EC, ECB find Bulgaria not yet fully ready to adopt euro

Bulgaria does, however, fulfil other criteria for becoming part of the eurozone, namely the requirements relating to public finances, exchange rate and long-term interest rates convergence, the Commission said on Wednesday in its 2022 convergence report assessing the progress of seven members states towards adopting the euro.

The EC's report was complemented by a biennial assessment by the European Central Bank (ECB) issued on Wednesday.

The ECB found that at 5.9%, the 12-month average rate of Bulgaria's consumer price inflation is well above the price stability reference value of 4.9%. Inflation in the country has accelerated sharply since September 2021 because of increasingly high energy and fuel prices, and averaged 9.7% in the first four months of 2022, with uncertain forecasts due to the economic difficulties arising from the Ukraine war.

"Bulgaria’s general government budget deficit was well above the 3% reference value in 2021, while its debt was well below the 60% reference value," the ECB said. It noted that with the currency board pegging the lev to the euro, Bulgaria has been able to manage the level and structure of public debt but although the debt level is low, there is room for further improvement.

"Bulgaria faces medium risks to fiscal sustainability over the medium and long term," the ECB added, urging a return to prudent fiscal policies so as to comply with the bloc's Stability and Growth Pact.

Bulgaria joined the exchange rate mechanism (ERM II), the training ground for euro adoption, and the EU's banking union, in July 2020.

Last week, the Bulgarian government approved an operational plan for introducing the euro, affirming the target date of January 1, 2024, although some legislative changes, including concerning the central bank, are still needed.