Myths and Facts

Facts: The experience of the countries that recently joined the euro area shows that the immediate effect of the euro adoption on price levels is within the rates of up to 0.3% and is one-off for the new euro area countries. For instance, the adoption of the euro in Croatia may be referred. In November 2022, shortly before the euro introduction, Croatia registered an inflation peak of 13%, after which inflation began to steadily decline. This trend did not change with the country’s accession to the euro area on January 1, 2023. The changeover from Croatian кuna to euro had a small effect on consumer prices, as it was estimated both by Eurostat and the Croatian Central Bank as up to 0.2%.

The effect of the changeover to euro in the overall rate of inflation in Slovenia was 0.3, in Slovakia – 0.3, in Estonia – 0.3, in Latvia – 0.2, and in Lithuania – 0.11 percentage points (pp).

 

Facts: Joining the euro area is a prerequisite for a faster convergence to average European income. The Baltic States registered real convergence in income during the years after their euro area accession . In 2022, per capita income levels are 89% in Lithuania, 85% in Estonia, and 72% in Latvia of the EU 27 = 100. The example of the average salary is even more significant. In Lithuania, Latvia and Estonia, the average wage grew by 108%, 67% and 85% respectively, within the period from the introduction the euro in each of these countries by 2021. Therefore, the income of the population grew at a faster rate after joining the euro area. 

Facts: The readiness of the Bulgarian economy to adopt the euro is assessed in the Convergence Reports prepared by the European Central Bank and the European Commission every two years or upon request by the respective member state.

Facts: The single European currency, as well as the formulation and implementation of a single monetary and exchange rate policy, have as their main objective maintaining price stability and supporting common economic policies within the EU, in compliance with the principle of an open market economy, within conditions of free competition. From investors’ and entrepreneurs’ point of view, the technical benefits of the euro introduction are the reduction of transaction costs and better access to financial markets. Moreover, after the euro area accession the national currency risk premiums will disappear, the costs of the banking sector for maintaining liquidity and buffers will be reduced, and consequently this will create conditions for the reduction of domestic interest rates (taking into account the phase of the monetary policy cycle regarding interest rates), possibly reducing both the country risk premium and the government funding costs. In the Baltic States, the euro adoption credit rating upgrades. The same effect is observed in Croatia.

Similarly, joining the euro area will improve the country’s institutional framework, including the so-called institutional convergence, which is associated with a convergence of economic and political institutions in a common regulatory and functional framework existing in the area and determining the behavior of economic entities.

The main advantage of euro area membership is the more stable and predictable business environment, which is a prerequisite for attracting investor interest.

Facts: The accession of the Republic of Bulgaria to the euro area will lead to a fundamental change in the monetary policy model in Bulgaria.

In contrast to the very limited options for monetary policy within the framework of a currency board arrangement, after acceding to the euro area our central bank will be able to implement through the Eurosystem the entire range of monetary policy instruments, which include open market operations, quantitative easing with permanent access and minimum reserve requirements.

By joining the euro area, the governor of the Bulgarian National Bank, as a member of the Governing Council of the European Central Bank (ECB), will participate with a voting right on a rotating basis in the formulation of the Eurosystem monetary policy.

This means that the euro adoption will increase rather than decrease Bulgaria’s monetary sovereignty, because the state will participate in the decision-making that concerns its currency.

Facts: After the euro introduction, the governor of the Bulgarian National Bank will participate in all discussions concerning the monetary policy of the euro area and will vote in the Governing Council of the European Central Bank (ECB). In order to preserve the ability of the ECB Governing Council to take decisions despite the increase in the number of its members, a rotation of the voting rights of the governors of the national central banks has been introduced. The central bank governors of the five largest economies (Germany, France, Italy, Spain and the Netherlands) in the EU hold a total of four voting votes. The governors of the central banks of the rest of the euro area countries have a total of eleven votes. The rotation of voting rights is monthly. For instance, in 2024 the fifteen governors who share eleven votes will vote between eight and ten months out of the twelve months of the year. The governor of the Bulgarian National Bank will have the opportunity to vote in about 70% of the votes of the ECB Governing Council (having 21 member states of the euro area - the current 20 + Bulgaria). The Bulgarian vote will be equal to that of Austria, Belgium, Luxembourg, Ireland, Portugal, etc. For comparison - for the five largest economies in the EU, the voting frequency is 80%. It is important to note that the Governing Council takes most of its decisions by consensus and in such cases no formal voting procedure is held.

Facts: The implementation of fiscal policy in the country is based on fiscal rules, procedures and parameters for fiscal management set forth in the Public Finances Act, Government Debt Act, Fiscal Council and Automatic Corrective Mechanisms Act. They aim to create a budget management fiscal framework that will ensure prudent, predictable and sustainable policy in the medium and long term.

In addition, various regulatory measures function at the national and European level, which serve as a ‘safeguard against the possibility of fiscal policy loosening. For instance, after the global financial crisis of 2008-2010, the Stability and Growth Pact, which represents the EU fiscal governance framework, was seriously revised and strengthened. It contains provisions against excessive budget deficits and unsustainable fiscal policy, and after joining the euro area, our country will be subject to even stricter monitoring and control than EU countries outside the euro area, especially with regard to its draft budget. More specifically, in order to ensure closer monitoring and coordination of economic and fiscal policy between the euro area countries, by October 15 each year, these countries should submit to the European Commission drafts of their national budgets. In case of a deviation from the fiscal rules of the presented draft budgets, the Member States should revise them.

In spring of 2024, changes to the Stability and Growth Pact are due to be adopted, which will require countries to develop fiscal-structural plans to ensure that the deficit and debt to GDP ratios are maintained within their reference limits or reduced in a gradual, realistic, sustainable and growth-friendly manner.

Facts: As of October 1 2020, Bulgaria joined the Single Supervisory Mechanism through the establishment of close cooperation between the Bulgarian National Bank and the European Central Bank. Since that date, the European Central Bank is responsible for the direct supervision of banks designated by it as significant, and the other banks are under the direct supervision of the BNB.  After the euro introduction, there will be no significant changes in the activity, functions and responsibilities of the BNB in relation to the supervisory activity, i.e. BNB will retain its supervisory function over the banks.

As of 1 October 2020, the date of establishment of close cooperation with the ECB, the Bulgarian National Bank performs functions and tasks as a resolution authority within the framework of the Single Resolution Mechanism (SRM). For the purposes of financing resolution in the Single Resolution Mechanism (SRM), the Single Resolution Fund (SRF) was created, to which banks make contributions. Thus, it ensures the stability of the banking system and guarantees that public funds will not be used to bailout banks. 

The European Stability Mechanism (ESM) is the instrument to provide assistance to euro area countries in financial difficulties. Each euro area Member State is a shareholder in it. According to preliminary estimates[1], after adopting the euro, the maximum amount of Bulgarian capital in the ESM will be about EUR 7.29 billion, as the country will have to pay about EUR 833 million in instalments for a period of 12 years. The remaining amounts up to the maximum value will only be paid-in on demand in the event of a shortfall in the ESM, which has never happened since that mechanism was created. Allocating a part of it to support another country is decided by a two-thirds qualified majority vote, where each country has an equal vote. The assistance granted should be provided on the basis of an economic and fiscal adjustment programme and after a debt sustainability analysis of the ESM member state requesting support. Even if the ESM funds are granted during an on-going crisis, these are not permanent transfers, they shall be repaid with a dividend for shareholders. All funds with which Bulgaria participates in the capital of the ESM remain property of our country.

 

 

After joining the Eurosystem, the BNB will transfer to the ECB foreign reserve assets, different than the currency of the member states, euro and reserve positions of the International Monetary Fund and special drawing rights.

The final decision on the specific composition of the foreign reserve assets to be transferred to the ECB is taken by the ECB Governing Council . The contribution to the total foreign reserve is proportional to the share of each national central bank in the subscribed capital of the ECB and is accounted as a claim on the ECB. According to a preliminary current assessment of the BNB, the equivalent of the international currency reserves that will be transferred to the ECB amounts to about EUR 960,000 thousand.

The BNB will continue to own and manage its own reserve assets, which are outside the assets related to monetary policy. The management policies for these assets, some of which may be in foreign currency or a consequence of Eurosystem foreign exchange operations, will need to be aligned with relevant rules applicable to all the countries in the euro area and the ECB.

The new BNB act explicitly stipulates which types of assets and instruments the BNB reserves may be invested in. The act stipulates that instruments rated with the three highest ratings of two internationally recognized credit rating agencies will be accepted.

The Bulgarian National Bank will ensure and control printing of euro banknotes and the coinage of exchange, commemorative and collectors euro coins from precious metals and copper in the country.

The BNB will issue euro coins in circulation (exchangeable, with a denomination of 1, 2, 5, 10, 10, 50 euro cents and EUR 1 and EUR 2 having a Bulgarian side), commemorative coins (with a denomination of EUR 2 and the same may be issued on the occasion of national or European significance) and collectors euro coins of precious metals and copper, as the latter will be legal tender only on the territory of the Republic of Bulgaria.

The Bulgarian National Bank will determine the design of the national side of the exchange and commemorative euro coins it will issue, as well as the design, par value and technical characteristics of the collectors euro coins that will be issued by the BNB. The quantities of commemorative euro coins that national central banks intend to issue will be approved by the ECB.