European Union member Bulgaria will not manage to restore its economic growth before 2011 and can only see its aspirations for joining the bloc’s exchange-rate mechanism the same year at the earliest, according to analysts at Roubini Global Economics.
The research and advisory firm founded by the famous Nouriel Roubini, a New York University professor who predicted the financial crisis, says Bulgaria’s aim to adopt the euro by 2013 is too optimistic.
“If the Greek crisis starts to die down in the second half of this year, theoretically Bulgaria may join the so-called eurozone waiting room ERM II in the next year and get to adopt the euro in 2014, but this is the earliest possible date,” Jelena Vukotic, a political risk analyst at Roubini Global Economics, told Deutsche Welle.
According to her Bulgaria really stands out among the other euro hopefuls in a number of indices, but EU policymakers, who had already shown a tendency towards a very strict application of the Maastricht criteria for euro adoption, will now cast an even warier eye not only on these criteria, but on a broader set of political parameters, which will be the biggest hurdle for the country.
Vukotic pointed out that Greece lived beyond its means for years and cheated on its statistics to meet the eurozone requirements.
„The European leaders of course want to avoid a repeat of the Greek crisis. We have to stress that Bulgaria, unlike Greece, is a model of fiscal performance, but its weak results in the corruption combat wreck its prospects for eurozone entry,” Vucotic said, citing the latest interim report of the European Commission.
According to Roubini Global Economics the outlook for Bulgarian banking system is negative.
At the end of February Fitch lowered the long-term and short-term issuer default ratings of United Bulgarian Bank (UBB) and Eurobank EFG Bulgaria to ‘BBB-‘ from ‘BBB’; and to F2 from F3, respectively, all of them Bulgarian subsidiaries of Greek banks.
Shortly after that Moody’s Investors Service said the credit outlook for the Bulgarian banking system is negative, primarily reflecting the adverse impact of the domestic economic recession on the credit quality and net profits of the country’s banks.
“Bulgaria’s banking sector is well capitalized, but the state of the banks can sharply deteriorate should the “bad loans” increase. To top it all off the the effect of the Greek crisis may also spread,” Roubini Global Economics analysts say.
According to Vukotic the worst case scenario that can unfold in Bulgaria is the complete withdrawal of foreign banks.
“This is not very likely,” Vukotic said.
Bulgaria is widely believed to be among the countries most at risk from potential spillovers from Greece after banks invested in central and eastern Europe. The country is more susceptible to contagion risk from than neighboring Romania or Turkey, because Greek banks control 28 percent of the Balkan country’s market.
There have been months of speculations over when the former communist state would formally apply to the bloc’s exchange-rate mechanism, the so-called Eurozone waiting room. According to the latest plans announced by Finance Minister Simeon Djankov this should happen by July, when the Spanish presidency of the European Union ends.
Minister Djankov, a World Bank economist, hopes to offset a possible reluctance to admit Bulgaria into the ERM, stemming from the Greek crisis, by garnishing the application with a targeted balanced 2010 budget, the smallest 2009 deficit in the EU and laws overhauling the inefficient health-care and social-security systems.
Countries must be members of ERM II for two years before they can formally join the eurozone. Bulgaria believes that it could be ready for euro entry by 2013.
Joining the exchange-rate mechanism would bring Bulgaria closer to the umbrella of the euro region and the protection of the European Central Bank and is conditional on whether the new government will succeed to restore Brussels trust.
The lev is already linked to the euro in a currency board that keeps the Bulgarian currency at 1.9558 to the euro. Joining the exchange-rate mechanism may allow the lev to fluctuate by as much as 15 % around a central band, though the central bank has said it will leave the lev tightly pegged to the euro through the duration of the two years.
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Roubini: Bulgaria Euro Adoption Likely in 2014 Earliest
European Union member Bulgaria will not manage to restore its economic growth before 2011 and can only see its aspirations for joining the bloc’s exchange-rate mechanism the same year at the earliest, according to analysts at Roubini Global Economics.
The research and advisory firm founded by the famous Nouriel Roubini, a New York University professor who predicted the financial crisis, says Bulgaria’s aim to adopt the euro by 2013 is too optimistic.
“If the Greek crisis starts to die down in the second half of this year, theoretically Bulgaria may join the so-called eurozone waiting room ERM II in the next year and get to adopt the euro in 2014, but this is the earliest possible date,” Jelena Vukotic, a political risk analyst at Roubini Global Economics, told Deutsche Welle.
According to her Bulgaria really stands out among the other euro hopefuls in a number of indices, but EU policymakers, who had already shown a tendency towards a very strict application of the Maastricht criteria for euro adoption, will now cast an even warier eye not only on these criteria, but on a broader set of political parameters, which will be the biggest hurdle for the country.
Vukotic pointed out that Greece lived beyond its means for years and cheated on its statistics to meet the eurozone requirements.
„The European leaders of course want to avoid a repeat of the Greek crisis. We have to stress that Bulgaria, unlike Greece, is a model of fiscal performance, but its weak results in the corruption combat wreck its prospects for eurozone entry,” Vucotic said, citing the latest interim report of the European Commission.
According to Roubini Global Economics the outlook for Bulgarian banking system is negative.
At the end of February Fitch lowered the long-term and short-term issuer default ratings of United Bulgarian Bank (UBB) and Eurobank EFG Bulgaria to ‘BBB-‘ from ‘BBB’; and to F2 from F3, respectively, all of them Bulgarian subsidiaries of Greek banks.
Shortly after that Moody’s Investors Service said the credit outlook for the Bulgarian banking system is negative, primarily reflecting the adverse impact of the domestic economic recession on the credit quality and net profits of the country’s banks.
“Bulgaria’s banking sector is well capitalized, but the state of the banks can sharply deteriorate should the “bad loans” increase. To top it all off the the effect of the Greek crisis may also spread,” Roubini Global Economics analysts say.
According to Vukotic the worst case scenario that can unfold in Bulgaria is the complete withdrawal of foreign banks.
“This is not very likely,” Vukotic said.
Bulgaria is widely believed to be among the countries most at risk from potential spillovers from Greece after banks invested in central and eastern Europe. The country is more susceptible to contagion risk from than neighboring Romania or Turkey, because Greek banks control 28 percent of the Balkan country’s market.
There have been months of speculations over when the former communist state would formally apply to the bloc’s exchange-rate mechanism, the so-called Eurozone waiting room. According to the latest plans announced by Finance Minister Simeon Djankov this should happen by July, when the Spanish presidency of the European Union ends.
Minister Djankov, a World Bank economist, hopes to offset a possible reluctance to admit Bulgaria into the ERM, stemming from the Greek crisis, by garnishing the application with a targeted balanced 2010 budget, the smallest 2009 deficit in the EU and laws overhauling the inefficient health-care and social-security systems.
Countries must be members of ERM II for two years before they can formally join the eurozone. Bulgaria believes that it could be ready for euro entry by 2013.
Joining the exchange-rate mechanism would bring Bulgaria closer to the umbrella of the euro region and the protection of the European Central Bank and is conditional on whether the new government will succeed to restore Brussels trust.
The lev is already linked to the euro in a currency board that keeps the Bulgarian currency at 1.9558 to the euro. Joining the exchange-rate mechanism may allow the lev to fluctuate by as much as 15 % around a central band, though the central bank has said it will leave the lev tightly pegged to the euro through the duration of the two years.
