Euro zone finance ministers gave their green light on Thursday to Bulgaria’s bid to join the bloc’s banking union, a step towards the Balkan state’s adoption of the euro, they said in a statement.
Bulgaria meets the nominal criteria to adopt the common currency, with low inflation, healthy public finances and its lev currency already pegged to the euro.
But it is also the EU’s poorest country, and widespread graft and troubles at some of its banks have cast a shadow over its prospects of joining.
Euro zone finance ministers agreed on the timeframe for Bulgaria’s next steps towards the euro membership. Under the plan, Sofia would first join the bloc’s banking union in a process that should last about one year.
The Balkan country said it is committed to implementing a number of prior commitments in policy areas highly relevant to a smooth transition to joining the bloc’s ERM-2 exchange rate mechanism in the next months.
“We expect to join simultaneously ERM-2 and banking union by July 2019,” Bulgarian Finance Minister Vladislav Goranov and the country’s central bank’s governor Dimitar Radev said in a letter of commitments.
Banking union member countries transfer to EU bodies the powers to oversee their top banks and deal with ailing lenders.
Once this process is completed under the supervision of the European Central Bank, Bulgaria will be able to apply to join ERM-2 – a waiting room of at least two years, that precedes euro membership.
“We welcome the intention of the Bulgarian authorities to put in place the necessary elements for a successful entry into ERM II,” the statement issued at the end of the finance ministers’ meeting said.
Sofia is expected to send a request to join the banking union in the coming days, ECB board member Benoit Coeure told a news conference after the meeting.
The joint statement says the assessment of Bulgaria’s banking union progress should be made “within approximately one year” from its application.
But Coeure clarified that the length of the process will depend on Bulgaria’s progress. “If there is need for more time, that could be more than one year,” he told a news conference.
Bulgaria had hoped to join the ERM-2 much earlier than this process seems to foresee, but under pressure from its European Union peers accepted a series of wide-ranging commitments that may prolong its waiting period.
These include strengthening its banking sector and its anti-money laundering systems.
Countries that want to join the euro zone are not legally required to be members of the banking union, but EU authorities have demanded this commitment of Bulgaria to extract more guarantees from the country, and to set a pattern for other future members