Inflation brake

What neither took into account was that the nascent consumption boom, fuelled by cheap credit, would push inflation further up, leaving Bulgaria on the sidelines as it did not meet the Maastricht criteria.

By mid-2008, year-on-year inflation peaked at 15 per cent, made worse by the increase in fuel prices on world markets and the poor harvest the previous year. Having already progressively pushed back the target over the years, the Socialist-led cabinet that took office was forced to officially abandon any target in 2008.

Inflation was the only obstacle that prevented Bulgaria from submitting an official application to join the ERM-2, as the country met the other four criteria, according to the European Commission’s latest eurozone convergence report, published in May 2008.

Since then, the inflation has fallen drastically – a silver lining on the clouds of economic recession – but the global credit crunch has pushed long-term interest rates up, raising a new obstacle in Bulgaria’s way.

The next convergence report is due in May 2010.

Unending optimism
In the run-in to the July parliamentary elections, adopting the euro by 2013 was on the running platform of most major parties in competition. Despite witnessing the rebuffs coming from current eurozone members during the tenure of the previous cabinet, the new Government remains committed to fulfilling that pledge, even though analysts are skeptical of its chances of success.

Earlier in October, Finance Minister Simeon Dyankov said that Bulgaria would submit its formal application in January 2010, delaying its initial plans by two months in order to pass next year’s Budget and because the European Commission extended the deadline for member countries to submit their medium-term fiscal policy framework.

Dyankov said he had already met with most eurozone finance ministers, as well as ECB president Jean-Claude Trichet and European monetary affairs commissioner Joaquin Almunia.

"We have specified our position very clearly. Bulgaria will apply shortly for ERM-2," he said on October 7.

But aside from the economic reasons, entry to the eurozone needs political support and so far, it has been scarce in Western Europe, where the predominant opinion is that Eastern European member states should deal with the current recession and achieve a higher degree of economic convergence than they have now in order to be allowed in.

Slovakia, which joined the euro in January 2009, had enough support for its bid. Bulgaria’s membership in the EU has been plagued by constant criticism that Sofia is not doing enough to fight corruption and allowing the country to come one step closer to joining the eurozone would be seen as rewarding failure.

The rules
All EU member states that joined since 2004 and might join in the future are required to adopt the euro at some point, but there is no fixed timetable. Prior to joining the eurozone, an EU member state must meet five criteria set in the Maastricht Treaty:

* inflation of no more than 1.5 percentage points above the average rate of the three EU member states with the lowest inflation over the previous year

* a budget deficit at or below three per cent of gross domestic product

* government debt not exceeding 60 per cent of gross domestic product. A country with a higher level of debt can still adopt the euro provided its debt level is falling steadily

* long-term interest rates should be no more than two percentage points above the rate in the three EU countries with the lowest inflation over the previous year

* the national currency is required to enter the ERM-2 exchange rate mechanism two years prior to entry.