The finance ministers of the Eurozone member states gave a green light to Bulgaria’s bid to join Eurozone’s waiting room, the European Exchange Rate Mechanism (ERM2). The country hopes to join the European banking union simultaneously.
Sofia was eager to finally get approval to join ERM2 and has met all formal criteria. However, it is also the poorest EU country and some issues with locally-owned banks made Brussels cautious. Earlier in July, the country finally pledged to strengthen its banking sector and join the banking union in order to get the much desired membership in ERM2.
Before joining ERM2, Bulgaria needs to get a positive assessment from the European Central Bank. The ECB should conclude its comprehensive assessment within one year of Bulgaria's formal application for close cooperation.
"Once they have provided a positive assessment, a decision will be taken by the ERM II parties on the formal application of the Bulgarian authorities for ERM II participation. The decision will be linked to the ECB decision on close cooperation, in full respect of the conditions specified in the legal framework. This would imply that Bulgaria simultaneously joins ERM II and Banking Union," a statement on the Council of the EU website noted.
“The decision will be linked to the ECB decision on close cooperation, in full respect of the conditions specified in the legal framework. This would imply that Bulgaria simultaneously joins ERM II and Banking Union,” the statement added.
The finance ministers also called on the Bulgarian authorities to thoroughly implement reforms in the areas of judicial reform and the fight against corruption and organised crime.
Bulgaria hopes to simultaneously join ERM2 and the banking union by July 2019.
Bulgaria meets the nominal criteria to adopt the European common currency, with its currency – the Bulgarian lev – pegged to the euro, low inflation and healthy public finances. However, the EU has demanded that the country also check its banking system due to suspicions that some locally-owned banks are not stable enough.
It is also seen as “a kind of guinea pig,” according to an official quoted by Reuters earlier in July, as Brussels is seeking to set up a pattern for all future candidates for the Eurozone.
The EU’s latest Convergence Report said that the country is not ready to join the euro area. The report noted that in Bulgaria, in terms of compliance with the rules of the Economic and Monetary Union, incompatibilities and imperfections exist in the fields of central bank independence and the prohibition of monetary financing. However, the country fulfils the criteria on price stability, public finances and the convergence of long-term interest rates.