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Why Bulgaria abandoned its goal of joining the euro in 2024

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Bulgaria was considering adopting the euro in 2024 in a bid to improve living standards in the bloc’s poorest member state. Along with Croatia, Bulgaria joined a currency exchange mechanism in the works in 2020. But it fell behind Croatia, which this year became the 20th member of the euro zone, then abandoned the schedule altogether in February, citing persistent political instability.

1. Why does Bulgaria want to join the euro?

Bulgaria began working towards eurozone membership shortly after joining the European Union in 2007 – as required by its accession treaty. But that was suspended three years later, amid the European sovereign debt crisis, which nearly bankrupted neighboring Greece and some other eurozone countries. In a new dynamic since 2016, the Sofia government said adopting the single currency would help the Balkan country avoid being marginalized in EU decision-making and further integrate its economy-oriented economy. export.

2. What is the economic logic?

Since the hyperinflation crisis of the 1990s, Bulgaria has operated under a currency board system that links the lev to the euro. With little room for independent monetary policy, the country depends on the decisions of the European Central Bank. The government and central bank have argued that adopting the euro would reduce transaction costs, lower interest rates and improve Bulgaria’s credit rating, making it more attractive to investors. It would also help the tourism industry, which contributes more than 12 percent of the country’s economic output, in part by eliminating the need for many visitors to change currency.

3. Are there opposing views?

The idea was met with skepticism from some political parties, including pro-Russian socialists, who insisted on a more thorough cost-benefit analysis before setting a firm date. The nationalist Renewal party, also pro-Russian, has called for a referendum on the subject, saying Bulgaria is ceding too much sovereignty. In addition, some analysts, including a deputy central bank governor, have warned of the euro zone’s structural problems and high debt levels among some of its members and have criticized some of the ECB’s past policies.

4. What is the public mood?

A November poll showed that only a third of Bulgarians supported adopting the single currency. More than two-thirds said they feared it would lead to higher prices. Several hundred people gathered in Sofia at the beginning of December during a demonstration against the euro organized by the Relaunch party. Such doubts are not unusual for new members: in Latvia, for example, half the population opposed change when the country joined the euro in 2014.

5. What has Bulgaria done to prepare?

Considered the second most corrupt state in the EU in a ranking compiled by Transparency International, Bulgaria has faced a lot of skepticism from other eurozone countries – particularly after the Greek debt crisis and money laundering scandals involving banks in the Baltics have exposed the risks of joining new members. in the club. After a national banking crisis in 2014, Bulgaria strengthened its financial supervision to be able to join the EU banking union as well as the exchange rate mechanism, known as ERM-2. Lawmakers also updated the legal framework governing Bulgaria’s central bank after the ECB highlighted a list of shortcomings. For years, Bulgaria has kept its budget deficit and debt levels within EU requirements.

6. What remains to be done?

The country is set to pass three bills regarding insolvency, money laundering and insurance. Furthermore, it could be difficult for it to meet the inflation criteria, with Finance Minister Rositsa Velkova calling the requirement “the only serious challenge” in an interview published in late January.

7. Why did Bulgaria abandon the 2024 target?

The tight timetable and growing political divisions meant that Bulgaria still faced an uphill battle, despite an overwhelming parliamentary majority in favor of the euro. President Rumen Radev, who ran as an independent, has seen six attempts to form a government fail since July 2022; He plans an early vote on April 2. To meet the 2024 deadline, Bulgaria should have asked the ECB for a report on its preparedness “by early spring at the latest,” according to Velkova, and prepare for early voting. deployment of the new currency. In abandoning the 2024 target, Velkova urged the next parliament to approve the necessary legislation. She also warned that if a new target date was not clear, Bulgaria’s credit rating and borrowing costs could suffer.

8. Who else wants to join the Eurozone?

Romania has expressed interest, although it no longer has an official deadline. While all EU member states are forced to join the eurozone, Poland, the Czech Republic and Hungary are reluctant to take formal steps, saying an independent monetary policy is vital for them, especially during economic crises such as the current surge in inflation. Denmark – which obtained an exemption before the advent of the currency – and Sweden are not moving either.

–With help from Peter Laca, Andra Timu, Aaron Eglitis and Zoe Schneeweiss.

More stories like this can be found at bloomberg.com

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