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Bulgaria drops goal of ERM2 entry in 2010

Author: Alex Bivol Date: Fri, Apr 09 2010 12 Comments, 4358 Views
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Bulgaria will no longer target joining the exchange rate mechanism (ERM2), the euro zone's waiting room, in 2010, Finance Minister Simeon Dyankov said on April 9.

The Cabinet of Prime Minister Boiko Borissov, which took office at the end of July 2009, made accession to the ERM2 one of its main policy priorities. That, in turn, prompted the Cabinet to delay payments to the private sector to maintain a low cash deficit, while at the same time not borrowing funds to increase government debt, analysts have said.

The policy resulted in a 0.8 per cent Budget deficit, but employer organisations and some macroeconomists said that the measures made the economic recession worse because instead of stimulus money, the economy got an ever-worsening cash squeeze. Furthermore, critics said that Bulgaria should not have been pushing for ERM2 admission so hard at a time when there was no political backing to allow the country into the euro zone in the first place.

But according to the latest calculations, Bulgaria's real Budget deficit was 3.7 per cent of gross domestic product, above the three per cent threshold stipulated in the Maastricht criteria for joining the euro area.

The reason for the high deficit were the commitments made by Bulgaria's tripartite coalition under contracts that were never made public, Dyankov said.

The high deficit was sufficient grounds for the European Commission to launch an infringement procedure against Bulgaria, but the Cabinet would target staying within the Budget deficit limits set by the Maastricht criteria in 2010, he said.

The Budget data and the contracts signed by the previous government, now under investigation by prosecutors, did not affect the fiscal stability of the country or its banking system, Dyankov said.

  • Bulgaria resuscitates plans to apply for ERM-2 entry
  • ‘Big hole’ in Bulgaria’s budget can be filled by increasing VAT or other revenue – PM
    • Anonymous
      Sikemek Rating:
      #12 02, 39, Tue, Apr 13 2010

      Though illiterate peasants in the east think this euro is great "progress" think it is the oposite of 1990's hyperinflation....they will learn the hard way.

    • Anonymous
      Sikmek Rating:
      #11 02, 37, Tue, Apr 13 2010

      Slovakia has become very expensive since joining the euro and its people are paid pauper's salaries

    • Anonymous
      ExPat Rating:
      #10 16, 39, Mon, Apr 12 2010

      Just for clarification
      Bank transfer costs has nothing to do with EUR this is related to SEPA, which says a money transfer in/out EU country (if in EUR and <12.500 EUR and has IBAN and BIC) must be at the same price and conditions as domestic transfer. this has nothing to do with EUR membership.
      exchange rate risk is not given because of BGN EUR fixing.
      money exchange fees agreed, but usually minor.

    • Anonymous
      @Jim Rating:
      #9 10, 47, Mon, Apr 12 2010

      Try tell that to Dutch citizens, go see for yourself what happened as i did since i was there. Prices for living almost doubled and wages cut in half since commerce simply "doubled" prices. I clearly remember paying fl. 1,75 for a bottle of beer in a bar now the same bottle of beer is about 2 euro. At a rate of fl 2,15 against 1 euro i hardly think this is all inflation. Reverse the rate of today's prices and you will see prices went up a lot more that average percentage of inflation.

    • Anonymous
      Jim, Vancouver Rating:
      #8 23, 51, Sun, Apr 11 2010

      With reference to Peter's comments:
      The transition does not need to be so stupid; there should be a transitional period during which both currencies will be accepted and the commodities will have two price tags. Gradually, the national bank will withhold the old currency until it disappears. At this moment, the new prices will be not arithmetically equal to the old ones and the guy who had 250 beers for his 250 leva will have 250 beers for 125 €, and we should not be worried about the business transactions.

    • Anonymous
      jeff in BG Rating:
      #7 17, 24, Sun, Apr 11 2010

      Don't be in a hurry to join the euro because prices will go up but wages wont take a look at prices in the euro zone and see, there 50% more at least.

    • Anonymous
      transfer Rating:
      #6 12, 53, Sun, Apr 11 2010

      if you still pay 1 euro for money transfers they are still ripping you off, all money transfers inside EU should be free of charge since the banks are kept working with our tax money in the first place and we all pay the banks monthly taxes for letting them use our money to increase their yearly profits too give their over payed staff exorbitant bonuses. Banks are being ignorant in a time they should be trying to work out global financial problems caused by idiotic ideas from their American colleagues.

    • Anonymous neutral
      #5 23, 09, Sat, Apr 10 2010

      tangible benefits are only their in the eyes of international business and banking NOT for the man on the street who WILL have tangible loses all the way down the line .here in france we are still suffering the euro headache

    • Profile preview
      amrasel Rating: 226
      #4 20, 33, Sat, Apr 10 2010

      All comments expressing averse opinions regarding BG's joining the EZ seem to come from countries well into the heart of EU.
      Now the more tangible benefits - no exchange rate fees, better access to financial capital, lower interest rates.
      Just for comparison - now bank transfer to France - €40, from Paris to Berlin - €1.
      Get it, guys?

    • Anonymous
      peter Rating:
      #3 12, 26, Sat, Apr 10 2010

      I will show you a very simple calculation as an example to ask yourself if Bulgaria should get into the euro zone or not
      For example a worker now gets 250 leva a month, for that in a village he can buy 250 bottles of beer. After entering the euro zone he will get about 125 euro a month and he will still be able to buy 125 bottles of beer.

      About the same happened in the Netherlands and people are told they imagine being cheated on.


      Read the full comment Forget about the euro please and do as Denmark or the UK and keep the leva.

    • Anonymous
      Herx Rating:
      #2 21, 56, Fri, Apr 09 2010

      Dear Bulgaria: Take your sweet time in joining the euro. You effectively already have it, with the fixed exchange rate. You can afford to be THE LAST ones to join.

      Why is joining so hard?

      Because your suppliers will take advantage of the currency conversion to raise prices. Yes, they do.

      Here in Slovakia, we have suffered an average rise of 15% in food and drinks prices. The basic stuff. Guess what? We got no salary increase.

      Having said that, most people here in [...]

      Read the full comment SK are happy to join the euro, but BEWARE BULGARIA:

      There is a very real price to pay. Start saving, and/or increasing your income, NOW. Otherwise, you will suffer a SIGNIFICANT drop in living standard.

    • Anonymous neutral
      #1 20, 45, Fri, Apr 09 2010

      finally some has seen the light

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