7th September 2012
First, the article says, consider that while Sofia's news this week means it's opting against joining the official European Exchange Rate Mechanism, it is maintaining its fixed exchange rate to the euro. This arrangement, known as a currency board, has resulted in an increase of more than 1000% in average real wages, while economic reforms have allowed and encouraged real productivity gains, not inflation, which has been limited to single digits almost every year since 1997.
Moreover, Bulgaria's currency board meant that its government was obliged to control spending, as the central bank is not free to print money to support government borrowing. In fact, "Bulgaria today would not only meet the Maastricht Treaty's criteria for joining the euro zone-it would be one of its star members, with public debt less than 20% of GDP."
However, Reuters correspondent Angel Krasimirov says Bulgaria's admission it won't be joining the euro any time soon, underlines the dilemma of new EU members, who were long keen to be part of the single currency but are now concerned about the impact of the bloc's debt crisis.
According to Krasimirov, of the 10 former communist countries to join the EU, only Slovenia, Slovakia and Estonia have so far met their obligation to adopt the euro. The enthusiasm of other countries has ebbed as the bloc's debt crisis deepened.
"Bulgaria is one of EU's least indebted members and is trying to stick to tight fiscal discipline to avoid risks to the lev, now pegged to the euro. But the euro zone's troubles are already hurting its economy, which suffered a deep recession and is expected to grow only about 0.8 percent this year."
"It is also heavily financially exposed to neighbouring Greece, which serves as a warning of how things may go wrong in the euro zone."
Furthermore, by being the poorest member of the EU in terms of GDP per capita, Bill Mitchell, a Professor in Economics, argues it would become much poorer if it joined the monetary union. Disagreeing with the Wall Street Journal, Mitchell writes, "It now needs to abandon its currency peg with the Euro, which has required the Government to run restrictive fiscal policies and suppress growth and improved prosperity for its beleagured citizens."
"Unlike the majority of Eurozone nations," he concludes, "Bulgaria will grow by about 1.5 per cent this year," though "that is barely sufficient to improve living standards."
Previously on The Financialist: