The debate over Bulgaria’s Eurozone accession has recently got hotter, especially in the context of Brexit, the unsolved debt crisis in Greece and the expanding wave of populism and nationalism – the arguments against the euro seem to become more and more popular among non-Eurozone member-states.

Mr. Boris Petrov, a long-year high ranking official of the Central Bank of Bulgaria /BNB/ says that the current political situation shouldn’t be misleading: Bulgaria has not only taken the responsibility to introduce the euro, just like any new EU member-state, but it also has the economic interest to hurry up.

“Bulgaria needs to enter the Eurozone as soon as possible. Via the currency board, we are fixed to the euro, but at the moment we bear mainly the negative side and all the financial crises of that mechanism. On the other hand, we do not utilize the benefits and we are not part of the decision-making process in terms of monetary policy of the European Central Bank. The other list of advantages: a complete integration of the banking sector, access to cheaper funding by the European Central Bank /ECB/. This benefit which might be transferred to the real sector – users and investors.”

The currency board is a stable monetary system, but it may suffer political shakes as well. “Currency boards are money regimes, typical for the 19^th century. We live in the 21^st, the era of cyber money,” Boris Petrov remarks. One of the major negatives of the currency board in Bulgaria right now is that it obliges us to keep really serious volumes of foreign exchange reserves. Those are invested in low-yield instruments with profitability close to zero. At the same time a large share of the reserves are accumulated by the Government on deposists held at the BNB. However, those reserves are borrowed at 1 – 2% of interest rate on the international markets. Thus, Bulgaria pays its stability tax, the finance expert claims.

What will change for an average Bulgarian company if we introduce the euro tomorrow?

“Pretty much nothing will change, if we have to be precise. Certainy, it could have access to cheaper credits for small and medium-sized businesses, since the euro loans have lowers interests than the Bulgarian lev ones. If the company sells its product in Bulgaria, its loans rigth now are denominated in BGN. If it sells on foreign markets, the loans are in euros or dollars, since contract payments require those currencies.”

Other experts claim that Bulgaria’s entering the Eurozone would mean losses, as it will have to take part in rescue operations on other countries’ debts.

“Let’s make it clear. Bulgaria’s capital installment into the European Stability Mechanism /ESM/ is really low, because it has a really low GDP share  with respect to other member-states. Besides that we are talking about profitable investment, it is not left and forgotten. At the moment Bulgaria is investing into German government bonds with negative yield, as those have the greatest share in our currency reserve. And why don’t we invest into positive yielding bonds via our ESM capital installment? At the same time  as a country we issue debt instruments at 1.5% of annual interest, deposed by the government at the Central Bank without receiving anything, while the BNB respectively invests into debt instruments with very low profitability. As a result, the 2015 Annual Report of BNB says that the net revenue from the governing of international currency reserves is negative to the tune of EUR 8.54 mln. This is not to be blamed on the BNB, but it is imposed by the currency board mechanism. BNB contributed to the Goverment budget only EUR 10 mln. in 2015, while over the good times as for instance in 2009 that sum was EUR 200 mln. Thus, the 2015 result is small even for an average commercial bank. If we are part of the ESM we will receive an interest of 2 – 3%, i.e. we will have a positive financial result. Giving loans to other member-states, Bulgaria has guarantees on their payment and the risk is shared among member states. Upon entering the Eurozone, the fiscal reserve money will be released for public investments and might be used for increasing the productivity and competitiveness with the objective of guaranteeing sustainably higher economic growth,” expert Boris Petrov says in conclusion.

English version: Zhivko Stanchev