Dimitar Radev: No stone has been left unturned on the topic of euro
adoption in Bulgaria
Statement by Mr Dimitar Radev, Governor of the Bulgarian National Bank, during a
hearing at the 48th National Assembly, Sofia, 27 October 2022.
* * *
Mr. Speaker,
Ladies and Gentlemen Members of Parliament,
Let me begin with this. The true debate today is for or against the euro - the euro as a
symbol of the European project and our commitment to this project.
In the item on the agenda where we are considering this issue, this topic is placed
below 'expert questions'. In the next item, this topic comes up directly. However, in both
cases the topic is the same.
Let me say it squarely, the question about the euro area is first and foremost a political
one, not an expert one, and the answer to this question must be given by the National
Assembly.
Actually, in my opinion, the question is whether Bulgaria will stay indefinitely in the future
anchored in Europe's deep periphery, with the poverty, corruption, institutional
impotence and external dependencies inherent to this periphery, or a joint effort will be
made to change all this by speeding up the already greatly delayed process of joining
the euro area.
expert analyses
A few words about the supposed to inform this process. This is the
third discussion in Parliament on the topic of analysis of the implications of the euro
area accession, in which I have taken part over the last six months. During the previous
discussions I had the opportunity to point out that these questions had been raised at
least twenty years before, and they have been answered repeatedly, even in the last
months and weeks.
For example, just a few months ago the Economic and Social Council to the National
Assembly approved an analysis about the implications of Bulgaria's euro area
accession for the economic development, inflation and incomes in the country. This
analysis was conducted at the request of the Speaker of the National Assembly and
was brought to the attention of the members of Parliament. Let me highlight that by law
the Economic and Social Council is a consultative body expressing the will of civil
society organisations regarding the economic and social development, with its
members representing trade unions, employers, industry organisations, organisations of
pensioners, the socially weak and the disabled, women's organisations, as well as
distinguished independent scientists who are specialists on the issues of the economic
and social policy. The conclusion made by the Economic and Social Council, which
represents such a wide variety of civil society organisations, is that the benefits from
Bulgaria's euro area membership far outweigh the risks and costs.
Quite recently, a collective monograph 'Challenges facing the Bulgarian economy on its
th
Sofia University
way to euro area membership' was published by to mark the 120
anniversary of the Department of Economics within the Faculty of Economics of Sofia
University - the oldest department of economics in Bulgaria. This monograph answers
the same questions which have been brought up now. Three current and two former
employees of the BNB, who have an important contribution to the Bank's research
programme, participated in the preparation of this monograph, though as co-authors in
their academic capacity and not representing the BNB. One of the primary conclusions
in the monograph is that the Bulgarian economy is highly prepared for the adoption of
the euro and for successful operation as a member of the euro area.
As regards the BNB, there is a large number of analyses and studies relevant to this
topic, most of which are publicly available. The BNB has published studies on topics
related, for example, to: transmission of the ECB's monetary policy; measurement of
the financial cycle compared to the euro area; the exchange rate and assessment of its
equilibrium; measuring the business cycle in Bulgaria and its degree of synchronisation
with the business cycle in the EU/euro area; competitiveness of the Bulgarian
economy; macroprudential aspects of banking supervision; dynamics and factors of the
labour market, investments and the housing market.
Additionally, from July 2018 when the real work on Bulgaria's accession to the euro
area began, until July 2020 when the decision was made on Bulgaria's entry into the
EU's Banking Union and the inclusion of the Bulgarian lev in the Exchange Rate
Mechanism, the BNB Governing Council reviewed more than 60 reports and made the
relevant decisions on this topic. From that date until today another 200 decisions or so
were made in the context of Bulgaria's participation in the EU's Banking Union, backed
as far as the BNB is concerned, no stone has
up by serious analytical work. Therefore,
been left unturned on this topic.
What I would like to stress is that there are enough representative, thorough and
up-todate analyses on the implications of Bulgaria's accession to the euro area. The addition
of more analyses at this moment would only further delay the process and would hardly
enhance the quality. What we need now is not new analyses on this subject, but
concrete actions.
prepared
How is the BNB to join the euro area? The BNB is in a unique situation. It is
the first, and until now the only, Bulgarian institution which, since 1 October 2020, has
been a full member of a key institution of the euro area, as is the EU's Banking Union
with its two operating mechanisms: the Single Supervisory Mechanism and the Single
Resolution Mechanism. Therefore, the BNB is the institution which, not based on
theoretical analyses but from first-hand experience, can tell the difference between
being outside and being inside the euro area, i.e. we are speaking not about anticipated
but about real implications.
Most recently, it's been two years since Bulgaria became a full member, and our
assessments are unequivocally positive. Now we have information and a database
which would have been inaccessible to us before our membership, even if we had
invested huge resources. We participate in the process of making the most important
decisions regarding the banking sector in the euro area, i.e. not only the Bulgarian
banks but the European banks. In making all these decisions, our vote matters as much
as the vote of Germany, France, Italy, Spain, or any one of the other euro area Member
instead of waiting for the relevant decisions to be sent to us for
States. So,
implementation, we actively take part in the process of making these decisions. I must
assure you that there is a big difference.
Financial implications
are another important aspect of our membership. You can
probably recall some observers' concerns as to how our membership in the Banking
Union would burden the Bulgarian banks with unbearable fees. Indeed, the Bulgarian
banks pay fees related to Banking Union membership , but the financial benefits are
considerably greater. The Single Resolution Mechanism alone saves the Bulgarian
banks not less than BGN 160 million a year which, in turn, improves their financial
result. Or, if we use the terminology of insurance, the Bulgarian banks get a much
greater protection for a much lower premium.
As regards the BNB which, as I said, is already a part of the euro area in terms of its
key activities, at this stage the preparedness for full accession is related most of all with
technical and logistic issues. Organisation has been set up for monthly reporting on the
progress and the outstanding challenges. So far six such reports have been drawn up
and submitted to the Coordination Council for Preparation of the Republic of Bulgaria
for Euro Area Membership, headed by the Finance Minister and me. Each of the BNB
Deputy Governors is in charge of the relevant area of activity within the BNB's mandate.
Contact groups have been formed, with individually named members of the BNB and of
the European Central Bank working on specific matters.
The absence of a regular government and a clear political commitment to the euro area
accession process are a serious obstacle to its progress. This is the reason why we are
missing, one by one, important indicative time-frames. This time last year Croatia was
well ahead on its way to the euro area. I will give you only one example.
On 10 September 2021 the European Commission and the euro area Member States
signed a Memorandum of Understanding with Croatia on the production of national euro
coins. This Memorandum sets out the actions required for a future euro area Member
State to begin producing euro coins. The signing of the Memorandum makes it possible
to detail the schedule for the future euro coins of the country, allowing that country to
start selecting its euro coin national side designs and to carry out the technical
preparations for minting and producing a test series of national euro coins. The
Memorandum is a precondition for that country to receive the technical specifications
documentation needed for production of national euro coins.
We are about a month and a half behind schedule only on this issue. The consultations
that the Minister of Finance and I had last week show that the signing of such a
Memorandum is still possible but this will urgently require at least two things: firm
political support and a clear mandate of the central bank governor.
The political decision on this issue comes with a price. Over the last months, and
especially the last weeks, markets have been giving us very clear and warning signals.
The price of Bulgaria's newly issued debt has been rising at an unprecedentedly high
rate. This implies an enormous additional financial weight in the medium term, which
more acutely than before poses the question about the terms of funding Bulgaria's
budget and economy. What is the connection with the topic under discussion? The
connection is direct.
If you read credit rating agencies' announcements, you will see that the key factor for
Bulgaria to get a rating upgrade, i.e. for improved terms of its funding, is the successful
implementation of the euro area accession process.
As a reference point, after the decision on Croatia's accession was made, two credit
rating agencies upgraded its credit rating by two notches even before Croatia actually
joined the euro area. Thus Croatia's credit rating, which before the decision was one
notch lower than Bulgaria's, now is one notch higher than Bulgaria. For comparison,
before receiving an invitation for euro area membership, Croatia's government bonds
were bearing higher yields than those of Bulgaria. At present, the yield on Croatia's
government bonds is, on average, about 100 basis points lower than that on the
Bulgarian government bonds.
On the other hand, according to credit rating agencies, the key factor for Bulgaria to get
a rating downgrade, i.e. for deteriorating terms of its funding, is the delayed or halted
process of joining the euro area. Therefore, the political decision about the euro area
will come with a price and it will not be small .
Finally, please allow me to address an appeal and a request to the members of
Parliament:
Please, get focused on dealing with the political crisis and answering the pending
questions with a direct bearing on the matter at hand, specifically:
Will there will be a regular government and when? Because, as I was told only a few
days ago by one of the central actors, including on the euro area matters, over the last
year or a year and a half he has been constantly meeting with new people representing
the executive, and this is a serious challenge, especially when long-term projects are
involved.
Will there be an efficiently working Parliament capable of passing the large number of
legal acts needed for Bulgaria's accession to the euro area?
Will there be a budget, a macroeconomic forecast and a medium-term fiscal
programme and what will be the parameters, a question that has a direct bearing on the
Maastricht criteria?
Will there be a decision about the mandate and horizon for action of the Central Bank's
Governor and management?
Because, and let me finish with this, with a caretaker government and an 'acting'
management of the Central Bank the entry into the euro area is just not going to
happen.
Mr. Speaker, I and my colleagues in the Governing Council are available to answer the
questions that the members of Parliament may have.