Bulgaria Has Good Reasons To Say No to the Euro

 

Bulgaria Has Good Reasons To Say No to the Euro

 

Citizens’ needs won’t be a priority once national leaders are beholden to their fiscal overlords in Brussels and Frankfurt.

 

Sven R. Larson

— June 4, 2025

https://europeanconservative.com/articles/analysis/bulgaria-has-good-reasons-to-say-no-to-the-euro/

 

The European Parliament recently approved a financial assistance package for Egypt worth €4 billion, despite the country’s ongoing persecution of the Christian population.

 

Rising defense spending will cause fiscal fights in many NATO countries. In Spain, the tension between social benefits and military outlays is perhaps more pointed than anywhere else.

 

Ever since joining the European Union back in 2007, many Bulgarians have questioned whether the country has truly benefited from the membership. Becoming a member state brought with it a wave of regulations—from environmental rules to labor market standards—that have had a negative impact on the country’s economy.

 

Now that the country is about to become the 21st member of the euro zone, there are growing—and legitimate—concerns that this will add even more restrictions, limiting Bulgaria’s ability to shape its own economic policies.

 

On June 4th, Reuters reported:

 

Bulgaria has met all criteria to adopt the euro currency from January 1, 2026, the European Central Bank said on Wednesday after assessing progress on a host of indicators from inflation to central bank legislation. … The final decision rests with EU finance ministers, who are expected to sign off on the process in early July.

 

It has been a somewhat bumpy ride for Bulgaria, with a couple of delays along the way, most notably last year:

 

Bulgaria’s accession to the eurozone was pushed back as the country failed to contain price pressures. … The ECB and the Commission are now satisfied that the economic criteria are fulfilled, notably relating to the public debt and deficit, inflation, interest rates and the exchange rate.

 

When a country joins the euro, there is usually quite a bit of fanfare on the domestic policy scene. Not so in Bulgaria; according to TRT Global, the expected gains from the euro accession are countered by skepticism from large segments of the Bulgarian population:

 

Widespread corruption, stark income inequality and a four-year political crisis marked by a series of snap elections and weak coalitions has eroded trust in authorities. Many fear a rise in prices during the switch, as had occurred in other countries that joined over the past decade.

 

They give no support for the claim of price hikes in other euro-accession countries, but there were numerous documented cases of ‘unjustified’ price hikes in Croatia when they adopted the common currency in 2023. With this in mind, it is not surprising that, says BNT News, “50% of Bulgarians are against the adoption of the euro, while 43% are in favour.”

 

We should not underestimate the impact of these hidden price hikes—if they do happen. However, euro-skeptic Bulgarians have far bigger reasons not to give up the lev, their current currency. Currently, the only area of their economy where it is performing acceptably well is in terms of unemployment:

 

The general jobless rate has stood at just over 4.2 percent since 2022, compared to the euro zone’s recent 5.4-5.5%;

Among young workers, aged 15-24, the average so far in 2025 is just over 10%, more than four percentage points below the euro zone.

Practically every other metric suggests that the Bulgarians have not benefited from joining the EU back in 2007.

 

It does not take a deep dive into the Bulgarian economy to spot when things took a turn for the worse—one that correlates eerily well with the 2007 entry into the European Union. Figure 1 reports the real annual growth rates in the Bulgarian GDP (columns) and adds the average for 2000-2007 (green) and for 2010-2019 (red):

 

The decline in average growth following the EU accession is probably the most dramatic of any EU country that I have studied. It has lasting consequences for people’s standard of living, as well as for the government’s ability to fund its welfare state obligations to taxpayers.

 

This last point is essential. The most prominent consequence of a country’s entry into the euro zone, compared to when it joined the EU, is that the EU’s fiscal rules—generally known as the Stability and Growth Pact (SGP)—become more than an abstract, bureaucratic rule. By joining the euro, Bulgaria is now vulnerable to the same disastrous treatment as several countries, including Greece, were subject to in 2009-2014.

 

While outside the euro zone, Bulgaria could respond to a serious fiscal crisis by devaluing its own currency, the lev, vs. other currencies, including the euro. A devaluation would cheapen exports and thereby stimulate economic growth (much needed during a fiscal crisis). It would also make government debt relatively cheaper to foreign investors, who could buy more of it with the same amount of their own currency. This helps alleviate some of the risks associated with buying government debt when investors have lost some faith in that debt.

 

Once Bulgaria joins the euro, the country can no longer rely on a currency devaluation as a last-resort fix for its government’s fiscal problems. Those problems will remain, and they will ‘rub off’ on other euro zone members, just like the Greek government’s deep debt trouble did. For this reason, the EU and the ECB will both be monitoring Bulgarian public finances closely.

 

They will have good reasons to do that. As Figure 2 reports, the consolidated government sector in Bulgaria is currently running a sizable budget deficit. As a share of GDP, it has been at 2.7% since the beginning of 2023; the overall trend since the EU membership is notably worse than before 2007:

 

Although the most recent numbers—showing a deficit of just under 3% of GDP— keep Bulgaria within the limits set by the EU’s Stability and Growth Pact, the country’s track record tells a more troubling story. Since joining the EU, budget deficits have been more common than surpluses, raising concerns about ithe fiscal future of the Bulgarian government. I would expect lasting deficits, with desperate measures taken by the national legislature to formally keep those deficits below the stability pact’s threshold.

 

The Stability and Growth Pact also comes with a debt limit, but the Bulgarian government’s total borrowing is only a fraction (as a share of GDP) of the euro zone’s average.

 

As fiscal policy concentrates on abiding by the EU’s fiscal rules, the national government will gradually lose sight of more pressing policy goals with longer and more significant impact on people’s lives. As a general rule, this will weaken the nation’s economic resiliency over time, much like we have seen in other euro zone countries. Investments in critical infrastructure will be decided not by the macroeconomic needs of the country, but by the rigor of fiscal Eurocrats who monitor the country’s government’s budget like it was the stock market.

 

Weaker economic resiliency translates into lower economic growth—hence the numbers in Figure 1 above. Lower economic growth, in turn, means insufficient taxes to fund the government budget. The conventional reaction from legislators who see tax revenue shortfalls is to raise taxes. This is precisely what has happened in Bulgaria—and it has done so already before the country joins the euro zone. As Figure 3 reports, taxes, as a share of the Bulgarian GDP, were coming down before the 2007 EU membership, and they have risen back up since then.

 

So far, the macroeconomic legacy of the Bulgarian EU membership consists of lower economic growth, weaker government finances, and higher taxes. It would be naive to expect anything else as the country incorporates itself into the euro zone.

 

Sven R Larson, Ph.D., has worked as a staff economist for think tanks and as an advisor to political campaigns. He is the author of several academic papers and books. His writings concentrate on the welfare state, how it causes economic stagnation, and the reforms needed to reduce the negative impact of big government. On Twitter, he is @S_R_Larson and he writes regularly at Larson’s Political Economy on Substack.

Tags: budget deficits, Bulgaria, ECB, euro zone, GDP, national currency, Stability and Growth Pact, Sven R. Larson