FRANKFURT, Germany — European Union authorities granted approval on Wednesday for Bulgaria to become part of the euro currency club, marking it as the 21st member. This move is integral to the EU’s goal of strengthening integration among its members. Bulgaria, home to 6.4 million people, will transition from its national currency, the lev, to the euro on January 1.
Here’s an overview of the euro currency union, often referred to as the eurozone, and the entry process for new countries.
### What is the Euro?
The euro serves as a unified currency system introduced in 1999, originating when 11 EU nations permanently linked their currencies to it as an accounting unit, and made the switch to euro notes and coins in 2002. The European Union set up the European Central Bank (ECB) which manages monetary policies and sets interest rates for its members, much like the U.S. Federal Reserve does in America.
### How Do Countries Join the Euro?
Aspiring eurozone members must satisfy four critical criteria: maintain low inflation, adhere to deficit and debt limits, ensure stable long-term interest rates, and sustain a stable exchange rate with the euro. Countries must also spend a two-year period in a “waiting room,” where their national currencies should not have excessive fluctuations against the euro. This phase ensures that their economies are aligning sustainably with the eurozone’s standards.
The European Commission assesses if the criteria are met, after which the decision rests with EU member governments through a qualified majority vote, which requires at least 55% of member states, representing 65% of the EU population, to approve. Once admitted to the eurozone, countries are bound by rules restricting excess debt and deficit spending to prevent financial disparity that could pose a risk to the euro’s stability.
### Bulgaria’s Position
The European Commission concluded on Wednesday that Bulgaria met the requisite criteria, corroborated by the ECB. Next, EU finance ministers will vote on this matter on July 8, with the outcome widely anticipated to be favorable. Interestingly, Bulgaria anchored its currency to the euro since the monetary union’s inception in 1999, well before its EU accession in 2007. Additionally, Bulgaria’s debt stands at only 24.1% of its annual output, far below the 60% threshold outlined for eurozone entry. The final hurdle was keeping inflation below the 2.8% benchmark, which Bulgaria achieved.
Concerns about corruption and money laundering in Bulgaria, the EU’s lowest-income member, were raised, but the European Commission and the ECB acknowledge progress in mitigating these issues.
### Public Opinion in Bulgaria
According to the latest Eurobarometer survey, 50% of Bulgarians are against adopting the euro, while 43% support it. Skepticism stems from fears of inflation, distrust in government institutions amidst political instability with seven different governments over four years, and misinformation prevalent on social media. Nationalist politicians with pro-Russian inclinations have advocated for retaining the lev. Meanwhile, President Rumen Radev proposed a referendum on the euro adoption, but it was rejected by the parliament. Misinformation has fueled fears of potential EU interference in private bank accounts or currency manipulation through the euro.
Starting January 1, cash machines will dispense only euros; however, both currencies will remain in circulation for a month. During this transitional period, lev banknotes are exchangeable at banks for 12 months and indefinitely at the Bulgarian central bank.
### Benefits of Euro Membership
Theoretically, joining the eurozone brings about reduced interest rates for businesses and consumers, and simplifies cross-border trade within the region. Businesses eliminate the need for currency exchange transactions and risk of currency fluctuations affecting their financial outcomes. For travelers, it eliminates the need to pay exchange fees while traveling or conducting transactions across EU countries. Furthermore, member countries gain representation on the ECB’s rate-setting board, providing a voice in shaping eurozone monetary policy.
### Potential Drawbacks and Risks
New members must surrender some sovereignty over their national economies, such as setting interest rates and managing government spending. Although the eurozone enforces spending regulations, they have proven somewhat adaptable. Additionally, countries lose the ability to enhance competitiveness through currency devaluation.
Previously, the eurozone witnessed a financial crisis from 2010 to 2015, notably initiated when Greece understated its deficit and debt levels, resulting in defaults and spreading market panic to other eurozone members. Countries like Greece, Portugal, Ireland, Spain, and Cyprus were rescued through loans and subjected to austerity measures impacting public sector workers and retirees.
### Has the Situation Improved?
The euro’s situation was stabilized in 2012 when ECB President Mario Draghi assured that the bank would take any necessary measures to preserve the euro, calming markets despite no direct interventions. Additional safeguards were introduced, such as a bailout fund for the eurozone and transferring banking supervision from national authorities to the ECB.
### Why Aren’t All EU Countries in the Euro?
Although EU admission implies a commitment to join the euro, not every country has fulfilled the economic standards required for membership and there’s no set deadline. Denmark secured an exemption, whereas Sweden rejected joining in 2003, despite lacking an official opt-out plan, and remains without a target date for adoption. Other non-euro nations include Czechia, Hungary, Poland, and Romania.
In Poland, the largest non-euro EU member, there is minimal inclination to join despite the obligation. The recently elected President, Karol Nawrocki, emphasized retaining the national currency, the zloty, during his campaign. Poland’s economy has flourished outside the eurozone, doubling in size over the past two decades as living standards approach those of Western Europe following its departure from communist rule in 1989.