Bulgaria sets April 2020 as new target for entering ERM2

Bulgaria sets April 2020 as new target for entering ERM2
By Denitsa Koseva in Sofia October 30, 2019

Bulgaria has set April 30, 2020 as a new target date for joining the Exchange Rate Mechanism (ERM2), Finance Minister Vladislav Goranov said following media reports that the European Insurance and Occupational Pension Agency (EIOPA) has backed the country’s application. 

Bulgaria joined the EU in 2007 and has for years hoped to join Schengen, but the lack of consensus among the other EU member states has stalled its progress.

“If everything is going the way it is in our heads — in the heads of the people we have engaged in this process, by my birthday (April 30), everything should be over,” Goranov told reporters, Reuters reported.

The government previously set July 2019 as its target to join the ERM2 and the European banking union, but so far it had not received a green light from the European Central Bank (ECB). The country 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.

To get approval from the ECB, Bulgaria must implement its recommendations following a stress testing of six Bulgarian banks, which has found capital shortfalls at two of them, First Investment Bank (FIBank) and Investbank.

According to Goranov, there are realistic chances for Bulgaria to join the banking union and the ERM2 by the end of April 2020. He added that the ECB wants to make sure that FIBank and Investbank have implemented their plans for setting up capital buffers before approving Bulgaria’s entry in the banking union.

Earlier in October, Elke König, head of the European Banking Restructuring Council, said that Bulgaria may join the ERM2 in the first or second quarter of 2020.

Raiffeisen analysts commented that the news about Bulgaria potentially entering the ERM II early next year "should be good for its Eurobonds in long-term despite the already tight spreads, but short-term impact will be limited. In particular Bulgarian National Radio quoted Finance Minister Vladislav Goranov saying that the country has excellent communication with ECB on the ERM II and may enter close cooperation with ECB upon which it may join the ERM II by April 2020. Still, on secondary market Bulgaria Eurobond prices didn’t react at all, as the ERM II entry is almost fully priced-in.”