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The eastern enlargement of the European single currency has suffered a setback after Bulgaria and Romania failed to meet the economic criteria required to adopt the euro.
Wednesday’s decision by the European Central Bank and European Commission means Bulgaria’s ambitions to join the eurozone early next year will fail. Their review also confirmed that Romania’s hopes of euro membership are as remote as ever.
The ECB and the Commission said that inflation in the two countries on the Black Sea coast – which are among the poorest EU members – was too high compared to the rest of the Union. They also expressed doubts about whether their institutions were strong enough to combat corruption and money laundering.
Both countries want to follow the example of Croatia, which became the 20th country to introduce the euro in early 2023.
Bulgaria is the country that comes closest to membership in the eurozone. It has pegged its lev to the euro for years, placed its largest banks under the control of the ECB, and kept its debt and budget deficits relatively low. Had Bulgaria met the necessary conditions, it could have joined the euro in early 2025.
When assessing the readiness of six EU countries outside the euro area to join the single currency zone, Bulgaria met all criteria except reducing inflation to EU levels.
Inflation in Bulgaria averaged 5.1 percent in the 12 months to May, down from 5.9 percent in the previous year but still well above the 3.3 percent ceiling calculated compared to other EU members, the ECB said.
Although the outcome of the assessment was as expected, Bulgaria’s previous government had hoped that the EU executive would show leniency, as it was expected that Sofia would meet the price stability criterion later this year.
Instead, according to EU and Bulgarian officials, the Commission has agreed to reassess Bulgaria’s suitability to join the euro at its request, rather than waiting for the next regular review in two years.
Bulgarians are divided on the issue of adopting the euro: recent polls show that 49 percent are in favor and a similar percentage are against.
The ECB also said Sofia was still working on implementing a number of commitments, including “strengthening its anti-money laundering framework.” It expressed concerns about a constitutional amendment that would allow the president to appoint the governor or deputy governor of the Bulgarian central bank as interim prime minister.
Although the quality of institutions and governance is improving, it is still “relatively weak” in Bulgaria, Romania and Hungary, the ECB said, citing “weaknesses in the business environment, inefficient public administration, tax evasion, corruption, a lack of social inclusion, a lack of transparency, a lack of judicial independence and/or poor access to online services”.
Former Bulgarian Prime Minister Nikolai Denkov recently told the Financial Times that corruption is also a way for Russia to exert its influence in Bulgaria – a point that is of great concern to Western allies.
The country is plagued by ongoing political unrest. Corruption and organised crime prevent it from integrating more closely with other EU countries and only allowed it to partially join the border-free Schengen area at the beginning of the year.
Sofia has held six elections in just over three years since former ruler Boyko Borissov was ousted in 2021 following anti-corruption protests. More elections are considered likely this year after a vote in June failed to produce a stable government. Bulgaria remains the poorest member of the EU, with gross domestic product per capita a third below the bloc’s average.
Inflation in Romania was well above the required level, after price growth averaged 7.6 percent last year. The ECB’s fiscal assessment was also not met, as Romania had been in breach of EU debt rules since 2020, running a budget deficit of 6.6 percent last year – well above the EU’s 3 percent limit – and there is little prospect of it falling below Brussels’ target this year.
Overall, the ECB said there had been “limited progress” in converging towards the common currency among non-eurozone members due to the “difficult economic conditions” caused by the fallout from Russia’s invasion of Ukraine.
The other four countries examined – Poland, the Czech Republic, Hungary and Sweden – also had inflation above the level required to join the euro, and all but Sweden were in breach of EU budget rules. The Quartet, however, does not aspire to euro membership.
Last year, Romania set itself the goal of joining the eurozone by 2029. However, President Klaus Iohannis questioned the setting of a specific date for the country.