Dennis Shen
4 min read
In This Article:
Bulgaria’s potential adoption of the common currency would support potential growth of around 2.75% a year and accelerate convergence towards average European Union living standards.
Bulgaria formally requested that the European Commission (EC) and the European Central Bank (ECB) assess the country’s readiness for joining Economic and Monetary Union on 25 February. This was a crucial step that placed the decision about accession in Europe’s hands, prudently distancing the decision from persistent domestic political divisions on the subject.
Scope Ratings (Scope) expects the ECOFIN Council to approve Bulgaria’s accession by 8 July after publication of the special convergence report. Recent feedback from European institutions has favoured Bulgaria’s entry. If successful, this would expand the euro area to 21 member states, following Croatia (2023), Lithuania (2015) and Latvia (2014).
Bulgaria’s efforts at controlling inflation have proven crucial in advancing its bid to join the single currency. Price stability has proven the most challenging of the core euro-convergence criteria in recent years. The harmonised annual inflation rate moderated to 2.8% in April from 4.0% in March. The 12-month-on-12-month rate – the convergence criterion – remained at 2.7% in April, broadly in line with the benchmark of the average of the three euro-area member states with the lowest rates of inflation (France, Cyprus and Luxembourg in April) plus a 1.5pp tolerance margin – totalling 2.8% (Figure 1).
Importantly, Bulgaria currently meets the inflation criterion even without the exclusion of outlier countries in the EC’s and ECB’s calculations – a factor that played a role in Croatia’s approval for entry in 2022. Bulgaria has typically had comparatively modest inflation, a trend that may reassert itself. Scope forecasts that consumer-price inflation will average an elevated 3.4% this year before falling to 1.6% next year.
Figure 1: Bulgaria meets the final euro convergence criterion as inflation falls
Harmonised inflation, annual change, %
A primary risk to Bulgaria’s accession remains domestic political fragmentation. Sharp divisions between those favouring deeper integration within the EU and those preferring rapprochement with Russia have been reflected in the seven general elections held since 2021. This split has compromised government reforms required for the adoption of the euro, resulting in years-long delays to the process.
