Bulgaria could join the eurozone but only after removing corruption
Adelina Marini, August 19, 2009
"Joining the ERM II, practically is a political issue", the senior economist at the Open Society Institute Georgi Angelov said, asked by euinside co comment on the report of the Greek Eurobank about the stability of the currency board of Bulgaria. He also explained that technically, our country should file a request to join, all member states together with the ECB should gather and decided unanimously which was the problem the last time Bulgaria tried to enter the ERM II, because then the ECB voted against. "So this is a political issue - the needed trust must be formed which should show that when our country joins it won't be a factor if instability bu the opposite. This means that it won't be easy politically and diplomatically. Simply, it is very difficult for us to think that a country, given as an example of a corrupt state, will join the ERM II than Poland".
Georgi Angelov also said that Bulgaria should heal its political relationship with the EU, to decrease significantly the thefts of public money and to improve the judiciary. To the reaction of euinside that this would take quite a long time, the analyst specified that everything is a matter of trust: "The question is to create confidence that we are moving into this direction. We would hardly be able to start working effectively right away - but we have to create a sustainable trend that we are making the steps in this direction. Only then we will be able to enter the ERM II and only then the Maastricht criteria will be estimated. This means that, first, we will have to enter, then start fulfilling the Maastricht criteria and then join the euro area. We have 1 step which we cannot skip. Even if we fulfill the Maastricht criteria now, which is not impossible next year, for example, this wouldn't matter simply because no one who has not entered the ERM II cannot join the euro area".
Regarding the question whether Bulgaria should join the euro area with or without the currency board, Georgi Angelov agrees that our country should not change its financial system because any other measures might lead to destabilization of the Bulgarian financial system. "They do not include the effects of what is being discussed about removing the currency board. Because, practically, the minute the government would announce its intention to remove the currency board, everyone would go to the banks to withdraw the money and change it into euro and this means that the proposition itself will tear the system down. In other words this would create systemic crisis and we will follow Latvia on our fault. I guess that this argument did not occur to the authors of the report because they had probably missed to take into account that people in countries with currency board have different expectations about their currency rate - they do not expect it to change. The minute it's being changed, they act immediately which is fatal for the banking system".
The authors of the report of the Greek bank also write that probable devaluation of the Latvian national currency (the lat) will reflect badly on the countries in Central and Eastern Europe, which, according to Georgi Angelov, will have only psychological effect. He said that there is no direct connection between the Baltic region and that around Bulgaria. But he warned that talking about lat devaluation is generally a speculation. To avoid any negative effect on Bulgaria's financial system, he recommended total distinction from Latvian economic and financial policy. Our country should show more sound policy than that of Latvia and this might help avoiding any dare consequences.