TheMarketForIdeas

Coming soon: Part II – The Romanian Expectative

Bulgaria adopted the European currency on January 1, 2026. Although it took place overnight, this historic event is the culmination of a long process of assimilation of the elements of European civilization. In the monetary field, this process began back in 1881, when the Autonomous Principality of Bulgaria established the bimetallic monetary system (gold, silver), which existed at that time in the “Latin Monetary Union” (France, Belgium, Italy, Switzerland and Luxembourg). The national currency was called “leva”, which means “lion” in Bulgarian and comes, like the name of the Romanian currency – “leu” –, from the Dutch thalers (leeuwendaalder), which circulated in Eastern Europe in the 17th–18th centuries. The first Bulgarian national currency had a nominal value equal to that of the French franc, like the currencies of all other countries that adopted the Latin monetary system.

During communism, Bulgaria was isolated from the Western world and from European economic structures. After the fall of this regime in 1989, Bulgaria took gradual steps towards integration into the European Union (EU). In 1997, the country established the “Currency Board”, through which the leva was pegged to the German mark and then to the euro. In 2020, Bulgaria entered the “European Exchange Rate Mechanism II” (ERM II) (2020), which is the preliminary phase to joining the “European Monetary Union” (EMU).

Bulgaria has resumed efforts to implement European monetary mechanisms and, in general, the defining elements of Western civilization, whenever it has been free to do so. Now, by adopting the euro, it will complete the process of integration into the European monetary system and resume its place in Western civilization.

However, any historical event raises questions and gives rise to fears. The truth is that by joining the eurozone, Bulgaria is reaffirming its dignity, sovereignty and European identity. For, adopting the euro has two vital advantages: material prosperity and economic security.

Bulgaria’s nominal and real convergence towards EMU has already had remarkable effects. Over the past decade, GDP per capita has increased from one third of the eurozone average to almost two thirds. This indisputable progress has been brought about by the increasing integration of the Bulgarian economy into the European economy and in particular into the eurozone economy. Currently, 65% of the country’s exports are made to other EU countries, and 45% to eurozone countries.

Within the framework of the “Currency Board”, Bulgaria has already benefited greatly from exchange rate stability. Adopting the European currency will strengthen this stability and remove the last barriers to the full integration of the Bulgarian economy into the European single market.

For Bulgarian companies, the adoption of the euro will lead to the disappearance of transaction costs involved in exchanging the euro for the lev – and vice versa. According to some studies, small and medium-sized enterprises will save about one billion leva annually just from the elimination of currency conversion costs. Instead of spending time and money on these outdated operations, Bulgarian companies will be able to invest in development.

The adoption of the euro will also allow easier access to European capital markets. This facility will reduce the financing costs of economic activity and provide a more stable basis for long-term investments – domestic and foreign.

The aforementioned advantages are already visible in the recently improved country ratings granted to Bulgaria by international agencies, as well as in the relatively low spreads on public debt securities issued by the Bulgarian state. These factors reduce the costs of borrowing by Bulgarian companies on the financial market – domestic and foreign. As a result, companies will be able to invest, innovate and progress in the global supply chain – as they have already done impressively – and Bulgarian citizens will be able to increase their consumption.

The second advantage is economic security. The current world is very unstable and marked by numerous external shocks. In the case of a small and open economy like Bulgaria’s, where almost half of the number of jobs depends on external demand, exposure to shocks of this nature can be particularly serious. The “Currency Board” has already protected Bulgaria from the negative effects of fluctuations in the leva/euro exchange rate. However, although strong, the protection provided by the aforementioned regime is not total. Monetary history shows that, in crisis conditions, the fixed exchange rate regime is vulnerable: the currency “snake” established in Western European countries in the 1970s and the “European Monetary System” (EMS), established in 1979, were both modified repeatedly due to speculative pressures.

Membership of the euro area confers institutional credibility, which, in the current conditions, constitutes a strong means of protection. Thus, by eliminating the exchange rate, the negative effects of the volatility of this parameter in relations with Bulgaria’s main trading partners in Europe are avoided. Bulgarian companies are also protected from untimely exchange rate fluctuations, which can erode their international competitiveness.

As a large currency area with deep financial markets, the EMU is less vulnerable to sudden changes in global capital flows than smaller economies. For example, the turnover in the dollar-euro market is around 20 times higher than in the euro-Swiss franc or euro-yen markets. On this scale, the euro-dollar exchange rate is less volatile than the exchange rates of the aforementioned currencies. On the other hand, as the euro is the world’s second most important currency, euro area countries pay for more than half of their imports in the European currency. In the case of Bulgaria, the share is even higher: around 83% of imports are already invoiced in euros, i.e. in a currency that became its own currency. This will protect the Bulgarian population and businesses from the consequences of higher import prices caused by exchange rate fluctuations.

Finally, the unpredictability of global demand makes European integration more important, and the single currency strengthens this integration, including with regard to Bulgaria. By extending the euro area to the Balkans, the single European market is strengthened by avoiding competitive monetary devaluations of the participating states. During the great financial crisis of 2007-2009, for example, the euro depreciated by approximately 20% against the US dollar. According to the analysis of experts from the European Central Bank (ECB), the currencies of some European countries would have depreciated much more significantly if they had remained in circulation. And uneven depreciations would have threatened the cohesion of the EU. In other words, thanks to the euro, the single European market has endured.

Adopting the euro therefore strengthens Bulgaria’s prosperity and Europe’s collective security – in an increasingly fragmented world.

Despite these advantages, the decision to adopt the euro is controversial. Opinion polls show that almost half of Bulgarian citizens oppose the introduction of the euro, while others are undecided. (here).

The first cause of this attitude is the fear, fuelled by anti-European propaganda, that Bulgaria will lose its sovereignty, since monetary policy will be developed by the ECB, without taking into account national interests. Given the long history of the leva as a symbol of Bulgarian independence, this feeling is understandable. However, it should be emphasized that entering the euro area does not mean the loss of sovereignty, but on the contrary, its strengthening. For almost three decades, Bulgaria was in a “Currency Board” regime, which amounted to the passive takeover of the monetary policy developed and implemented at the level of large European economies, without participating in the relevant decision-making. By adopting the euro, the situation will change: the Governor of the Bulgarian National Bank (Българска народна банка) will become a member of the ECB’s “Governing Council”, with the same right to participate in preliminary discussions, the same voting rights and the same responsibility as any other member. Bulgaria will no longer passively bear the monetary policy of the other eurozone countries, but will contribute to the monetary decision-making of one of the world’s largest economies.

Bulgaria’s economy is currently highly integrated into European supply chains. Its economic cycle is similar to that of the eurozone: when the eurozone economy grows, Bulgaria’s economy also grows; when the former slows down, the latter slows down in turn. Under these conditions, the single monetary policy, developed and implemented by the ECB, will no longer constitute an externally imposed restriction on Bulgaria, but a natural framework for economic activity in this country.

The second concern is that adopting the euro will lead to price increases. This fear is also justified. The change in the monetary system can indeed lead to a temporary increase in inflation, as firms round up prices during the process of exchanging the old currency (the lev) for the new currency (the euro). As a result, the population may have the impression that inflation has increased, even though official data does not show this. This perception stems from the fact that the most visible prices – those of everyday consumer goods, such as food and basic services – increase faster than the general price level.

However, if the authorities take the necessary measures, the situation will not be too serious. If prices are displayed in both currencies (lev and euro) for a sufficiently long period of time, if the authorities monitor their evolution and apply sanctions – as the Bulgarian authorities have been doing since 8 August 2025 –, the impact on consumer prices is small and short-lived. In previous cases of euro adoption, the impact was small, between 0.2 and 0.4 percentage points. Even in Croatia – which adopted the euro at a time when inflation was high – the effect on prices was around 0.4 percentage points, and then it quickly subsided.

Experience shows that public perceptions of euro adoption follow a certain pattern. In the period leading up to adoption, uncertainty is natural. But as people and businesses start using the new currency in their daily lives and see that a credible central bank (ECB) is protecting price stability, confidence grows. In all countries that have recently adopted the euro, public support has increased significantly in the six months since. And support for the European currency is now the highest it has ever been for a European currency, both in the EU (74%) and in the euro area (83%) (here).

Case studies of other countries that have recently adopted the euro show that the biggest risks are not the loss of sovereignty or rising prices. The main risk is that, after joining the euro area, reforms will slow down, which would lead to the loss of the benefits of using the European currency. However, if Bulgaria continues to align its institutions and economic practices with European standards, and if businesses become more integrated into EU supply chains, the benefits of adopting the euro will continue to grow.

Experience shows that EU countries that, after accession, were more integrated into inter-European supply chains recorded a GDP per capita almost 10 percentage points higher than those that remained less integrated into cross-border flows of goods, services and capital. The momentum of reforms in Bulgaria has already yielded impressive results. The challenge now is to continue reforms, even after the adoption of the euro, when the financing conditions of the economy will improve and external pressures will ease. If this happens, Bulgaria will gain further comparative advantages, in addition to the current ones (lower labour costs and lower prices of agricultural land) and will become a centre of economic growth of European importance, based on productivity and innovation.

Far from eroding its sovereignty, adopting the euro strengthens Bulgaria’s economic base, increases the country’s resilience to global shocks, and strengthens its position in the eurozone’s decision-making process, thus reinforcing its independence.

Photo source: PxHere.com.