Банкеръ Weekly

Briefs

BULGARIAN LEV - CONVICTED WITHOUT RIGHT FOR APPEAL

WE CAN NO LONGER DROP OUT OF EURO. THEY COULD ONLY PREVENT US FROM IT.Rather a long time now since Bulgarians take it a fact our acceptance in the European Union (EU) in 2007. There are only few people, however, who know the conditions for our membership in the very cohesion of the community - the European Monetary Union, or eurozone, as it is more popular. The Bulgarian integration with it, as well as the Bulgarian National Bank (BNB) incorporation in the European system of central banks will take place in the middle of 2009 at earliest, explained Finance Minister Milen Velchev and the BNB Governor Ivan Iskrov at a special seminar in the town of Hissarja. Many Bulgarians are under a delusion that after our country enters the EU the Bulgarian lev will automatically disappear as a national means of exchange and will be replaced by the euro. Before this happens, however, Bulgaria should perform some economic requirements, which, eventually is the reason for a lack of serious analysis done for the impact of that transformation on the price rounding to the higher levels. For example, if one kilogramme of sausages is worth BGN4, when the euro is adopted the price will change to EUR2.10, but not EUR2.05 (through the currency peg fixing). Financial analysts do not accept this increase to be qualified as inflation, because it will be a single time, but not a lasting process. Inflation or not, this price increase will make bitter the citizen notion of the EU. Even in more market-orientated West European economies it lead to a visible disappointment with the euro. Bulgarian firms should also prepare for additional expenditures when passing to payments in euro, at least because they should revalue their capitals and accounts and then should register them in the firm registers, tax offices and the banks. There is a way the State to free companies from costs for re-registration with the adoption of a special law, which to stipulate that these activities will be done free at the fixed EURO/BGN rate. We have some experience in this respect as such a provision was included in the law on the Bulgarian lev's denomination, which took place on July 1, 1999. However, nobody could save the firms their expenditures for reshaping the accounting software, which up to the Bulgarian acceptance in the eurozone will work in Bulgarian currency and then should immediately begin to calculate in euro.No doubts, there will be some advantages of the euro adoption. The currency risk will be removed for firms which import row materials, machinery, commodities and software in euro and produce goods for the Bulgarian market with them. Now such risk exists because the fixed rate of the national to the eurozone currency is valid for the interbank market only, while credit institutions offer their own quotes to their clients. The most obvious benefit from the euro will be that no currency exchange will be needed when travelling in Europe and even outside the EU, as the common European currency is freely accepted in Croatia, Russia, Norway and other countries. Foreign vacationers who spend their holidays in Bulgaria will also make use of the change, as they often suffer losses from frauds in exchange offices. At the same time, most change offices will remain out of business and their employees will have to look for new jobs.Another positive issue is that a big part of the Bulgarian government debt, which is now accounted as foreign, after the euro introduction as a national means of payment will be automatically transformed in internal. This will lead to better proportion of the long-term state liabilities in foreign currency to the gross domestic product (GDP) and will increase our credit rating in this term. The higher rating will enable Bulgarian firms to receive cheaper loans from foreign credit institutions. One of the myths which should be deposed is that we have no other choice but the euro accession. After being accepted in the EU the question will be not if but when to join the eurozone. Only two from all the countries in the community - the UK and Denmark, have received the right (opt-out) to decide alone whether to introduce the euro as a national means of payment. This, however, was decided back in 1991 when the Maastricht agreement with all obligatory criteria for joining the currency union was signed. So Bulgaria has now only one chance - to join the ERM II and to try to fulfil all Maastricht requirements. Even then, however, our eurozone entry is not guaranteed. The final decision is purely political and the EU member-countries could reject a respective country and to urge it to apply a package of additional measures. The procedure for euro accession also gives such possibility. After being two years in the ERM II mechanism, the candidate is evaluated and a decision is made if it is ready to adopt the euro. The assessment takes at least five months and indications that are not among the Maastricht requirements (such as GDP per capita) are taken into consideration. The European Central Bank and the European Commission draft the so-called reports for derogation. The EU Council of Ministers considers them and votes for them. Consensus is necessary for accepting new members in the eurozone. If just Luxembourg votes against, the acceptance in the currency union should be postponed.

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