In a convergence report published June 26, the European Commission (EC) and the European Central Bank (ECB) said Bulgaria is not ready to join the eurozone in January 2025 because it does not meet inflation criteria.
The decision was expected by authorities in Sofia, who said a new convergence report could be required in the fall when the country meets the final criteria. But political instability and the unlikelihood of the current parliament ever forming a legitimate government make it unlikely that Bulgaria will be able to join the eurozone next year.
“The 12-month average of Bulgaria's HICP inflation rate in May 2024 was 5.1%, well above the price stability benchmark of 3.3%. This rate is expected to gradually decline in the coming months as pipeline pressures and supply bottlenecks continue to ease,” the ECB said in its report.
The firm expects core inflation to remain persistently high, mainly due to strong wage pressures in the country where the labour market remains tight.
“We have concerns about the long-term sustainability of inflation convergence in Bulgaria. As Bulgaria's GDP per capita and price level are still significantly lower than in the euro area, the catch-up process is likely to result in a positive inflation differential with the euro area,” the ECB said.
Meanwhile, Sofia still needs to complete policy commitments set out when it was accepted into the euro zone's waiting room, ERM II, in 2020.
“Bulgaria is currently working on implementing these post-entry obligations and is encouraged to accelerate its efforts to implement elements of the action plan adopted by the Financial Action Task Force (FATF) following Bulgaria's inclusion on the FATF's 'grey list' of jurisdictions subject to enhanced surveillance in October 2023,” the ECB said.
The EC also concluded that Bulgaria does not meet the criteria for eurozone membership.
“In the light of its assessment of legal compatibility and fulfilment of the convergence criteria, and taking into account additional factors related to economic integration and convergence, the Commission determines that Bulgaria does not meet the conditions for adopting the euro,” the EC said.
Bulgaria's 12-month inflation rate as of May this year was 1% above the benchmark and is expected to remain high in the coming months. The European Commission estimates that Bulgaria could catch up with inflation by the end of 2024 or early 2025.
Bulgaria's central bank said in a statement that authorities would continue to work to meet all the conditions for euro zone membership. Interim Prime Minister Dimitar Grafchev said Bulgaria still had a chance to join the euro zone in the second half of 2025.
