Bulgaria Joins Eurozone: What It Means for Finland

On January 1, 2024, Bulgaria will officially join the Eurozone, marking a significant milestone for the country and the region. This accession brings the total number of Eurozone nations to 21. The introduction of the euro will replace the Bulgarian leva, a currency that has been in use for 145 years.

Impact of Bulgaria’s Eurozone Membership

Bulgaria’s entry into the Eurozone aligns the country more closely with Western Europe. However, this shift may also contribute to inflationary pressures within the Eurozone. Bulgaria has pursued euro membership for several years, with inflation being a primary obstacle to its acceptance.

Inflationary Concerns

Last summer, Bulgaria managed to reduce its inflation rate to below the European Central Bank’s (ECB) threshold of 2.8%. Despite achieving this, the inclusion of Bulgaria in the Eurozone could increase inflationary pressures for other member states. According to Lauri Vilmi from the Bank of Finland, Bulgaria’s economic weight in the Eurozone is approximately 1.5%.

• Bulgaria’s economy: slightly smaller than Finland’s.
• Population: over 6 million.
• Debt levels: maintained within EU targets, below 3% of GDP.
• Economic growth: faster than Finland, though living standards remain lower.

Significant Economic Changes

The switch from the leva to the euro brings about noteworthy changes. Bulgaria has had a fixed exchange rate with the euro, minimizing disruption in trade with Eurozone nations like Germany and Italy. However, financial stability may also lead to overheating in the economy, resulting in higher prices.

Regional Implications

Bulgaria’s membership sends a symbolic message of commitment to the Eurozone and could influence other Eastern European countries, like Romania, to consider joining the euro family. Currently, Bulgaria’s transition to the euro takes place alongside heightened geopolitical tensions in the region.

Future Euro Candidates

Bulgaria is not the only country eyeing Eurozone membership. To join, countries must fulfill specific criteria and remain in the ERM II exchange rate mechanism for at least two years. Presently, only Denmark meets these conditions, and there is no immediate intention to switch from the Danish krone to the euro.

Conclusion

Bulgaria’s adoption of the euro represents a pivotal shift for the country, with economic, political, and social implications extending to its neighbors and the broader Eurozone. This transition could influence discussions around further integration and the future of the euro currency in Europe.