Poorest EU Member Faces Risk To Euro Goal In Coalition Fight

Poorest EU Member Faces Risk to Euro Goal in Coalition Fight

(Bloomberg) --

As Croatia is sailing through euro adoption and is poised to join the currency area on Jan. 1, political bickering in another European Union member is complicating its path.

Bulgaria's government approved a plan this week to take on the euro in 2024, with Prime Minister Kiril Petkov arguing that it will help the EU's poorest member to lure investment, boost the economy and improve living standards.

But two junior members of his ruling coalition, the Socialists and the upstart There Is Such a People party, known as ITN, have vowed to throw a wrench in the process. They've called for a parliamentary vote on a cost-benefit analysis from the Finance Ministry and the central bank, which could imperil the plan to swap the national currency for the euro.

“There Is Such a People will try to delay the implementation of the National Plan to adopt the euro,” the party said in a statement this week.

Still, the dispute underscores Bulgaria's struggles. A spate of banking scandals have created wariness among older euro-area members toward letting it in even as authorities say the troubles are in the past.

At home, support for euro-zone entry is mixed. Less than 40% of Bulgarians support the euro as the bloc's single currency, nearly twice as low as the EU average, according to a Eurobarometer survey published in April.

Bulgaria meets many of the formal criteria and the lev is already pegged to the euro. But media frequently warn that switching the currency may push up prices -- inflation is already at an almost 14-year high -- while the nationalist opposition says adoption would rob Bulgarians of part of their sovereign identity.

In the same report that gave a green light for Croatia to join next year, the European Central Bank said inflation in Bulgaria was “well above the reference value of 4.9% for the criterion on price stability” and is expected to rise.

The European Commission, the EU's executive arm, said Bulgaria was working to improve its business environment and financial stability, but it also had sharp criticism.

“Selected indicators related to the business environment show that Bulgaria performs worse than many euro area member states,” the Commission wrote. “Challenges also relate to the institutional framework including corruption and government efficiency.”

According to Bulgarian Finance Minister Assen Vassilev, the administration is pushing forward with the plan approved by the cabinet, which includes preparing banks and retailers for the switch and making changes to banking regulations.

Lawmakers are scheduled to discuss the cost-benefit analysis demanded by ITN and the Socialists next week.

“I hope for a clear commitment, both on behalf of the banks and on behalf of the parliament, so that there is no delay of the processes of euro adoption,” Vassilev told reporters on Thursday.

Central bank Governor Dimitar Radev, who has remained in his position almost a year after his term expired because ruling parties can't agree on a replacement, said the question whether Bulgaria should join the euro area amid the war in Ukraine is “rhetorical.”

“Under the current geopolitical situation, to me, the logical answer is -- now, or as soon as possible, and not in 5 or 10 years,” Radev told lawmakers. “The difference is that Croatia demonstrates a very clear and strong political engagement with the process.”

(Updates with survey in sixth paragraph, central bank comments in last)

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