Doubts about graft could mar Bulgaria’s euro bid

Subject

Bulgaria’s moves towards euro adoption.

Significance

Bulgaria wants to participate in the EU’s Exchange Rate Mechanism (ERM II), which fixes non-euro currencies against the euro within a fluctuation band. Problem-free participation for at least two years is one of the convergence criteria for eventually entering the euro-area. Bulgaria’s motivation is mostly political: to align the country, geographically and economically on the EU’s periphery, with core EU institutions and gain a place at the negotiating table as the post-Brexit EU faces major changes.

Impacts

• All three major ratings agencies class Bulgarian sovereign debt as investment grade (albeit the second-lowest grade) with positive outlook.
• There are doubts whether Bulgaria can qualify to join the euro within the minimum two years.
• There is opposition to euro adoption from some shadowy groups preferring a less-regulated, more loosely supervised financial environment.
• Circles seeking to weaken EU influence and bring Bulgaria closer to Russia will step up efforts to thwart the process.