Tuesday, 12 January 2010

Bulgaria Having Euro Currency Doesn't Solve Anything

Here we go again, Bulgaria selling its soul to Europe with a political will to convert to the Euro. This guarantees nothing and is not a magic wand for economic recovery and the debt crisis. The Lev is currently tied with the Euro and having a Euro currency will not make any difference to foreign exchange if this remains, so why change? Bulgaria will become a Euro currency as that's the trend in Europe, how, long down the line before it is realised that this is a mistake is just a matter of time.

Bulgaria Having Euro Currency Doesn't Solve Anything
Bulgaria, the newest and poorest member of the European Union, is emerging as a fiscal model for a number of EU countries struggling to fend off debt crises.

Despite Bulgaria's budgetary rigor, other EU members' swelling debt burdens may end up foiling Sofia's aspirations to join the euro in three years.

Bulgaria joined the EU in 2007 and posted the smallest budget deficit among the 27 member states last year, according to the finance ministry. It is expected to be the only EU nation to balance its budget in 2010.

The country pegs its currency, the lev, to the euro, and has a currency board that forces the government to hew to tight fiscal policy. Officials in Sofia have frozen government wages and pensions, mothballed costly state investment projects, raised taxes on tobacco and slashed government spending by 15%. The result is a full-year deficit of less than 500 million lev ($370 million), or 0.8% of gross domestic product.

Prime Minister Boyko Borisov, who has drawn international accolades for cutting spending while maintaining high levels of public support, says he fears Bulgaria's fiscal performance won't guarantee entry to the 16-nation euro zone.
"I am afraid that the debt crisis in newer euro-zone countries will negatively affect us," he said. "We hope that the authorities respect the admission criteria as we've worked hard to get here."

In a thinly veiled reference to Greece, which has struggled to persuade investors that it can cut its budget deficit from more than 13% of GDP toward the EU's 3% ceiling, Mr. Borisov said he is making progress in persuading European leaders that his government would be fiscally disciplined "now and in the future."
Bulgaria is eager to adopt the euro in order to boost confidence and foreign investment.

Still, the country must meet a number of criteria covering currency stability, public-sector debt, interest rates and inflation. The application also needs approval from euro-zone heads of government and European Central Bank President Jean-Claude Trichet.

Bulgaria's economic progress could see it leapfrog longtime euro aspirants, such as Romania and Hungary, where sharp downturns have required bailouts from the International Monetary Fund. Sofia isn't currently receiving IMF assistance, and doesn't plan to seek help from the fund this year, Mr. Borisov said.

Source: http://online.wsj.com