The European Commission said on Wednesday it considers that Bulgaria does not fulfil the conditions for the adoption of the euro as its legislation, and its law on the central bank in particular, is not fully compatible with the requirements of the treaty on the functioning of the EU.
“Incompatibilities and imperfections exist in the fields of central bank independence, the prohibition of monetary financing and central bank integration into the European System of Central Banks (ESCB),” the European Commission said in its latest convergence report assessing member states progress towards euro adoption.
On the basis of selected indicators related to the business environment, Bulgaria performs worse than most euro-area member states, the Commission said.
“Major challenges also relate to the institutional framework including corruption and government efficiency,” said the Commission.
Bulgaria experiences macroeconomic imbalances, linked to vulnerabilities in the financial sector coupled with high indebtedness and non-performing loans in the corporate sector, the Commission said. Persistent structural weaknesses prevent labour market to improve faster, the report reads.
According to the report, Bulgaria fulfils the criterion on price stability. The average inflation rate in Bulgaria during the 12 months to March 2018 was 1.4%, below the reference value of 1.9%.
Bulgaria also fulfils the criterion on public finances and convergence of long-term interest rates. The average long-term interest rate in Bulgaria in the year up to March 2018 was 1.4%, below the reference value of 3.2%. Long-term interest rates in Bulgaria declined from 2.4% in January 2016 to 0.9% in January 2018.
However, the Commission said, Bulgaria does not fulfil the exchange rate criterion because its lev currency is not participating in the Exchange Rate Mechanism (ERM II), the system set up by the EU for the preparation of member states for the introduction of the euro.
Bulgarian prime minister Boyko Borissov said last month he hoped the country will join ERM II within a year.
The convergence report by the European Commission is published with the convergence report by the European Central Bank. The two reports are prepared independently and published in parallel every two years.