Euro adoption in 2025 is a possible scenario

Mr. Radev, to what extent is Bulgaria ready to join the euro area at this moment?

In terms of technical infrastructure and logistical preparation, the level of readiness is very high, at least as far as the BNB and the banking sector are concerned and they play a key role in this process. Our technical readiness must be supported by adequate political actions.

In mid-April this year you predicted that Bulgaria would join the euro area probably next year, but not at its beginning, as were the initial expectations. Does this prediction of yours remain valid now?

Yes, and at the moment, this is a possible and realistic scenario.

The political and government rotations have delayed the adoption of the Law on the Euro. What do you, as a Governor of the BNB, think that is important to be stipulated in that law?

The draft law on the introduction of the euro has already gone through the procedures of interdepartmental discussions and public consultations, and through consultations with the ECB and the European Commission. It sets out the administration of the euro adoption process. From the BNB’s position, everything that should be in it is already incorporated in the draft. I see no reason why it should not be adopted by the end of the summer.

The business in Bulgaria insists that our country should enter the euro area sooner. Do you see any pitfalls that the Bulgarian business does not see now in this optimistic aspiration to abandon our national currency?

When it comes to the economic and financial conditions in a country, not only in the short term but also in the long term, no one is more far-sighted than the business. And this is about pragmatism, not excessive optimism. The voice of the business is the voice of common sense. It would be good for politicians to listen more to it.

Some economists share the opinion that, generally, Bulgaria has not come closer to the euro area countries in terms of competitiveness, standard of living and other indicators; in terms of these criteria a number of other EU member states are before us and they are in no hurry to join the euro area. Do you think that it makes sense for us to want to get ahead of them?

It will be difficult for Bulgaria to achieve the economic development and the living standard of the euro area if it stays outside on the periphery of the EU. So far, 20 countries have joined the euro area and 7, including Bulgaria, are outside of it. Does it make sense for us to want to be the last in this process? I am convinced that the entry into the euro area would accelerate the convergence processes with all the positive effects on the economy and the standard of living.

Some Bulgarians fear and resist joining the euro area because they expect that the very entry would intensify the inflationary processes. Are such fears justified? Are there any tools that the Government could use to contain the possible price jump, or is it best to leave this to the ‘invisible hand of the market’?

The euro area is not a factor intensifying inflationary processes. On the contrary, it is an economic zone of low and stable inflation and has a complete set of tools to control it, with price developments similar to those we have observed in recent years. The ECB’s actions testify to achieving this objective with monetary policy instruments.

Bulgaria has already embarked on the path of joining the euro area, but what is especially important for us to do now in all this process?

To complete it successfully. With the appropriate policy framework and the level of technical readiness that we have, this is quite achievable.

The BNB took measures regarding mortgage lending. What potential risks will the credit market face in the foreseeable future? Is there a real danger of collapse of the real estate market in our country?

Let me emphasise that this is a potential risk arising from the growth of mortgage lending, and not a real problem at the moment. Our assessment is based on an in-depth analysis that we have made public. It shows that at this stage we need to create a formal framework for assessing potential risk through supervisory monitoring and reporting on certain mandatory indicators for banks, something we have done without yet establishing hard limits. There should be no doubt, however, that we are prepared to take further macroprudential steps, including preventive ones, upon indications that the potential risk may materialise.

The Central Bank of Bulgaria always carefully monitors the economic situation in the country. Are there any disturbing symptoms?

Global and regional risks, including the war in Ukraine and the crisis in the Middle East, create uncertainty, but overall we expect economic growth in the country to remain firmly in positive territory this year and next, and that is good news.

In your opinion, is the flow of foreign investments in Bulgaria satisfactory, even though for 2023 it is higher than the previous year? Do you believe that Bulgaria has unused potential?

The short answer to the first question is ‘No’ both in terms of quantity and quality of investment. I expect joining the euro area to help realise the huge potential our country has in terms of investment activity, something we have witnessed in Croatia since its accession.

The banking market in the EU is increasingly concentrated in a few leading banking groups. In 2008, there were 24 banks in Bulgaria, and now there are 17. They say that the signs of an oligopoly are growing. Is there room for concern?

In terms of leading banking groups, Europe is trying to catch up with the US and Asia, and this is not necessarily a bad thing. As far as Bulgaria is concerned, the consolidation of the banking sector is a strategic goal that we as the central bank support. With the existing number and size of Bulgarian banks, the topic of oligopoly is not relevant at this stage.

Do the banks in our country become stronger after the consolidation? Are there serious problems in the merger process?

They are definitely becoming more adequate from the point of view of the market and the development of banking services. So far, consolidation in the banking sector has proceeded smoothly. I hope it continues like this in the future.

In 2023, the profits of the banks in Bulgaria hit a new record - BGN 3.4 billion, which is a 64% annual growth. What caused this? Should we accept it without comment?

When a business makes a profit, it is usually because it's doing well. This also applies to our banking sector, which is well capitalised and highly liquid, with last year's growth in profits being basically due to their core business. As in any business, temporary factors also have an impact. This is well recognised in the banking sector, which largely uses profits to further enhance its capital buffers. Otherwise, all professional comments on the subject are welcome.

What gives the banks reasons to raise fees and commissions? Who can influence this process?

The banks use the income from fees and commissions to improve the quality and security of the services they provide. The market dictates the price of banking services and it is not a one-way process.

Why is the trend of rising interest rates on savings transferred so slowly to the banks in our country?

The main reason is the huge liquidity in the banking sector, which is fuelled by household and business deposits.

On what does the "comfort" of the Governor of the BNB in ​​this position depend the most?

People in important public positions need to feel in place, but not comfortable. If they are looking for comfort, then they are not for these positions.

What is your recommendation for better money management – ​​to entrepreneurs and to every person?

Common sense and at least basic financial literacy.