Bulgaria's economy and finance ministers have sparred over whether the EU newcomer should introduce the euro as a parallel currency in response to high inflation and the global financial crisis.
Economy Minister Petar Dimitrov said he supported the idea of Bulgaria's business organisations to introduce the euro unilaterally, a move that could lower inflation and boost trade but would be frowned on by Brussels.
'Introducing the euro...will contribute to improving the Bulgarian business' competitiveness when it comes to exports,' Dimitrov told a round table.
'The difference in inflation in Bulgaria and the eurozone has an impact on the lev (currency) and worsens the export position.'
Finance Minister Plamen Oresharski reacted with surprise to Dimitrov's statement, saying such a step could only have negative effects.
'The question about the euro is rather sensitive and I do not think that a parallel, a unilateral adoption, or other forms of adopting the euro bring any advantages but in return they can bring many disadvantages,' Oresharski told the round table.
The EU's formal position is that unilateral euro adoption is not compatible with the bloc's treaty and cannot be a way to bypass the convergence process for joining the euro zone.
The European Central Bank says on its website it shares the Brussels view.
High inflation and a huge current account deficit due to strong imports and credit lending have frustrated Sofia's efforts to join the ERM-2 exchange rate grid since 2007, when it joined the bloc. ERM-2 is a two-year currency stability test for euro hopefuls.
The Balkan country's heavy dependence on foreign cash to fund its external imbalances makes it very vulnerable at times of tight global liquidity.
Last week, the Socialist-led government said it aimed at joining the ERM-2 'as soon as possible'.
Bulgaria operates under a currency board regime since 1997, which pegs the lev to the euro and curtails central bank monetary operations. The government has repeatedly said it will maintain the peg and the board until joining the euro zone.
Inflation has eased slightly in the past few months as domestic consumption was hit by the global crisis and global commodity prices fell but remains one of the highest in the European Union. It was 10.9 percent annually in October from 12.5 at end-2007.
Bulgaria's main employers association has recently called on the government to unilaterally adopt the euro if Sofia was denied a quick ERM-2 entry.
The employers say it would secure macroeconomic and financial stability amid the global crisis.
Recently booming growth has already slowed down and economists say Bulgaria faces a hard landing next year as foreign investors flee risky emerging markets, and western Europe, its main export market, has plunged into recession.
The government rejects suggestions that the country might be among the next in line to seek help from the International Monetary Fund after Hungary and Latvia.
The Fund's representatives will start on Thursday a regular mission to Sofia to review the economic situation.
Source: Balkan Insight
