A call for the security and future of our money and savings

You can support this call by signing our petition at this link.

You can download this appeal as a separate document at this link.

The currency board and the stability of the lev provided the basis for everything we have managed to build in the economic sphere in Bulgaria over the past 23 years. During this period, we have gone through various trials and crises, even the unprecedented crisis in the eurozone, but until now no one had questioned the currency board and the fixed exchange rate of 1.95583 leva per 1 euro. This guaranteed people peace of mind for their savings and predictability for business.

Last month, however, Bulgarian high-ranking officials and institutions attempted for the first time to undermine the currency board and the fixed exchange rate of the lev. The Chairman of the Budget and Finance Committee, supported by the Governor of the Bulgarian National Bank (who should be the strongest supporter of financial stability), proposed a change to the Law on the Bulgarian National Bank. The Bulgarian Parliament, after consultations with the Minister of Finance, adopted this proposal. With the change in the law, the guarantee of the fixed exchange rate of the lev is eliminated from the moment of possible accession to the exchange rate mechanism, the so-called ERM2.

This fundamental change was not imposed because of problems with the currency board. On the contrary, its effectiveness and benefits have been proven. The change was pushed through with general promises of future positive prospects – similar to the “bright future” promised by ideologues years ago. We are told that the eurozone is a “promised land” to which we must enter ERM2 by weakening the currency board and without a firm legal guarantee for the exchange rate of 1.95583 leva per 1 euro.

It is paradoxical that despite politicians' assurances that they are doing something good and useful, they tried to change the BNB Law covertly and without explanation.

Instead of honestly explaining why it is necessary and what the possible risks of such a move are, they reject any expert discussion that would raise critical questions about them.

The following should be remembered:

• The European Union accession treaty requires every member state to adopt the euro. The only one that has negotiated an exemption from this requirement is Denmark (the previous member, the United Kingdom, had also negotiated such an exemption).
• However, the accession treaty does not require a specific deadline for adopting the euro. This allows each country to consider its own interests and take into account its specific development before choosing a time to join the eurozone.
• It is no coincidence that countries such as Denmark, Sweden, Poland, Hungary and the Czech Republic have analyzed their position and have categorically stated that at this stage they do not consider it necessary to introduce the euro.
• In contrast, the Bulgarian government and the BNB have never presented an analysis on this important topic. There is an urgent need for such an analysis that would clearly describe the current problems and the future of the eurozone, the expectations of the effects of the eurozone on the Bulgarian economy, with the corresponding conclusions regarding the hypothesis of replacing the lev with the euro under different development scenarios for both the eurozone and the Bulgarian economy.

• Such an analysis has not been presented to Bulgarian society, perhaps because it has not been done. Instead, it is working with assumptions that joining the eurozone is the best development scenario for Bulgaria, as well as that the eurozone is resilient to any future crises and that the euro itself will continue to exist.
• However, the facts contradict such assumptions. The history of the eurozone is only 20 years old, but for over 12 years (since the beginning of the global crisis) the main discussion there has been how to save it and what to do to ensure the survival of the common currency. To date, major fundamental issues related to the very sustainability of the eurozone remain unresolved, such as - will a common deposit guarantee scheme be established, will there be fiscal centralization and, accordingly, tax harmonization between the eurozone member states, what will be the new role of the European Central Bank given the increasingly limited effectiveness of its monetary policy [1].

Before we continue on the path to ERM2 and the euro area, the public, businesses and investors in Bulgaria need to receive clear answers to the following questions:

• What is the current economic situation in the eurozone and what are the options for resolving the problems that paralyze it, such as the high indebtedness of a large number of member states, the decreasing effectiveness of the European Central Bank's policy, the lack of fiscal capacity with the ability to respond to shocks by redistributing funds between member states, the absence of a common deposit guarantee scheme (a problem particularly important for countries in the Banking Union).
• What is the status, what are the forecasts, and how would Bulgaria's economy and finances behave - (a) in the event that we adopt the euro and (b) in a scenario where we continue with the currency board and retain the Bulgarian lev?
• What are the benefits, costs and risks of Bulgaria's membership in the eurozone, including for individual population groups and for different sectors of the economy?

If such an analysis is conducted and published, leading to the conclusion that now is the right time to apply for ERM2, the government must take the next step of transparency and accountability to society - to provide a reasoned answer to the question of what procedure for the specific accession would be optimal for Bulgaria.

The latter is necessary because over the past two years we have witnessed an opaque process, an inexplicable change in positions on the Bulgarian side, and double standards imposed on Bulgaria:

• There are no requirements in European law for any preconditions that a country must meet before applying for the ERM2 exchange rate mechanism. Each of the Central and Eastern European countries that joined the European Union in 2004 and requested ERM2 membership applies for ERM2 without any preconditions being imposed on it. Unfortunately, this is not the case with Bulgaria and the approach towards our country.
• During parliamentary scrutiny on 23.03.2018, Finance Minister Vladislav Goranov explained that the government is working to join ERM2, but as a first step "in order to proceed towards simultaneous, I emphasize simultaneous membership in the Eurozone and the Banking Union, because you cannot be a member of the Banking Union without being a member of the Eurozone" ^[2]. Then the Finance Minister explained that we will join the Banking Union from the moment we are in the Eurozone, and not earlier (for example, before or during membership in ERM2).
• This position corresponds to what was said by the Governor of the Bulgarian National Bank, Dimitar Radev, who on 09.07.2015 described to the Committee on Budget and Finance the great risks for Bulgaria if we join the Banking Union before we have joined the eurozone itself. He declared himself against “erosion in the control functions of the Bulgarian National Bank, before full membership” in the eurozone and added that with Bulgaria’s participation in the Banking Union before membership in the eurozone “there will be incentives for banks from the eurozone to convert their subsidiaries in Bulgaria into branches, which will firstly mean that they will not have the obligation to maintain capital in the country. And secondly, they will not be subject to control by the Bulgarian National Bank, in terms of their liquidity. In my opinion, such a development, especially in the context of the crisis with Greece, is unacceptable from the point of view of our interests.” [3]
• The risks of joining the Banking Union before we have adopted the euro were explained in detail by the Deputy Governor of the Bulgarian National Bank, Kalin Hristov, in April 2018. [4]
• Despite all this, the government and the BNB suddenly and without public explanation changed their position. Contrary to what was previously declared, and contrary to the experience of those who joined the ERM2 exchange rate mechanism before us, the Minister of Finance and the Governor of the BNB sent a letter to the European institutions in June 2018, where they expressed Bulgaria’s intention to join not only the ERM2 but also the Banking Union. Moreover, with the same letter, Bulgaria unilaterally undertook and promised to fulfill preliminary commitments, which would later be assessed, and all this – before we actually applied for the ERM2 exchange rate mechanism [5].
• A little later, in July 2018, a letter from Bulgaria followed with a request to join the Banking Union [6].
• To date, Bulgaria finds itself involved in a complex process, about which public information appears only episodically and partially. And we have not yet submitted an application for the ERM2 currency mechanism itself.

Thus, we see serious, but unexplained, changes in Bulgaria's publicly announced positions, as well as the application of previously unknown requirements to Bulgaria before we have even applied for ERM2. There is a significant deficit of transparency in the entire process and a visible reluctance of the rulers to explain to the public their actions and the risks associated with such an important topic.

Therefore, we insist:

1. Bulgarian institutions should take responsibility for preparing and publishing a detailed analysis of the benefits, costs and risks associated with membership in ERM2 and the eurozone. This analysis should include an assessment of the future of the eurozone itself and offer clear conclusions in favor of one or another strategy for Bulgaria's behavior.
2. Based on this analysis, a broad discussion should be initiated with the participation of experts from the country and abroad, including academic representatives, independent researchers, representatives of various public groups and businesses.
3. Based on the analysis and the discussion held - to organize a survey of all citizens of the Republic of Bulgaria regarding their opinion on the question of whether they support (at this stage) replacing the Bulgarian lev with the euro and joining our country to the eurozone.

We call on all Bulgarian citizens who share the above position to support this Appeal, which we will send to the responsible institutions in the Republic of Bulgaria.

You can support this call by signing our petition at this link.

[1] Concern about the increasingly limited possibilities for effective action by central banks was shared by the former President of the European Central Bank in his farewell speech in Frankfurt on October 28, 2019, as well as by the current President Christine Lagarde in a speech to the members of the European Parliament a few days ago on February 6, 2020 in Brussels.

[2] Transcript of the National Assembly: https://www.parliament.bg/bg/plenaryst/ns/52/ID/6047

[3] Transcript of the National Assembly: https://www.parliament.bg/bg/archive/51/3/2330/steno/ID/3814

[4] On the BNB website: http://www.bnb.bg/PressOffice/POStatements/POAAuthor/03_HRISTOV_20180427_BG

[5] Copy of this letter: https://www.consilium.europa.eu/media/36125/st11119-en18.pdf

[6] More specifically, to the Single Supervisory Mechanism of the Banking Union. The letter is available at: https://www.minfin.bg/upload/38715/Letters+to+ECB.zip

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