Topic of the Week: Bulgaria's Eurozone Hopes Shattered by 1% Inflation Gap

Bulgaria is not prepared to introduce the euro on January 1, 2025, as it fails to meet one of the four criteria for eurozone entry—the inflation level. This was highlighted in a report by the European Commission, adopted on Wednesday.

A spokesperson for the European Commission stated that while Bulgaria currently does not meet all the criteria for joining the eurozone, the Commission remains constructive in its collaboration with Bulgaria and welcomes its ambition to continue striving for the euro once all criteria are met. Bulgaria can request an extraordinary evaluation report once it believes it has met all the necessary conditions, though there is no current entry date.

Acting Finance Minister Lyudmila Petkova indicated last week that an extraordinary assessment might be requested towards the end of the year.

In the report, the European Commission finds that Bulgaria meets the requirements for budget deficit, exchange rate stability, and interest rates. Additionally, it reports that Bulgarian legislation is compatible with EU law concerning the euro.

The primary issue is inflation. The report indicates that Bulgaria's average monthly inflation over the last 12 months was 5.1%. The eurozone criteria stipulate that inflation should not exceed 1.5% above that of the three best-performing eurozone countries, which currently is 4.1%. Thus, Bulgaria's inflation exceeds this by 1%.

The report predicts that Bulgaria's inflation will remain higher in the coming months but may align closer to the required level by late 2024 or early 2025. It notes that Bulgaria's inflation has been significantly higher than the eurozone average over the past two years, with an annual inflation rate of 10.9%, outpacing the eurozone by 4%.

The...