Opinion of EKIP on the national euro adoption plan

POSITION

From: Expert Club for Economics and Politics (ECOP)

Subject: Draft National Plan for the Introduction of the Euro in the Republic of Bulgaria

DEAR LADIES AND GENTLEMEN,

In connection with the published draft of the National Plan for the Introduction of the Euro in the Republic of Bulgaria ( Plan ), we express the following opinion on behalf of the Expert Club for Economics and Politics (ECOP).

The plan attempts to present principles and technical details, but it does not contain a fundamental preliminary element – an analysis of the benefits and costs associated with a possible replacement of the leva with the euro as the official currency in the country. Public institutions in Bulgaria have never presented such an analysis to society and business, justifying why it is necessary and what the benefits would be compared to the costs if the euro were introduced in Bulgaria within the announced target period.

In addition to this most striking omission, which deprives Bulgarian citizens and companies of the opportunity for informed assessment and preparation in connection with the anticipated most profound economic change in decades in the country, the review of the Plan reveals other significant shortcomings.

First, the Plan does not provide for the exchange rate at which the lev would be replaced by the euro. This lack of transparency in a key aspect of the process, unfortunately, creates enormous risks and uncertainty. This continues the undemocratic practice that, in early 2020, led to the attempt at non-transparent and illegal amendments to the Bulgarian National Bank Act aimed at abolishing the fixed exchange rate of the lev to the euro. A strong public reaction then followed, as a result of which the National Assembly adopted a Resolution (published in the State Gazette No. 10 of 4 February 2020) obliging Bulgaria’s representatives to defend the existing fixed exchange rate of 1.95583 lev to 1 euro upon entry and stay in the ERM II exchange rate mechanism. Now, in the Plan, the lack of a commitment to adhere to the current fixed exchange rate in the event of a possible replacement of the lev with the euro contradicts the principles set out in this Decision of the National Assembly (which formally left open the question of at what rate, after the participation of the lev in ERM II, the euro would replace the lev in the event of Bulgaria joining the eurozone).

Second, the Plan does not indicate what the costs would be for citizens and businesses. The Plan declares the principle that public and private entities should be responsible for covering their respective costs, but does not provide information about these costs. In addition to the direct costs of businesses and public entities, the Plan must also indicate the indirect costs that would subsequently be borne by every Bulgarian citizen – to the extent that public and private entities will pass on their costs, from the possible introduction of the euro, to the end consumer.

A third significant shortcoming of the Plan is the fact that it does not contain any assessment of the fiscal effects and costs of a possible introduction of the euro. The report to the Plan by the Minister of Finance claims without arguments that no impact on the state budget is expected. Such a position completely contradicts the historical experience of introducing the euro in other countries – a process that goes beyond monetary and financial effects, and leads to changes in the fiscal position and policy in each country (including the well-known crises of high sovereign debt in many eurozone countries). These effects, not described in the Plan, may arise both from direct fiscal costs related to a possible replacement of the national currency, and from subsequent long-term changes (after the currency board is abolished) in the incentives, restrictions and priorities of fiscal policy in Bulgaria.

In view of the above, we insist that this project not be submitted for consideration to the Council of Ministers, but instead, that a democratic, legitimate and transparent process be initiated consisting of the following steps:

• To prepare a formal analysis of the benefits and costs of a possible introduction of the euro in Bulgaria, with this analysis considering both the macroeconomic effects and the benefits and costs for all segments of society, business and the public sector.
• Based on this analysis, a broad public and expert discussion should be initiated.
• As a natural and democratic conclusion to this broad discussion, a national referendum should be held on Bulgaria's readiness to adopt the euro.
• Depending on the results of the referendum, a new Draft National Plan for the Introduction of the Euro should be prepared.

EKIP remains available for further comments and assistance in addressing the above-mentioned shortcomings in the document and in the overall process.

With respect,

Stoyan Panchev

Chairman of the Board of Directors of EKIP

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