Comment by Emilia Milcheva:
Prices have started to be tamed, politicians have not. If Bulgaria stumbles over the euro, the obstacle will not be inflation - the only one of the Maastricht criteria that it has not yet met - but political instability. As predicted by financiers, the increase in the price of goods and services continued to cool and in September compared to August it decreased by 1%, and on an annual basis it is 1.2%. This trend, which started a few months ago, gives hope that towards the end of 2024 the price stability criterion will be met, so that Bulgaria can request extraordinary convergent reports. Acting Prime Minister Dimitar Glavchev is confident that this will happen - and he said so recently in Brussels.
Will there be a regular government
So far so good. But the October 27 election has not passed and the prospects for a regular government are not rosy. Of course, Bulgaria cannot enter the Eurozone with a cabinet - even if it has low inflation, a budget deficit below 3%, a public debt below 60% of GDP and low long-term interest rates, i.e. The Maastricht criteria must be met.
“The lack of a regular government and political instability may delay Bulgaria's accession to the Eurozone. After the elections, not just anything, but a pro-European government is needed in order to continue the efforts for Schengen”, financier Rumen Galabinov commented for Deutsche Welle.
In his analysis of October 18 this year the international rating agency Fitch also sees a good prospect for Bulgaria to meet the price stability criterion at the beginning of 2025 and to adopt the euro in 2026. But the lack of a stable government may delay entry into the eurozone, warns Fitch.
"Softer with the euro, BRICS is the truth"
While the technical preparation for the euro is going on, “Revival” continues to keep the campaign against the single European currency in its pre-election arsenal. But this time the Eurosceptic party did not rely on direct opposition, which limited the impact to a more radical constituency. Now, in parallel with moderate rhetoric against the euro, the idea of participating in an alternative international union such as BRICS has been put into use.
So from “Revival” are positioned not as opponents of the EU, but as a party offering “other” economic - and political, opportunities. They no longer declare themselves directly against the euro, but are in the role of defenders of a new world order, where BRICS - the “anti-Europe” union, is presented as a fairer alternative to the West in line with Putin's maxim of the "multipolar" world”.
Why "Revival" tame the rhetoric against the euro
This strategy enables them to appear not as whiny reactionaries but as innovative leaders proposing a (supposedly) fairer global system that challenges Western models. The new communication tactic of “Revival” it may also win them voters from among the wavering. And it could also be tied to the hypothesis of possible support for a future administration.
For now, they have tamed down their nationalist rhetoric about the leva as a symbol of national sovereignty and identity. But they continue with the warnings that Bulgaria is not ready and the euro may lead to a shock appreciation, using the fact that for most Bulgarians inflation is mainly felt through food price pressure.
“Revival” they are not alone. “There is such a people” (ITN) also believe that Bulgaria is not ready for the Eurozone, and Prof. Alexander Tomov from the “BSP United Left” is also an ardent admirer of BRICS.
Too many cash transactions
Despite the political rhetoric, technical preparations for the euro are underway and Bulgaria strives to fulfill the formal criteria for its introduction. Along with this, however, politicians ignore the problem of cash, too many operations with cash - a sign of shadow economy and corruption. At the end of last year, the proposal of the then Minister of Finance Asen Vassilev to reduce the ceiling of allowed cash payments from BGN 10,000 to BGN 5,000 was not accepted.
According to BNB statistics, provided after an inquiry by Deutsche Welle, a significant number of cash operations were carried out in 2023, including 4.7 million withdrawals for BGN 25.7 billion and 10.7 million deposits for BGN 38.1 billion leva. The BNB explains that it does not have data on payment transactions over BGN 30,000, as they fall under the provisions of the Law on Measures Against Money Laundering (AML). These transactions are reported to the “Financial Intelligence” Directorate. of the State Agency “National Security”, keeping a special register for such payments.
This significant volume of cash transactions in banks in Bulgaria shows that despite the growing digitization, cash transactions remain an important part of financial transactions in the country. “Our data shows that there is a fairly serious cash economy,” Ruslan Stefanov, chief economist of the Center for the Study of Democracy (CID), commented to Deutsche Welle. “A high share of cash payments is also an indicator of shadow economy and corruption, which should worry the most serious and significant regulator in the system of regulators, which is the BNB, not only because of the eurozone,” says Stefanov.
The independence of the BNB
However, according to him, a bigger problem is that meeting the formal criteria does not mean that everything is fine, as they are one part of the process - the other is “trust from the partners”. The program director of the CID gives the example of the recently appointed member of the BNB Board of Directors by the president, Lubomir Karimanski. In 2022, the financier was nominated by ITN for governor of the BNB, but was not elected. “There were no alternative candidates, as with the chief prosecutor, neither a presentation of ideas and views, nor did the president publicly motivate the appointment of a person who was in banks with a problematic history”, commented Ruslan Stefanov.
He also notes that a very big problem for the independence of the BNB is the inclusion in the Constitution of the governor of the Central Bank among the circle of persons from among whom an acting prime minister can be elected.
Inflation will indeed prove to be the smaller problem for the euro.