Bulgaria’s parliament adopted legislation to align its law on the central bank with the requirements of the European Central Bank (ECB) in its second reading on February 6, in order to join the Exchange Rate Mechanism (ERM II).
The law, proposed by the government in January, raised some concerns as it would allow other member states to require a change of the rate of the Bulgarian lev against the euro. Currently, the Bulgarian lev is pegged to the euro under the currency board regulations, which have secured stability to the local currency for years.
According to the law, which was also approved by the ECB, the exchange rate can be changed upon request by other member states. However, to prevent an exchange rate that would harm the local economy, earlier in February Bulgaria’s parliament obliged the finance minister and central bank governor to negotiate the country’s future membership in the Eurozone at the current exchange rate.
The country has already applied for membership in ERM2 and the European banking union, and 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 Bulgaria also check its banking system due to suspicions that some locally-owned banks are not stable enough.
In October 2019, Elke König, head of the European Banking Restructuring Council, said that Bulgaria could join ERM2 in the first or second quarter of 2020.
At the end of January, International Monetary Fund (IMF) head Kristalina Georgieva said that Bulgaria could join the eurozone in 2023. However, Georgieva pointed out that eurozone entry in 2023 could happen only if the country joins ERM2 this spring.