On Wednesday 26 June, the European Central Bank (ECB) and the European Commission independently published a biennial convergence report describing the progress made by six Member States outside the euro area on the route to adopting the euro (Bulgaria, the Czech Republic, Hungary, Poland, Romania and Sweden).
Both reports indicate that little progress has been made since the convergence reports published in 2022. The ECB report indicates that this is largely due to recent economic and geopolitical shocks.
Economic convergence criteria. Compliance with these criteria is a compulsory precondition for joining the euro area (which is in reality an exit from the general legal regime of derogation from the commitment to adopting the euro. Denmark has negotiated an exemption from this obligation).
The four convergence criteria, established by Article 140(1) of the Treaty on the Functioning of the EU and Protocol 13 thereto, are: - price stability; - sound and sustainable public finances; - compliance with the normal fluctuation margins provided for by the exchange rate mechanism of the European Monetary System (now ERM II) for at least 2 years; - the sustainability of the convergence achieved by the Member State and its participation in ERM II.
The Treaty also provides for a review of the independence of the national central bank, its integration into the European System of Central Banks, the prohibition of monetary financing and additional factors.
Bulgaria. Particular attention was paid to Bulgaria, which is expected to be the next member of the euro area, but whose entry has already been postponed (see EUROPE 13372/10) due to political tensions.
Bulgaria meets all the convergence criteria, with the exception of price stability. The Commission notes that inflation in Bulgaria was significantly higher than in the euro area over the reference period.
Bulgaria’s average annual inflation rate has stood at 10.9% for the last 2 years, 4 percentage points above the euro area rate.
As regards the exchange rate, the ECB points out that only the Bulgarian lev has been participating in ERM II since 10 July 2020.
During the reference period, the lev did not deviate from the central rate. In parallel with its participation in ERM II, Bulgaria signed a “close cooperation” agreement, which included a number of political commitments.
The ECB notes that Bulgaria is currently working to fulfil these commitments, in particular the commitment to strengthen its anti-money laundering framework.
Without providing a timetable, the Bulgarian authorities have expressed their willingness to submit a specific request for a new assessment, once the last criterion has been met.
Problematic legal provision. The Commission concludes that the Bulgarian legislation can be considered compatible with European law, subject to the conditions and interpretations set out in the convergence report.
Having examined the Bulgarian Constitution, the Bulgarian National Bank (BNB) Act and the Anti-Corruption Act, the ECB draws particular attention to a provision which states that, if a provisional government is established, the Bulgarian President may appoint a provisional Prime Minister from among certain persons, including the Governor of the BNB or the Deputy Governor.
The ECB sees this as a risk to institutional independence, if the governor in question were not forced to resign by becoming provisional Prime Minister.
The ECB report: https://aeur.eu/f/ctu
The Commission report: https://aeur.eu/f/ctt (Original version in French by Émilie Vanderhulst)