The most realistic date for Bulgaria’s entry into the Eurozone is 1 January 2026 – not earlier

The most realistic date for Bulgaria's accession to the Eurozone is January 1, 2026 - this is the conclusion that a number of financial institutions have made based on their forecasts, including the country’s own Ministry of Finance.

Already in June, the interim Finance Minister Lyudmila Petkova stated that the earliest date for accession in the currency bloc was shaping to be 1 January 2026. However, only a month later, the Bulgarian Parliament obliged the Minister to insist to the European Commission and the European Central Bank (ECB) to consider July 1, 2025, as the entry date instead, in case the country met the inflation criterion by the end of the year.

The ministry’s forecasts are that the criterion will be met by the end of November or December at the latest, but a national currency swap in the middle of the year would make things difficult for the business sector. This is an argument that Valdis Dombrovskis, executive vice-president of the EC, also made in 2023. He pointed out that "traditionally, countries join the eurozone on January 1. The rules do not exclude another date, but from a purely practical point of view, joining at the beginning of the year is more convenient".

The date chosen by the parliament bets on the fact that inflation in Bulgaria will slow down enough by the end of 2024 for Bulgaria to request an extraordinary report from the EC.

However, some of the major commercial banks - such as UBB and Unicredit Bulbank - give a longer horizon for fulfilling the inflation criterion. According to Unicredit, this will happen in March next year.

Only then, if our forecast turns out to be correct, will inflation have fallen enough for the BNB to request an extraordinary convergence report," Unicredit Bulbank wrote in its report.

UBB points out that the 12-month inflation in Bulgaria, relevant for the admission to the eurozone, slowed down in August to 3.8%, while the basis for comparison - the average of the three countries in the eurozone with the lowest inflation plus 1.5 percentage points has also shrunk - to 2.7 percent,

outlining the possibility of convergence in the next 3-6 months”.

Forecasts by international rating agencies are likewise moving towards an eventual Bulgarian adoption of the euro in 2026, rather than July 1, 2025, which is still the current target date.

Last week, the Fitch rating agency pointed out that in the summer of this year, Bulgaria already met all the criteria for the euro, except for the one regarding consumer price growth. "Since then, inflation in Bulgaria has continued to decelerate, narrowing the 'gap' between average annual inflation in the country and that of the three best-performing member states in that regard," Fitch said in its report.

In our opinion, Bulgaria can meet the criterion for price stability at the beginning of 2025, depending on the inflationary developments in the EU", the rating agency commented,

adding that in this case, the country could become part of the Eurozone as early as January 2026. "Nevertheless, the lack of a stable government and possibly long negotiations for a coalition may delay the process again," the experts warn.

Already at the beginning of this year, S&P Global issued similar estimates. According to them, the EC can make an exception, as happened with Croatia, and exclude some member countries with the lowest price growth from the inflation calculations. Even then

political considerations beyond Bulgaria's control may have an impact" and ultimately, the baseline scenario is for joining the eurozone in 2026 or a little earlier.

In the summer, another rating agency - Moody's - predicted that the country should enter the Eurozone by the beginning of 2026 at the latest, as any subsequent postponement (after the original date of July 1, 2024, was pushed forward several times) would exert downward credit pressure.

A few days ago, the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, spoke on the subject in her typically positive, but also careful tone, saying that "the possibility of Bulgaria joining the Eurozone is real and feasible".

We saw that what was holding Bulgaria back was inflation. Now inflation is going down. The latest results are encouraging," Georgieva added.

But she, like other experts, pointed out that the date of accession depends on external factors, and in her words, “it also depends on the currency bloc itself, how they see this deadline. But it is a fact that the goal of Bulgaria entering the Eurozone remains real."

"Actually, the outlook for this is a little better based on the latest data on inflation. By all other indicators, Bulgaria is excellent - low external debt, low budget deficit – only its inflation was a little higher than necessary," said Georgieva.

As planned, within two weeks after Bulgaria fulfills the inflation requirements, the country will request an extraordinary convergent report from the EC. However, this report requires time, since in the case of a positive assessment, the EC will have to turn to ECOFIN, which in turn will consult with the European Parliament. A subsequent "green light" will let ECOFIN take the necessary legal steps and then, based on the proposal from the EC, accorded with the European Central Bank (ECB), an exchange rate between euro and lev will be adopted, which will become irreversibly fixed.

In case the Finance Ministry’s forecasts do not prove to be true, the rapidly growing budget deficit, projected to reach 9% of the Bulgarian GDP by the end of 2025 (three times above the permissible levels), may turn out to be a whole new problem once the country meets the inflation benchmark sometime next year. That is why last week Dimitar Radev, the Governor of the Bulgarian National Bank (BNB), appealed for tougher discipline in the country's fiscal policy.

There is an urgent need to discipline the fiscal position and harmonize the monetary and fiscal conditions in the country. In any case, we are talking about a very short horizon and a window of opportunities that should not be missed", pointed out Radev.

He explained that there was a risk the credit agencies would lower the country's rating, which would worsen credit conditions in turn. "Having a loose budget with chronic deficits means that, in the end, businesses and households will have to pay the billions in public debt," said Radev.

In the coming days, the Bulgarian Finance Ministry will publish the draft law for Budget 2025. During a meeting of the National Council for Tripartite Cooperation (NCTC) this week, Minister Petkova assured that the planned budget for next year will have a deficit of up to 3% of GDP on an accrued basis, with both revenue and expenditure measures foreseen for this purpose.

Translated by Tzvetozar Vincent Iolov