To be or not to be in the eurozone for Bulgaria ? This is a question which comes very often in the discussions and this is the reason why we decided to write an article about this hot topic.
Should Bulgaria join the eurozone ? This is a complex question and the answer can only be a complex one because like very often in economics, there are many factors that needs to be taken into consideration. Economics is a complex science, it’s a living system and when one touches a variable somewhere, there is always a chain of causes to effects which will affect another variable somewhere else. So, we could write a thesis of 300 pages about this question but in this article, we will try to just go on the surface.
The euro, was born in 1999 but came into effects for the citizens of the eurozone in 2002. The euro had several ancestors, the first of one being the “snake in the tunnel” in 1972, and is just the last part of a chain started in the 1970’s when the “big” economies of the European Community found out that it would be beneficial to harmonize and stabilize the exchange rates among the currencies of these countries. The Europeans realized at that time that unstable exchange rates among them was affecting the quality of the trade in Europe and contributed to make the European economy less competitive.
The Euro has many purposes but in our eyes,
The main purpose of the Euro is to decrease the costs of transactions among businesses within the zone and to speed up the trade and investment partnerships…
… all of them due to the disappearance of domestic currencies and the exchange rates risk and cost. In this article, we will not enter into an economical analysis showing why this is the case but, what we mean is that the end result of giving up domestic currencies in order to have only one is that it helps the European economy to be more competitive because of optimization of trade and investment among the different nations.
Unfortunately, like very often in economics, we cannot say that everyone is unanimous on the question. Many people are against the euro and consider it as the main responsible of the economical and social problems in Europe. According to them, countries like the “PIIGS” (Portugal, Italy, Ireland, Greece, and Spain) and even France, are in a difficult situation because of the euro. They consider that the currency is serving the interests of Germany and affecting the competitiveness of other countries because its value on the market is too high to compare with their domestic productivity.
That’s a point of view but we don’t agree with this statement. In our opinion, the currency is not perfect, of course, many things could have been done in a different way, in a different order (for example, before adopting a common currency, it might have been wiser to harmonize fiscal and social rules among the members of the zone in order not to create distortion areas). True, for now, the way the euro has been implemented is not the most efficient one and contributed to bring more heterogeneity rather than more homogeneity among the European economies.
But, can we kill it ? Which type of signal would it send to the world about the capacity of Europeans to speak as one man ? What would be the consequences to dismantling it ? Huge ! Much worse than fixing the problems, in our opinion.
If some countries like Greece are in trouble since 2008, this is certainly not mainly because of the euro but because of the way the public resources are managed. By the way, some countries should learn from the mistakes of others if they do not want to face the same problems at one point. But, the question to which we wanted to answer at the beginning of this article was about if Bulgaria should enter or not into the eurozone. As explained above, the euro is just a tool.
If the euro is used the proper way, it will bring a lot of advantages but if it is not used the proper way, it will create more disadvantages than advantages.
The “funny” part about Bulgaria, and that many people tend to forget, is that Bulgaria is part of a currency board since 1998 which means that the Lev, the Bulgarian currency, is pegged to the euro and is “just” kind of a subdivision of the currency of reference (the deutsche mark and then, the euro). The rate is fixed at 1.95583 exactly like the deutsche mark or the French franc was fixed at 6.55957, and the Bulgarian National Bank lost its independence in term of money creation. It cannot create more levas than it has euros in its safes.
In other words, Bulgaria, indirectly, already adopted the euro. The only main difference between Bulgaria and the countries of the eurozone is that it does not have the right to vote at the board of directors of the European Central Bank because it’s not part of the eurozone yet. So, in short, Bulgaria already feels the disadvantages of the euro without benefiting from its advantages.
So, if we want to give a clear answer to our initial question, we definitely answer YES. Bulgaria should join the eurozone because it already indirectly uses the euro.