Even before Bulgaria's Parliament was to formally debate on January 26 the issue of joining the new European treaty that will impose stricter fiscal rules on member states, the country's Cabinet all but committed to it.

Prime Minister Boiko Borissov gave the pact a hearty endorsement during a visit to Berlin last week and Finance Minister Simeon Dyankov followed suit on January 24, after a meeting of the Ecofin council of European Union finance ministers in Brussels.

Mindful that the debate in Parliament was yet to unfold, Dyankov cushioned his statement, saying that Bulgaria would "most likely" endorse the proposed treaty in its entirety, not just certain provisions.

Bulgaria would finalise its position on the proposed treaty after the parliamentary debate and once the draft treaty takes shape, which is expected by the end of the week, Dyankov said.

But even though Bulgaria remains among the few allies that Berlin has in the EU on the proposed tough fiscal rules, Dyankov did re-iterate concerns heard elsewhere in member states that are not part of the euro zone about their voice being heard in euro zone summits.

"We insist that this is spelled out in concrete terms so that Bulgaria and other countries outside the euro zone, which plan to sign parts of the treaty or adopt it in its entirety, have an observer status," Dyankov told public broadcaster Bulgarian National Television.

But he stopped short of threatening Bulgaria would pull out of the fiscal compact if that demand was not met, unlike Polish prime minister Donald Tusk, who said on January 24 that Poland would find it "difficult" to sign the treaty if it was not given "appropriate status of participant in the euro zone meetings".

Ironing out kinks
The fiscal treaty was on the agenda of the Ecofin meeting, which also discussed draft regulations introducing provisions for enhanced monitoring of budgetary policies in euro zone countries, with closer monitoring of member states in excessive deficit procedure and even closer surveillance of "member states experiencing severe difficulties with regard to their financial stability or receiving financial assistance on a precautionary basis."

Agreed in principle by European leaders in December (with the exception of British prime minister David Cameron, who opted out), the new fiscal treaty envisions German-style debt brakes to limit borrowing and tough budget discipline. It is expected to be endorsed by the European Council at its meeting on January 31 and be signed in March.

Despite being seen as the first step towards a fiscal union in the EU, one issue that has been kept off the agenda is tax harmonisation, an issue that Bulgaria, with its 10 per cent flat tax rate, is unwilling to consider.

"We have made no commitments for tax harmonisation or any kind of commitments concerning taxes. Eight months ago, the Euro-Plus Pact appeared as the solution for the Greek debt crisis. The recent developments on the fiscal compact make it the basis of future financial development in Europe, which to me means to signify that the Euro-Plus Pact will have tertiary importance at best," Dyankov said.

The Euro-Plus Pact, also known as the Pact for the Euro, was agreed in March 2011 and envisioned future tax policy co-ordination. Bulgaria is one of six non-euro zone EU member states to have joined the pact.

Tough road ahead
One decision still to be finalised, which EU finance ministers discussed in Brussels, is the structure and size of the European Stability Mechanism (ESM), the permanent euro zone bail-out fund scheduled to become operational in July.

The ESM would initially co-exist with the European Financial Stability Facility (EFSF), which it is meant to replace. The EFSF has been used thus far to bail out Greece, Ireland and Portugal and would be used to finance part of the second bail-out for Greece.

Germany wants the two funds capped at 500 billion euro, but has come under pressure recently from Italian prime minister Mario Monti and International Monetary Fund managing director Christine Lagarde to increase the size of the "bail-out firewall", perhaps to as high as one trillion euro, an amount that would be sufficient to rescue large economies like Italy and Spain.

German chancellor Angela Merkel, however, faces domestic opposition at home against committing more funding to the bail-out funds.

European finance ministers agreed to revisit the issue of the bail-out funds size in March, but Germany was unlikely to "send a clear signal about any shift in its position until then", Reuters reported on January 24.

The same report, however, quoted unnamed euro zone sources as saying that Germany signalled it would be ready to consider the issue of boosting ESM's funding when the time was right, although it appeared unlikely to happen before the new fiscal compact was signed into law by European leaders.