation, and we meet them by a significant positive margin.
The negative difference in relation to the price stability criterion is decreasing, including in the last month it is shaping up to remain above the criteria's requirements as of the date of the upcoming assessment at the end of May.
In institutional terms, the BNB and the banking sector are to a certain extent already part of the Eurozone by virtue of the regime of close cooperation between the BNB and the ECB established in 2020. BNB is currently the only central bank outside the Eurozone that operates in such a mode. This ensures us a full and full participation in the process of formation and implementation of the decisions on the supervision and restructuring of the banks in the Eurozone, plus the banks in Bulgaria. The results of the banking sector in the last more than three years are testimony to the success of this participation.
The Bulgarian lev is one of the two currencies, outside the euro, that is part of the European Monetary Mechanism – one of the key conditions for joining the Eurozone.
With the adoption of the new Law on the BNB, which received the support of the ECB and the EC, we practically finalized the process of legal convergence – an irrevocable condition of accession. The draft Law on the introduction of the euro, which regulates the administrative process for the introduction of the new currency, without formally being part of the requirements for legal convergence, is practically ready for submission and adoption by the National Assembly.
The logistical and technical preparation, which is largely within the competences of the BNB, is at a very advanced stage.
The payment, information, accounting and statistical systems for which the BNB is responsible are practically ready to work in the conditions of the Eurozone and need a final fine calibration.
We have completed the process of preparation for the minting of the Bulgarian euro coins, which included coordination with the EC and all member countries, and we are proceeding to the test minting of 8 million coins, 1 million of each denomination. The blanks for both the test series and regular production have been agreed upon and their delivery has begun.
We have provided the necessary areas for the exchange process, including in Sofia, Plovdiv and Varna, as well as the necessary machines and technical equipment for this process. By the end of this month, we expect to finalize the decision for Burgas, and by the end of the summer – to put into operation the newly built cash center in Pleven. The construction of this center is part of our large-scale program for the development and modernization of the system of cash centers, which are practically industrial enterprises.
The mint is completely ready both in terms of equipment and expert capacity for the minting of Bulgarian euro coins. He is about to receive the necessary license for the minting of euro coins, which will happen after the upcoming certification of the trial series of euro coins.
The joint venture of our printing house with the French company Oberthur Fedusier already has a license and prints euro banknotes for the needs of the central banks in the euro area.
We are in the process of completely renewing our fleet of armored and security vehicles, as well as approving the new transport schemes and security systems. To give you a general idea of the scale of the operation, I will point out that the total amount of banknotes and coins in the exchange process alone amounts to about 12,300 tons, or in terms of transportation – of the capacity of about 620 tyre.
In the last year, we have been actively working to create the capacity to conduct an active monetary policy, something that the BNB has not done in the last quarter of a century. The necessary organizational structure will be operational by the end of June.
We have created the necessary organization to guide and control the entire preparation process. Twice a month, the Board examines four reports of the three deputy governors and the general secretary, respectively, on the progress achieved, potential problems and measures to overcome them.
We are closely monitoring commercial banks' preparations, which are also progressing according to plan, and reacting as necessary.
With this incomplete list, I want to emphasize that the BNB and the banking sector will be fully ready within the current year for the introduction of the euro in the country.
Is this enough in purely technical, logistical terms? The answer is no. There are a number of, above all, information and accounting systems under the control of the executive and municipalities, which must be adapted to work in the conditions of the Eurozone. They have been identified, but considerable work still needs to be done to make them fully ready.
In addition, there are four sets of conditions in the powers of the executive that must be met before joining the euro area, including in relation to the non-banking financial sector, insolvency, state-owned enterprises and anti-money laundering measures. I highly appreciate the caretaker government's intention to continue work on these topics.
What do we need to do to successfully complete the joining process?
Above all else, we need a clearly established, sustainable, pro-European political structure. This is something that was missing after we joined the European Monetary Mechanism and the Banking Union.
At the earlier stage of the political crisis, the executive showed a wavering stance on the Eurozone. For example, it took nearly a year for the government to accept the plan drawn up and approved by the Coordination Council for the introduction of the euro, with six ministers voting against and one abstaining, including ministers key to the process. In contrast to the earlier period, the last government stood on a clearly pro-European platform, but as the development of events has shown, it turned out to be extremely unsustainable. I also leave without comment the fact that since our admission to the Banking Union and the Monetary Mechanism, we have had five different Ministers of Finance.
In establishing a sustainable pro-European political structure, we are expected to achieve several goals.
First, the restoration of political contacts on the subject at the highest level, as we must not forget that it is ultimately a political process and a political decision. Unfortunately, in recent years, contacts on this topic have been more protocol than substantive.
Secondly, returning to the path of fiscal consolidation, which is important not only for the accession process, but also underpins our most important comparative advantages in economic and financial terms. Such a development is also of great importance for the BNB, due to the need to harmonize monetary and fiscal conditions in the country.
Thirdly, adoption as quickly as possible of the Law on the introduction of the euro, which will give clear indications, but also legal guarantees for businesses and households, for what is to come.
Fourth, acceleration of work on the remaining conditions and technical preparation. Here, I am primarily referring to issues within the competence of the government, since, as I indicated, the BNB and the banking sector are working according to plan and will be fully ready before the end of this year.
If this scenario materializes as soon as possible after the upcoming elections, the chances of us joining the Eurozone in 2025 remain strong and entirely realistic.
In conclusion, let me summarize what I said.
As a result of the political crisis in recent years, we have lost both the initiative and the leadership in the process of joining the Eurozone. Nevertheless, our readiness in terms of accession conditions, legislative and technical framework remains high. In order to successfully finalize the process in 2025, we also need a sustainable pro-European political construction.