Download Реч на управителя на Българската народна банка Иван Искров

Introductory address of Mr. Ivan Iskrov, BNB Governor, opening the
international conference "Economic and Political Challenges of Euro
Area Accession", Sofia, 7 December 2009
Ladies and Gentlemen,
I would like to thank the organizers for inviting me to this forum. The meeting today will be an
opportunity to share experiences and present different points of view: of those who are closest to
our Euro area membership decision-making, as well as of representatives of the business
community, the financial sector, and independent analysts from Bulgaria and abroad. The presence
of the media will provide for an even wider response, beyond the audience specialised in financial
matters.
Acceding to the Euro area will represent the final phase of our European integration and will
reinforce our return as an equal partner in Europe, which is now more than ever mutually dependent
and interconnected in a political and economic sense. One day, adopting the Euro will perhaps be
considered the most significant event in the economic history of Bulgaria during the 21st century.
The immediate reason for the interest in today’s meeting comes from the recent talks in Bulgaria
about our resumption of efforts to join the ERM II. After I make my statement there are reports and
discussions devoted to various details and procedural issues regarding the technology and the
macroeconomic context of our Euro area accession. The Bulgarian National Bank will play the
leading role in managing this process. What is more, over the past six years my team and I have
made it possible to have most of our country’s preparation in legal, technical and operational terms
completed. This task remains our key priority as of this moment as well. Please, allow me now to
summarize some key aspects, related to our Economic and Monetary Union membership, as well as
some challenges expected on the road ahead.
Firstly, I would like to take this opportunity and remind you that our Euro area accession will
mark the fulfilment of one of the major commitments of the country, stemming from our EU
Membership Treaty. Bulgaria, just like the rest of the 2004 and 2007 new EU entrants, does not
have the option to choose whether to adopt the Euro as a national legal tender or not. This is our
obligation, and not some kind of privilege.
However, we are free to decide how to prepare for the effective euroisation of Bulgaria. From this
perspective, the time for satisfying the membership criteria is a factor partly under our control. The
unfavourable external environment may be a source of shocks to the Bulgarian economy but they
can only delay rather than halt our efforts to adjust to the Maastricht criteria. As is well known,
these criteria refer to achieving price stability, budget deficit and government debt limits, low longterm interest rates and stability of the national currency.
If the five criteria are transposed to the macro data available now (I expect that the forum today
will engage several times in this exercise), it will become evident that Bulgaria satisfies most of the
criteria even today. The currency board rules automatically help us fulfil the currency criterion.
Bulgaria is among the European countries with lowest government debt as a share of GDP, way
below the limit required for joining the Euro area. Bulgaria is already internationally recognised for
its strong fiscal position, remaining among the few countries complying with the budget criterion of
the Stability and Growth Pact and not being in an excessive deficit procedure. No one can say for
sure that, by the time of publication of the next Convergence Report by the European Commission
and the European Central Bank (just in a couple of months’ time), Bulgaria will not already be
fulfilling all five quantitative Maastricht criteria.
However, as our European partners underline as well, a country’s convergence on the Euro area
must be sustainable. That means that compliance with the criteria is to be assessed not in one
arbitrary moment but over a long time period. Thus, following the Euro area ‘road map’ rules,
Bulgaria should spend at least two years in the ERM II. We will be granted the Euro zone
membership only after that, provided that Bulgaria proves to have succeeded in satisfying all
criteria. Another important detail is that the Bulgarian National Bank and the Bulgarian authorities
are not among those that will calculate and evaluate the compliance with the criteria.
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It should be clear therefore that adopting the Euro as a legal tender is a process which belongs to
our domain and for which we have our own responsibility: but it is not, and it cannot be, Bulgaria’s
unilateral decision. After we satisfy the Maastricht criteria (and much better if even earlier!) we
must show the skills to persuade all our foreign colleagues that we are ready and have the capacity
to be a part of the Euro area. Capacity implies that we can adequately participate in the decisionmaking regarding the European monetary and financial policies. Being ready for the Euro area
membership means that our economy is both stable and flexible, our policies are credible, our
financial sector and its regulation are placed on solid grounds, our commitment to fiscal discipline
is not short-term, and certainly - that the Bulgarian economy obtains no competitive edge from a
flexible exchange rate.
Somewhere along these areas there runs the thin line separating the economic from the political
assessment of our readiness. Adopting the Euro is explained as a mostly technical process, related
to complying with the criteria for membership in the Economic and Monetary Union, as per the
Maastricht Treaty. Experts, politicians, researchers and the public at large are duly focused on the
fulfilment of the respective indicators. But in reality it is already obvious that introducing the single
currency into a country is a complicated political project as well. It suffices to recall that when on
15 and 16 June 2006 the Brussels summit took the political decision to let Slovenia in the Euro area
the two-year period of participation of this country in the ERM II had not even formally expired.
Belgium, Greece and Italy met the Euro with government debt in excess of 100% of their GDPs.
Bulgaria, however, was advised towards the end of 2007 to refrain from even applying: and not
even to the Euro area, but to the ERM II. The high current account deficit at the time was put
forward as one of the arguments behind such a stance towards Bulgaria.
It can be stated that, while a country’s acceding to the Euro area is based on the political
consensus among the incumbent members, the latter applies to an even greater extent to joining the
ERM II as the necessary prerequisite for the full Economic and Monetary Union membership. The
political factor, rather than the written, concrete and publicly monitored economic criteria, is
leading when entering the exchange-rate mechanism.
After the big Eastern EU enlargement of May 2004, the inertia to accept new members was
carried over to the Euro zone. It took Estonia, Lithuania and Slovenia only a few weeks to join the
ERM II. In practice, however, it is possible for the European Central Bank to put a veto even when
favourable sentiments exist in the European Commission and the European Council. In the recent
years, that scenario was reminded many times to Bulgaria.
Over the last 12 months Bulgaria more than halved its current account deficit, and we forecast
that its percentage share of GDP will be a single-digit number next year. The last year Bulgaria
posted a single-digit current account deficit was 2004. May we already qualify such an external
position sustainable? And does that automatically imply that our economy has overcome the most
striking ‘imbalances’ and there is no obstacle to be allowed into the ERM II?
Alas, the political considerations ‘for’ or ‘against’ the Euro area enlargement are not always
predictable: sometimes because of lacking formal and exhaustive criteria, and sometimes because of
short-term factors. Formally, in the macroeconomic structure of every European country one may
identify phenomena which may be viewed as posing risks to the sustainable development: ceteris
paribus, that will provide reasons to punish the country in question. In that respect, one should look
at Central and Eastern Europe only. It is enough to point at some of the large European economies
and their chronic budget deficits already reaching double-digit numbers. But even if a given
economy overcomes some of its most commented ‘imbalances’, the mere unilateral desire to adopt
the Euro (or even just to join the ERM II) will not be enough.
There have been examples that soon after joining the Euro area some countries experienced
strong inflationary pressure or loosened their fiscal policy, hence violating Maastricht criteria
adhered to thus far. But the current crisis challenged the European economies much more than
before, and because of that both Brussels and Frankfurt are much more cautious. That is why it can
be said that the unilateral announcement of deadlines for entering the ERM II is not an optimal
communication strategy, from today’s point of view.
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For this reason our efforts at this stage should be focused on attaining the much needed consensus
among the European countries that Bulgaria possesses a stable economy and predictable policies.
For instance, a key and immediate task before Bulgaria now is to present a strong and realistic
Convergence Programme. That should take place within the next few weeks.
Bulgaria must keep advertising its economic achievements and even its uniqueness. The currency
board regime proved resilient both in the years of growth and in the times of crisis. Unlike most EU
countries, Bulgaria did not have to capitalise its financial institutions with public funds. In a recent
publication the European Central Bank officially acknowledged that only three countries, Bulgaria
among them, had faced the initial business cycle downturn with strong enough structural fiscal
positions. In 2010 only a few EU countries, Bulgaria among them again, are expected to have a
budget balance within the Stability and Growth Pact requirements at all.
The signals our country sends should be straightforward and the forum today may facilitate a lot
the shaping of new messages. Because we have the difficult task of achieving a double effect: both
to prepare ourselves for the Maastricht criteria, and also to encourage readiness among our
European partners to accept us. It is not good policy to spend time on changing the existing criteria
instead, although it is obvious for example that the inflation criterion is more difficult to satisfy with
a Union of 27 than with a Union of 15 members. Only the consistent efforts and hard work of each
one of us will every day, little by little, bring us closer to the time when the Euro will be adopted in
Bulgaria.
Finally, let me assure you that we share a common goal but the Bulgarian National Bank will
continue to comply with its share of the duties of Bulgaria, fully aware of the mutual balance of
responsibilities within the country and of the requirements of our Euro area partners. Sometimes it
is not easy to recognise the most favourable moment to take advantage of a given situation. But for
sure we would not benefit much if we plan to go through a door but it turns out to be locked when
we knock on it.
Then, something very interesting, politically, will happen and I would like to put this as my
question, my well-intentioned provocation to the participants in today’s forum. Let us imagine that
Bulgaria is consistent in its efforts on the road to the Euro, that it strictly fulfils its EU Membership
Treaty obligations, and that our economy manifests convergence on the Euro area, covering all
Maastricht criteria. Provided that there are no formal criteria to be admitted to the ERM II, what
would be the appropriate political response from the Bulgarian side if at the end of the day our
European partners have returned to us a negative political response, dressed up or hidden behind
technical arguments? For instance if the European Central Bank prefers to wait until the
consequences from the current crisis recede and the effects from the large-scale monetary and fiscal
operations in support of the European economies are analysed. And if the Euro area faces with a
changed macroeconomic structure the new phase of the business cycle, which will correspondingly
require the reassessment and adjustment of the Euro area monetary regime, before taking up the
challenges of a new enlargement to the East.
Thank you for your attention!
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