site.btaUPDATED Parliament Hosts Roundtable on Euro Changeover and Inflation

Speaking at a roundtable in Parliament Tuesday, central bank Governor Dimiter Radev said that the likelihood for an economic catastrophe is bigger for a member state if it is in the periphery of the EU than in the Eurozone. 

The roundtable was organized by the parliamentary Budget and Finance Committee and discussed inflation, economic growth and the future changeover to the euro. 

On Friday the government approved Bulgaria's National Euro Changeover Plan. This country is scheduled to join the Eurozone on January 1, 2024. The news of the approved euro changeover plan triggered heated discussions and even opposition by some political actors. 

At the roundtable Radev said that another advantage of being in the Eurozone is the mechanisms it has been building for protection against turmoils like the global financial downturn and the Greek crisis. However, the Eurozone cannot be a substitute for a good macroeconomic policy, he said. 

Radev further noted that all decisions regarding Bulgaria's future accession to the Eurozone will be made with a political act where Parliament will have the leading role. He went on to say that for him whether Bulgaria should join the Eurozone is a rhetorical question. "Also rhetorical is the question when this will happen. In the current geopolitical situation the logical answer for me is now or as soon as possible, rather than after five or ten years," Radev said. 

Radev said that the place for a discussion on the question is Parliament and the platform, the budget procedure. The central bank governor also stressed that the budget deficit for entry in the Eurozone is measured on an accrual basis, and not on cash basis, noting that for 2022 in particular the difference in Bulgaria between the two "is not negligible". 

Radev then spoke in detail about the other criteria for joining the Eurozone and Bulgaria's current performance in this regard. 

He said that Bulgaria's closest example along the path to joining the Eurozone is Croatia, who will most likely join the Eurozone on January 1, 2023. Radev argued that if the two countries' economic analyses are compared, including the point of meeting the nominal criteria, an informed conclusion can be drawn that Bulgaria and Croatia are in similar position "with the only difference that Croatia demonstrates a very clear and strong political commitment to the process of accession". 

Warnings about Inflation

Addressing the same forum, central bank Deputy Governor Kalin Hristov warned that there is a huge risk of entering an inflationary spiral. 

Hristov insisted on targeted measures for the most vulnerable groups in society, instead of the mechanical application of anti-inflationary measures. Those who are most vulnerable must be helped, he added, noting that people like him do not need anti-inflationary measures. According to him, world history shows that high inflation is stopped by positive real interest rates and recession.

Hristov also spoke about global inflation. "In order to define policies and measures, we need to understand its nature. The diagnosis of the current inflation is that we have one of the most difficult to control, difficult to manage and difficult to suppress kinds of inflation, similar to that of the 1970s up to the early 1980s. Globally, it is a combination of two shock factors," he explained. One includes global supply factors (prices, supply chains, increased costs) and global shrinkage of the workforce, expressed in shrinking labour supply. On the other hand, there is a demand shock: a very strong and unsustainable inflation of demand due to wrong fiscal and monetary policy in the main economic zones - the United States and the Eurozone, Hristov said.

He noted that by 2030 Bulgaria's workforce will shrink by 10 percentage points.

In the course of the discussion, Movement for Rights and Freedoms deputy floor leader Yordan Tsonev noted that there are five former finance ministers in the conference hall, but the current one is not there, which Tsonev described as scandalous.

On the Preparations

Deputy Finance Minister Ivailo Yaidjiev said that the ongoing analysis on the likely impact of the planned euro changeover in Bulgaria ought to be at the heart of a massive public awareness campaign for a year prior to the country's Eurozone entry.

Yaidjiev explained that the National Euro Changeover Plan was approved last week to allow for 18 months of technological time during which Bulgaria should prepare for Eurozone membership. A period of less than 18 months would be critically short, he added.

According to Yaidjiev, Bulgaria practically joined the Eurozone unilaterally back in 1997, when the national currency was pegged to the Deutsche mark. This happened even before the euro came into existence. Now, the country's planned accession to the Eurozone in 2024 will be a bilateral act as it will make the European Central Bank responsible for Bulgaria's condition as well.

Lyubomir Karimanski MP (There Is Such a People), who chairs the Budget and Finance Committee in the National Assembly, noted that the operative and technical plan for euro adoption may not be implemented until after an analysis by the Finance Ministry and the Bulgarian National Bank - this is envisaged in the agreement of the government coalition. Doing it the other way round would be strange, he added.

Three Ex-ministers Opposed to Delaying Preparations

Former finance ministers Milen Velchev and Vladislav Goranov and  former economy minister Nikolai Vassilev insisted that the euro changeover should not be delayed beyond January 1, 2024.

Goranov urged against suspending the government's technical actions and the necessary legislative changes while the impact assessment is in progress. According to Goranov, the impact analysis will very likely show that the euro will bring even more benefits than expected at present, but if the authorities wait for the conclusion, it will get too late, because, as the Finance Ministry said, the technical preparations will take 18 months.

Nikolai Vassilev stressed the importance of the economic, banking and image-related advantages of Eurozone membership. The financial sector does not yet feel that Bulgaria is in the EU, Vassilev argued, noting that the fears that inflation will soar upon Eurozone entry are a mere prejudice.

Milen Velchev agreed with Vassilev and said that Bulgaria cannot be a full-fledged member of the EU unless it joins the Eurozone. Velchev, too, described some fears, including the fear of rising inflation related to Eurozone accession, as unfounded.

Goranov said that drawing the right conclusions about why inflation in Bulgaria is currently higher than the average European level and one of the highest on the continent, will enable the nation to remedy the situation. He warned that the measures already on the table will add fuel to inflation rather than curbing it.

Criticism

Rumen Gechev, MP of BSP for Bulgaria, was critical of the adoption of the euro in Bulgaria. In his words, when Southern Europe got into trouble in 2008-2010, the countries in the eurozone were worst off. "This [the adoption of the euro] is one way ticket to the eurozone. There is no exit mechanism once you make a decision," Gechev stressed. He called on all institutions to spare no efforts for preparing Bulgaria by the date the euro is adopted. 

Vazrazhdane's economic advisor Viktor Papazov reiterated his party’s negative stand on Bulgaria's euro changeover. "At this point, the euro is a ship to which the Bulgarian lev boat is tied, and this ship is named Titanic," Papazov said. "We should better remain able at any time to cut the rope and save ourselves in our own boat, named Bulgarian Lev, if that Titanic hits an iceberg, considering its collision course at present," he added.