Photographer: Luke MacGregor/Bloomberg

This Strategic Corner of Europe Is Pushing Hard to Join the Core

Updated on
  • Bulgaria’s goal to join the euro is facing German headwinds
  • Sofia cites double standards as it also seeks Schengen entry

As the European Union picks itself up from multiple crises and maps the way ahead, some members are finding they are less welcome than others to share the road.

Bulgaria aims to join the euro area as well as the EU’s passport-free travel zone known as Schengen, and meets the criteria to advance on both fronts. But in each case, reservations in some richer EU countries are slowing the process.

The former communist nation, which buttresses the EU’s strategic southeastern flank, is a test case for the bloc’s efforts to integrate more closely to meet challenges such as rising global protectionism and the threat of another wave of refugees from the Middle East and Africa. Along with shoring up the euro area, the EU aims to ensure continued economic clout after the U.K. leaves in little more than a year.

“Bulgaria’s choice is to be part of the core,” Foreign Minister Ekaterina Zaharieva said in a Jan. 30 interview in Brussels. “We have a clear agenda and a clear priority.”

‘Purely Political’

Germany, still smarting after 10 years fighting the Greece-triggered debt crisis, is helping apply the brake to Bulgaria’s euro aspirations while the Netherlands, home of a strong anti-immigration party, and France, which has suffered high-profile terrorist attacks in recent years, are among the EU countries acting as a check on any Schengen enlargement, according to officials in Brussels, Berlin and Sofia who spoke on the condition of anonymity.

While German Chancellor Angela Merkel said last June that she wanted Bulgaria to join the euro “as quickly as possible,” the current hiccups in the process reveal a common gap in the EU between translating political declarations into policy realities, especially when it comes to financial matters. Greece regularly faced similar situations during negotiations over rescue aid.

“All the reservations have been purely political," Zsolt Darvas, a fellow at the Bruegel think tank in Brussels, said in an interview. “There are double standards. Accepting Bulgaria as a new euro member should not be a problem. Bulgaria will not become Greece.”

Bulgaria, which is planning a bid to join the exchange-rate regime known as ERM-2 that’s part of the road to euro accession, ticks all the economic boxes. It’s national currency, the lev, is already pegged to the euro; public debt is well below both the euro area’s average and the cap set in the EU rulebook; and the nation is running a budget surplus, comfortably far from the European limit for deficits of 3 percent of gross domestic product.

Good Grades

Bulgaria's debt-to-GDP ratio is well below the euro-area average and the ceiling set by EU rules

Source: Eurostat

The Balkan nation has also excelled when it comes to the conditions for joining Schengen.

European Commission President Jean-Claude Juncker said in September that Bulgaria, along with Romania, should become part of Schengen “immediately” because they met all the technical requirements. Bulgaria’s Zaharieva said that the country has been ready to join Schengen “for many years” and that “this double standard should not exist.”

Berlin’s stalling tactics over the monetary question are entwined with a continuing European Central Bank evaluation of Bulgaria’s fitness for the 19-nation euro area.

The German finance ministry welcomed “the interest shown by member states in joining the euro area,” while stressing the need for the ECB to complete its evaluation.

“The ECB in particular is called upon to carry out a detailed assessment, including aspects of sustainability,” said Dennis Kolberg, a spokesman for the ministry in Berlin. “The finance ministry will not prejudge this assessment.”

A spokesman for the ECB said it is working on the assessment, which is due to be published in May.

Some officials say concerns over Bulgaria’s readiness for the single currency stem from the prospect of inflation tied to strong catch-up growth in the country and the demands of EU banking-union rules meant to prevent future financial turmoil.

‘Excellent Pupils’

Other officials point to Bulgaria’s level of corruption -- the worst in the EU, according to Transparency International. They say the euro area must look beyond hard economic criteria to the strength of national institutions when considering opening the door to new members.

On Jan. 11, Bulgarian Finance Minister Vladislav Goranov said the government intended to apply by July for ERM-2 entry. He also said the government would be prepared to do so even without a signal from the euro area that such a step would be welcome as a way to force a European political debate about the prospects for Bulgaria’s membership of the euro. 

“We need a certain direction about what we are supposed to do,” Goranov said in Sofia. “If we look at the purely formal criteria, we are excellent pupils.”

With Merkel still working to form a coalition government for her fourth term after national elections in September that featured a rise in anti-EU forces, Juncker last month could offer only vaguely optimistic remarks to Bulgarian authorities.

“Bulgaria has achieved a lot, particularly in terms of its economic development,” Juncker said on Jan. 17. “Bulgaria will be able to join the ERM-2 and then the euro zone in the foreseeable future.”

— With assistance by Rainer Buergin, Birgit Jennen, Elizabeth Konstantinova, Slav Okov, and Ian Wishart

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