15411 | 12 May 2025 | 14:51
The proposal of President Rumen Radev for a referendum on the issue of the euro has sparked heated debates along two lines - whether it complies with the Constitution, as there is also a ruling by the Constitutional Court on this matter; what are the political goals pursued by the head of state, given that he himself has long rejected the demands of "Reform" for such a referendum. There is also a third line in the debate, which has given way, but is very important: what do we gain and what do we lose from membership in the eurozone, are the people prepared for the major fiscal change? As these questions are not new, the Institute for Strategy and Analysis (ISA) has also provided answers.
In their analysis for June 2024, the ISA focused on the question of what would happen if Bulgaria did not join the eurozone. We then pointed out the following effects with a clearly negative sign:
- Whatever we do with the economy, the country's rating will not improve in the foreseeable future. Rating agencies explicitly state in their reports on Bulgaria that they only predict an increase upon joining.
- This is a bad signal to investors that the economy is not yet ready, which will also reduce the already weak direct foreign investments.
- We are losing the opportunity to brighten the economy, as the exchange of Bulgarian lev with euro will reveal significant cash flows that are outside the financial system;
- We are missing the push for electronic payments to increase the dynamism of the economy.
- Less money will be directed towards the real estate market, where they sought refuge in the event of an exchange. As of today, it can be said that a lot of money has been directed towards real estate in the last year, and properties have become more expensive due to the expectation, especially in the last 2-3 months, that our country will join the eurozone on January 1st, 2026.
- Eurosceptics will gain a foothold and will conquer even more electoral territories.
And more: In the conditions of political instability, it is very risky to make such a serious policy and economic change as joining the eurozone. It requires unanimity and cooperation. The process can be sabotaged, and it is vulnerable to such actions.
As of today, we not only confirm this conclusion, but also make the case that the proposal for a referendum is a step towards increasing political instability, which will make the process towards Euro-membership uncertain and fragile.
ISA has always emphasized the positives of the policy that leads us to the Eurozone and which are capital for our country.
Here are some examples:
Which currency is the most stable compared to the euro? Zero deviation in the lev exchange rate for 27 years now?! There is no economy that can withstand a fixed exchange rate for so many years without a monetary policy.
Which public debt in the last 15 years is the lowest or second lowest in the EU, despite revolving crises in the EU and the Eurozone and unique political instability?!
In which country has the fiscal deficit been maintained below 3% in the last 15 years (with only two exceptions) and this against the backdrop of astronomical deficits in Eurozone countries?!
Which country has always met the criteria for long-term interest rates?
Until recently, Bulgaria did not meet the inflation criteria, but now, when there is a real chance to overcome the last obstacle, political brakes have been applied. Their action is facilitated by the lack of an informational campaign that would convince Bulgarians of the benefits of adopting the Euro. On the contrary - the most active on the topic were opponents of the common European currency.
The conclusion of ISA from the recent months is that Euroscepticism has provided the opportunity to generate public and electoral interest among large groups of Bulgarians - a threat was found - the Euro, around which political capacity is consolidated. It is trendy to be Eurosceptic, while euro-optimists are minor on social media. The Euro was used for political purposes and thrown into the darkness of disapproval.
The biggest problem is that we are not clear about why we want the Euro.
The political messages largely pump Euroscepticism. For example, in the public consultation on the Law on Euro Adoption in the Republic of Bulgaria, only 10 opinions were expressed and all of them were extremely negative - not a single constructive one. Instead of responding sensibly to each one, the answer of the proponents is "We are obligated to accept the Euro". How will public trust and support be created when it is said that we accept the Euro by obligation, without thinking about the consequences?
ISA was categorical: Most supporters of joining the Eurozone claim that this is a main political goal. But membership is not an end goal, but a means to extract benefits for the economy through further integration. It is the natural end point of the currency board and it is high time we sat at the decision-making table for monetary policy and more.
In January, we warned that the prospect of Bulgaria meeting the last criterion - inflation - provoked an aggressive response from Euro-sceptics, who decided to go "all in" by even trying to "slaughter the sacred cow - the currency board" with suggestions for a currency exchange.
This caused complete chaos, with some entering explanatory mode while others froze because they didn't know what else could be done. And the people - the most important ones - got scared and extinguished the last spark of approval for membership in the Eurozone.
Events have shown that in the midst of political battles, everyone forgot about the people.
The informational campaign among citizens and businesses was neglected. In reality, there is none. Banks have already spent over half a billion for changes in their systems, state instructions are being prepared technically, municipalities - as well, but no one explains to the people why now and why we should enter the eurozone at all. The information space was left empty and it was filled by eurosceptics, who managed to promote their claims and scare people.
The fondness for the euro among Bulgarians has collapsed in the last 5 years and it is now too late to persuade the people.
The extremely important role of people's behavior for the success of the transition was neglected.
Experience from other countries shows that it is possible to join the Eurozone even with non-decisive approval, but the risks towards the process increase significantly.
Our conclusion as of today is that the so-called "last battle" was instigated by the President with his proposal for a referendum on a question that is a national priority and crucial for the future of Bulgaria. It is realistic to expect that it will be rejected by the National Assembly. However, the consequences are clear: the increase of risks towards the integration process into the Eurozone is undeniable, especially in a society that is completely divided, where fears outweigh rational thinking.
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