Out of Schengen, but what about the Eurozone? Bulgaria on the crossroads of EU integration7 min read
Bulgaria’s aspirations for accession to the Schengen Area and the Eurozone continue to face international and domestic pushbacks. The lack of a government and a stable parliament disposed to make concessions since 2020 hampers major processes of convergence in the economy and mobility with the EU.
Most recently, Bulgaria’s bid to join the Schengen area was blocked by the Netherlands at the December 2022 meeting of the Council of Interior Ministers. Meanwhile, the country’s economic situation has continued to deteriorate amid a two-year political crisis, which is likely to hinder the conversion from the Bulgarian Lev to Euro in the near future. Without strong and accelerated action prompted by political will, Bulgaria is bound to persist in lagging behind in EU integration. This trend will most likely continue after the next general elections, which are scheduled for 2 April 2023 (the fifth general election since 2020), as the populist parties in Bulgaria have already started exploiting the polarisation among the public regarding the adoption of the Euro.
The Schengen Drama
Upon joining the EU in 2007, Bulgaria also agreed to join the Schengen Area and the Eurozone. Schengen negotiations started in 2011, along with Romania, after the European Commission (EC) stated that both countries were technically prepared to do so. However, it was Croatia that entered the Schengen Area on 1 January 2023 after a much shorter period of EU membership, having joined in 2013.
The thorny nature of Schengen accession for Bulgaria and Romania originally revealed itself in 2011, when the Netherlands and Finland vetoed the entrance of these two countries to the border-free area. Subsequently, negotiations were further complicated due to the ongoing migration crisis and the perceived inability of Bulgaria to protect the EU’s outer border. Then, in 2022, Bulgaria and Romania were vetoed by the Netherlands and Austria on the grounds that their accession was a threat to the security of the neighbouring member states due to high levels of corruption and organised crime. These issues undermine effective border and customs control and allow the chaotic flow of contraband and illegal migration. At the same time, and in contrast to the scepticism of some member states, the European Parliament (EP) repeatedly held the position that the two Balkan countries have fulfilled the criteria to join and that the accession process must be accelerated. However, the EC is not legally obliged to follow EP opinions, which leaves the negotiations in limbo.
Bulgaria’s ambitions for the Eurozone
While Schengen negotiations began in 2011, discussion about the Eurozone lagged due to a lack of political will on both sides to accelerate the process. This was largely in light of the instability of the Eurozone brought about by the Greek crisis in 2008. Bulgaria’s last push for serious negotiations was 10 years ago. Nevertheless, the Bulgarian Lev is tied to the Euro by 1.95583 which implies that Bulgaria’s monetary policy depends on Frankfurt. Upon joining the Eurozone, Bulgaria would have the right to participate in these decision-making processes.
In 2018, Bulgaria applied to join the EU’s banking union (a so-called Eurozone waiting room) and sent a request to the European Central Bank to monitor the top lenders of Bulgarian banks. Additionally, Bulgaria has participated in the Exchange Rate Mechanism II (ERMII) since 2020, whose purpose is to assist countries in preparing to convert to the Euro. For two years, the state should not experience severe economic tensions and should not devalue their central currency rate against the Euro to qualify for the currency adoption.
On the other hand, the last convergence report from 2022 states that the consumer price inflation rate in Bulgaria for 2021 surpasses the reference value of 4.9% posed by the EC as one of the criteria for adopting the Euro. Similarly, the government budget deficit at the time of the report exceeded the reference values. Legislative changes concerning the central bank are also needed. Nevertheless, other assessments point to a risk that the increased and unpredictable inflation rate can delay the adoption of the Euro after 2025. It is possible that if the political will is strong, these reference criteria can be negotiated, as was the case with Greece and Croatia. Certain political steps have been undertaken in order to show that Bulgaria is pushing for this transition, despite the noticeable reluctance to do so earlier. According to a decision by the Bulgarian parliament from October, the Bulgarian National Bank should start to accelerate the transition to the Euro, with the new plan to join the Eurozone in January 2024. It is expected that in mid-2023 the government will ask the EC and the European Central Bank to prepare a convergence report assessing whether Bulgaria meets the conditions for joining the Eurozone.
Exploiting myths about the Euro in the midst of a political crisis
In light of the new plan aiming to adopt the Euro in 2024, the issue has become a recurrent topic in Bulgarian political discourse. However, the general public is sceptical about joining the Eurozone, and the issue is highly politicised. This is mostly because expert information is generally lacking and any awareness-raising campaign is hijacked by political opportunists aiming to garner electoral support.
Therefore, it comes as no surprise that only 35% of Bulgarians are in favour of adopting the Euro. The main scarecrow is the increased consumer price inflation that follows the initial period of currency change, especially since the general economic standard is perceived as not as high as in the rest of the EU. It is expected that prices of goods and services will drastically increase while salaries will not. The experience of Greece and Slovakia has influenced this perception. For example, the detractors suggest that hastening the transition and entering the Eurozone without fulfilling all the criteria, such as the case with Greece, will result in “huge economic upheavals.” Subsequently, the Greek economic crisis is seen as a consequence, while Frankfurt’s control over “national” monetary policy is considered as an accelerator.
The lack of information regarding these complex economic processes traps public opinion into a cage of scepticism. In turn, this allows the populist political parties to exploit the uncertainties and fears and to increase their voting base. These parties represent themselves as protectors of Bulgarian culture and the economy, and have been calling for a referendum on keeping the Bulgarian Lev ever since the country joined the Eurozone “waiting room.” For example, the far-right political party Revival (Vazrazhdane), which gathered significant support by abusing the COVID-19 crisis with its anti-vax rhetoric, is gathering signatures to petition for a referendum to be held alongside the next elections. The idea behind a referendum should be that the people, and not the politicians, make an informed decision. Nevertheless, in the midst of elections, public campaigns and debates on the issue are a non-viable option, especially for such a technical issue that requires a lot of education. A referendum in a country like Bulgaria where electoral fraud is rampant, is not constructive.
Another populist party which entered the parliament in 2022, Bulgarian Rise, also promotes the rejection of the Euro. The story of loss of national currency fits very well into the anti-globalist and anti-Euro/Atlantic narratives, which claim Bulgaria will fully give away its sovereignty to Brussels and other foreign agents.
It is true that when joining the Euro, countries can no longer use the exchange rate as a cushion from any economic shock, but Bulgaria is already tied to the European currency and plans to adopt the Euro at its current fixed rate. The other issue of currency speculation could be mitigated with appropriate measures and monitoring. The application of advanced digital tools for monitoring and signal provision to the relevant authorities is one of the potential measures. Moreover, the current high inflation rate in Bulgaria will likely prevent the additional inflation, since the prices of goods and services are already very high (by December 2022 the yearly inflation rate in Bulgaria was 16.9%). At the same time, it is important to note that Bulgaria is one of the least indebted EU states. Despite the spending aimed at reducing the consequences from the pandemic, its fiscal deficit was only 3% of the economic output last year.
Bulgaria’s path for convergence with the European family might have been thorny, but these are critical milestones for socio-economic development. Joining the Euro might not go without short-term issues, but in the long-run, it is expected that the benefits will outweigh the costs.
