Ivalyo Mirchev explains six advantages of adapting Eurozone, debunks six myths linked to euro adoption

Ivalyo Mirchev, a member of the Bulgarian National Assembly, outlined the six advantages of Bulgaria joining the Eurozone. Bulgaria is anticipated to join the Eurozone on January 1 2024, making the euro the country’s secondary currency after the lev served as the sole legal tender for more than 140 years.

Following are the benefits explained by Mirchev with a permanent effect of adopting the euro-

1. It makes the movement of people, goods and capital easier and cheaper because, with every transaction (tourism; trading; money transfers; investing), the difference from the buy/sell rate will be saved. For example, it costs about 300 million annually outside the euro area. lv. from bank transactions between levs and euro.

2. Lower interest rates on loans than they would be with lev.

Because according to key rating agencies’ methodologies, entry into the euro area will increase the country’s credit rating by between one and two steps, reducing the interest costs of households, businesses and the state.

3. A sustainable reduction in the state’s interest costs and more funds to finance policies for the people. Because a higher credit score will lower the interest, the state pays off its debt, freeing up resources for procedures.

4. More tools for monetary policy and improved lending conditions.

Because Bulgaria will have access to all the ECB tools for monetary policy, banks will not have to maintain such high interest-free reserves in BNB. These reserves will be released, and banks can increase their credit activity to support a boost in consumption and investment.

5. It reduces the chances of an economic crisis. Because economic, budgetary and financial monitoring in the euro area is stricter than outside it. Because Bulgaria will have access to the Eurozone Rescue Fund – the European Stability Mechanism, and to a last resort lender – on behalf of the European Central Bank. 

6. Deepening Bulgaria’s integration into the EU core. Because this will add Bulgaria to the core of the EU and strengthen its European identity.

Mirchev also debunked six myths related to euro adoption:

1. It will not cause higher inflation than it would with lev.

Because there are no fundamental economic reasons to have any other than speculative ones, which the market rapidly eliminates through free competition and through the efficient functioning of institutions responsible for the competition, which should intervene promptly to correct relevant market practices, such as an abuse of dominant position.

Because no country that has adopted the euro has reported higher inflation than countries that have preserved their national currency.

Due to the fact that the Bulgarian economy is still catching up with the European ones, whatever the national currency will be, prices and salaries will grow faster than in rich countries. However, this process will benefit us because it will make us reach the European standard of living.

2. It will not result in losing sovereignty because Bulgaria’s monetary sovereignty was already lost by introducing a currency board 25 years ago. Bulgaria practically has no sovereignty in the field of monetary policy. Quite the opposite – entry into the euro area will increase it, as there will be participation and voice in the formation of monetary policy through the ECB.

Non-eurozone countries often cited as examples – Poland, Hungary, and Czech Republic – have a floating currency rate and independent central banks, providing more national monetary policy opportunities. In crises such as the post-war in Ukraine, confidence in these countries’ monetary units has deteriorated, and pressure has emerged for the devaluation of the currency against the euro. 

This increases inflation and forces the central bank to raise interest rates. A typical example is Hungary, where the current interest rate is 13%, and the current interest rate of the European Central Bank is 3%.

In these conditions, advocates of independent monetary policy are advocating higher interest rates precisely because of the international capital markets distrust in the possibilities and success of separate economic policies in small economies with weak institutions.

3. It will not lead to a change in the supervision of Bulgarian banks.

Because Bulgaria has been a member of the EU Banking Union since October 1, 2020. , and thus is part of the unified supervision and mechanism for restructuring banks in the euro area. 

By joining the Eurozone, Bulgaria will now have access to the European Stability Mechanism, which enables tools to obtain support in debt and banking crises and thus limit the shocks in the markets and the economy.

4. It won’t lead to other countries’ bills paying because the funds with which Bulgaria will participate in the Eurozone Rescue Fund (European Stability Mechanism /EMS /) are returnable and do not transfer but represent capital shares. 

5. It will not slow economic growth because adopting the euro will have the opposite effect: it will expand and deepen trade, trade, and investments with euro-area countries, increasing and deepening competition in the general market due to eliminating the gap from switching to another currency. 

Savings from the lost need for revaluation and more competitive interest rates on bank loans will increase the disposable incomes of households and companies. They will drive more investment and consumption and thus accelerate economic growth and welfare in Bulgaria.

6. It will not cause an increase in the public debt because there are no reasons to impose an increase in debt in the euro area. Estonia, Luxembourg and more. They have long been eurozone members, and their debt is lower than Bulgaria. 

Moreover, the drafts of the state budget of each eurozone member state go through monitoring, and preliminary assessment to ensure the correction of the EU’s excessive deficit and are reviewed by the Council of Finance Ministers (Eurogroup). 

For this purpose, there is a specially adopted EU Regulation with Law No. 473 of 2013. This ensures that the adopted budgets comply with the Stability and Growth Pact framework. Let us recall that the total public debt of the euro area countries to GDP is lower than that of the United States and the UK.