The referendum on the euro is not an economic, but a political issue. It also affects the upcoming report on our readiness to replace the lev with the euro.
With the announced proposal to hold a referendum, President Rumen Radev finally positions himself on the issue of whether Bulgaria should adopt the euro at this stage of its development. Half-hearted messages and evasions have given way to a categorical position, and the moment in which it is declared is more than key. In less than three weeks, the European Commission and the European Central Bank must present their assessments of whether we are prepared and whether we will ultimately replace the lev with the euro from January 1 next year.
The parties that declare themselves pro-European will accuse the head of state of making a May Day gift to Vladimir Putin by offering him an attempt to block our country's further European integration. For them, the right move is one - to urgently gather and reject the president's referendum proposal. This can be done at an extraordinary session of parliament or at its first regular session. The main thing is that the political forces will kill the initiative like a moth that has just come out of the closet. In this regard, the parties from the ruling coalition, which believe that the eurozone should not be an end in itself, are not needed. It is enough for GERB and PP-DB to attract to their side the DPS, “New Beginning“ or Dogan's faction and will have a simple majority of over 121 MPs.
The big question is how the European Commission and the European Central Bank, which are preparing their own reports to assess Bulgaria's readiness to enter the eurozone from January next year, will change their behavior. Their actions so far indicate that there are political agreements, including turning a blind eye to the catastrophic state of our budget. So instead of cutting us off in the reports that are to be published on June 4, they are rather preparing for a disgrace that will overtake them in February next year, when it becomes clear that in the year before we entered the eurozone we had an excessive deficit — probably many times over the threshold of 3% of GDP.
Now both the ECB and the EC have another, even more serious consideration. Until recently, they could turn a blind eye to all the sociological surveys that show a dominant reluctance and distrust of the euro among a large part of society. The request for a referendum by the head of state is a signal of political disagreement. A signal of uncertainty. And when it comes from a democratically elected president, Western partners cannot pretend that there is no problem.
Anything other than a vote in which the majority of Bulgarians declare their desire to adopt the euro will be a serious reputational blow to the ECB and the EC. If they propose the introduction of the euro just weeks after the parliament has rejected the presidential proposal for a referendum, they will look like Brussels janissaries ignoring public opinion in Bulgaria.
This will only enrich the context of events that are already perceived as actions by the Brussels “deep state” against the impulses of the EU to pay attention to its own problems — the ban on Marine Le Pen from running in France, the removal of a presidential candidate in Romania, and now the neglect of the Bulgarian president's initiative for a referendum. And from the European Central Bank, whose president is under indictment. Yes, Christine Lagarde has a court conviction. Why this does not worry those who are looking at Le Pen and the Romanian presidential candidates is a separate but very interesting question.
In conclusion: For Bulgaria, the question is whether the referendum will be held with all the possible consequences, or the ball will be passed to Western institutions. However, the attention to them will be much greater — and not only from Bulgaria. Their actions will determine whether they will be perceived as guardians of democracy or as repressive bodies imposing political will contrary to the national majority.
Scheduling a referendum despite the will of the National Assembly or referring it to the Constitutional Court are hypothetical options that cannot be ruled out, but any statements on them at this point would be speculation.
What is happening to the economy and financial markets?
The price at which the state borrows is increasing anyway. By the end of March, it is clear that revenues are 20% below planned - a result worse than the catastrophic 2010 budget year. This cannot but give the debt that Bulgaria is about to issue by the end of the year a taste of blood, and arouse the “collective rage“ of financial sharks (figuratively speaking).
The good news, if it can be called that, is that there is some chance that the rating agencies will not lower the outlook for Bulgaria's credit rating. “Voices“ consulted two experts with many years of experience, whose opinions diverge to the contrary. The argument that indicates that we have time to reduce the damage is that after the global financial crisis and the reputational blow to the rating agencies themselves, which gave AAA ratings to failing institutions, today the ratings and outlooks are reviewed periodically, on predetermined dates. They are preceded by a series of meetings between the agencies, the authorities and the non-governmental sector. Thus, when the time comes for the next review, the referendum and its possible negative outcome - perceived as catastrophic by Euro enthusiasts - will already be old news, and our country must have shown that these events have no impact on the normal course of its development.
Inversely — an extraordinary meeting requires force majeure circumstances, and what is happening in Bulgaria is a democratic process and can hardly be accepted as such. Last but not least, given the favorability of rating agencies towards countries like Romania and Hungary, sanctioning Bulgaria may seem like an excessive precautionary measure.
In this situation, the reasonable move of the Finance Ministry is to consider and plan serious efforts to limit the budget deficit to the extent that the remaining funds for its financing can be raised from the internal market.
In other words, we should not count on a compromise from the ECB and the European Commission. The compromise on which we are pinning our hopes for entering the eurozone from January next year resembles the absurd hope of a high school student who, at the end of the term, asks his teacher to raise his grade in order to get a scholarship or avoid a remedial exam. No - Bulgaria needs reforms. It has also needed fiscal reforms for two years. Against this background, the possible referendum and its outcome are important, but far more important is responsible, rather than wishful thinking and behavior on the part of those in power.