Will Bulgaria and Croatia meet their deadlines for joining the euro zone?


Croatia has set 1 January 2023 as the date on which it will make the euro its national currency, with Bulgaria to follow a year later. But how realistic are these deadlines?

In July 2020, Bulgaria and Croatia were admitted together into the Currency Exchange Mechanism (ERM II), often referred to as the Eurozone waiting room.

For a year, this has meant that the European Central Bank no longer has the power to veto the accession of one or the other country to the euro zone, only the dates of accession still to be determined.

In June, the Bulgarian Euro Coordinating Council approved a national plan to introduce the euro in 2024, a year after Croatia, which has already reached a memorandum of understanding with the European Commission and other members of the euro zone on the practical modalities of the production of euro banknotes and coins.

Croatia’s adoption of the single currency will be the first enlargement of the euro area since Lithuania joined in 2015.

“Croatia has yet to fulfill the nominal convergence criteria (Maastricht) and receive a formal assessment from the European Commission on its compliance with these criteria,” said a spokesperson for the Croatian National Bank. Emerging Europe.

“Taking into account the usual procedures and timetable, such an assessment can be expected in spring 2022. Subject to the positive assessment by the Commission, in summer 2022 the Council of the EU could approve the introduction of the euro in Croatia on January 1, 2023.

Economic benefits

According to the Croatian National Bank, the incentive to join the euro zone is clear – the country’s economy will benefit greatly.

“The introduction of the euro is accompanied by the elimination of exchange rate risk and therefore greater resistance to external shocks and financial crises, lower interest rates and more favorable access to financial markets. In combination with lower transaction costs (currency conversion costs de facto disappear), this facilitates higher economic efficiency and competitiveness, ”adds the Croatian National Bank.

“All of these advantages promote economic growth, employment and financial stability, while facilitating further trade and financial integration with other members of the euro area.”

Gergana Mihaylova, professor in the finance department at Sofia University of National and World Economy, said the Bulgarian economy is expected to benefit in the same way.

“Being part of a much larger economic community will offer greater opportunities for Bulgaria and will probably help to facilitate and develop trade,” she said. Emerging Europe..

“The adoption of the euro as the national currency will also contribute to greater macroeconomic stability, create opportunities to attract more foreign investment, increase the country’s credit rating, stability and allow greater integration of financial markets. , while creating new opportunities for the banking sector. . “

“Internal critics of Bulgaria’s decision to join the euro area fear the emergence of new challenges and the economy’s ability to deal with external shocks, especially given limited budgetary resources. However, the common monetary policy of the European Central Bank will most likely be implemented, which will help the national economy to withstand such external shocks, ”adds Mihaylova.

Challenges ahead

“The economic benefits of adopting the euro in Croatia are many, significant and, unlike the costs, they are permanent,” adds the Croatian National Bank.

But Christian Schweiger, professor in the Chair of Comparative European Governance Systems at Chemnitz University of Technology, Germany, says there will indeed be costs and challenges ahead for the two aspiring eurozone members. .

“Croatia only joined the ERM II mechanism in July 2020. Therefore, it will have to show that it can stay in the mechanism without any devaluation of the kuna against the euro at least until July. 2022, “said Schweiger. Emerging Europe.

“Croatia is also above the 60% gross debt limit of its GDP. In 2020, it rose to 88.7% and this could increase further this year because the effects of the Covid-19 pandemic are affecting the budget, ”he adds.

As such, Schweiger wonders whether the membership deadlines proposed by the two states are realistic.

“Although the Croatian government is relatively fixed on the 2023 deadline for entering the euro zone, I would consider this date a bit too early under the current circumstances. Croatia has been given permission to mint euros, but this does not necessarily mean that it will be allowed to join before the deadline of January 1, 2023 if its deficit increases further and it cannot stay within the ERM limits. II, ”he declared.

Bulgaria first?

According to Schweiger, Bulgaria is in a better position to meet its 2024 deadline, as its gross debt level remains below 30%, despite facing its own – different challenges.

“Membership could still be threatened due to the country’s persistent problems with corruption in the public sector, administrative inefficiency and also money laundering,” he said.

Schweiger’s remarks mirror those of German MEP Sven Giegold, who recently visited Bulgaria to assess his willingness to join the eurozone.

“Of course, Bulgaria is more than welcome to join the euro, but first it needs to sort out its problems in the area of ​​money laundering and corruption,” he said, adding that “l The EU must prevent a situation in which a Member State becomes a hub for large-scale money laundering, as has happened in the past in Cyprus or the Baltic States.

Meanwhile, Schweiger adds that Bulgaria and Croatia should not expect any special treatment, as the days of leniency between EU bodies are long gone.

“Of course, a number of founding eurozone members did not initially follow all fiscal rules but I doubt that current eurozone countries, especially Germany, will accept a new member with an excessive deficit afterwards. the systemic crisis in the euro zone 10 years ago, ”he said.

“My overall expectation is that Bulgaria will adhere to its current 2024 deadline, but that Croatia’s accession could be delayed if its overall deficit remains above 60%,” he concludes.

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