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The eastward expansion of the single European currency has been set back after Bulgaria and Romania failed to meet the economic threshold required to adopt the euro.
The decision announced on Wednesday by the European Central Bank and the European Commission represents a setback for Bulgaria's ambitions to join the euro zone early next year. Their deliberations confirmed that Romania's hopes of joining the euro zone remain remote.
The ECB and European Commission said the two Black Sea countries, among the EU's poorest, had too high inflation compared with other EU countries and questioned whether their institutions were strong enough to fight corruption and money laundering.
Both countries are aiming to follow in the footsteps of Croatia, which became the 20th country to adopt the euro in early 2023.
Bulgaria is the closest country to joining the euro zone, having pegged its currency, the lev, to the euro for many years, had its largest bank under ECB supervision and kept its debt and budget deficit at relatively low levels. If it met the necessary conditions, Bulgaria could have joined the euro as early as 2025.
The European Commission assessed six countries outside the euro zone for their readiness to join the single currency area, but Bulgaria met all of the criteria except for bringing inflation down to EU levels.
According to the European Central Bank, Bulgaria's inflation rate averaged 5.1 percent in the 12 months to May, down from 5.9 percent a year earlier but still well above the maximum benchmark of 3.3 percent calculated relative to other EU member states.
The results of the assessment were expected, but Bulgaria's previous government had hoped that the EU executive would be lenient, as Sofia is expected to meet price stability criteria later this year.
The European Commission agreed to reassess Bulgaria's eligibility to join the euro at its request, rather than waiting for the next regular review in two years, EU and Bulgarian officials said.
Bulgarians are divided on joining the euro, with a recent poll showing 49% in favor and a similar number opposed.
The ECB also said Bulgaria was still “working” to implement some of its commitments, including “strengthening its anti-money laundering framework,” and expressed concern about proposed constitutional amendments that would allow the president to appoint the governor or deputy governor of Bulgaria's central bank as caretaker prime minister.
The ECB said that while the quality of institutions and governance in Bulgaria, Romania and Hungary had improved, they remained “relatively weak”. The ECB cited “weak business environments, inefficient public administration, tax evasion, corruption, lack of social inclusion, lack of transparency, lack of judicial independence and/or poor access to online services” as reasons for this.
Former Bulgarian Prime Minister Nikolai Denkov recently told the Financial Times that corruption is also a way for Russia to exert influence in Bulgaria and is a major concern for Western allies.
The country has been plagued by long-running political turmoil and corruption and organized crime have prevented it from integrating closer with other EU countries, and earlier this year it was only partially allowed into the border-free Schengen area.
Sofia has held six elections in just over three years since strongman former leader Boyko Borissov was ousted after anti-corruption protests in 2021. Another election is considered likely this year after a June vote failed to produce a stable government. Bulgaria remains the EU's poorest member state, with a gross domestic product per capita below a third of the EU average.
Romania's inflation rate is well above the required level, with price growth averaging 7.6% over the past year. Romania has also been in breach of EU debt rules since 2020, running a budget deficit of 6.6% last year, well above the EU's 3% limit, which means it has missed the ECB's fiscal assessment and is unlikely to fall short of EU targets this year.
Overall, the ECB said the “challenging economic situation” caused by Russia's aggression in Ukraine had led to “limited progress” by non-eurozone countries towards converging into the single currency area.
Four other countries assessed – Poland, the Czech Republic, Hungary and Sweden – also have inflation rates above the levels needed to join the euro, and all but Sweden are in breach of EU fiscal rules, but they are not seeking euro membership.
Romania last year set a goal of joining the euro by 2029, but President Klaus Iohannis has expressed doubts about setting a firm date for the country.
