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Bulgaria to Submit Convergence Program to Brussels

Date: 29.01.2010

The Bulgarian government is expected to submit to the European Commission on Friday its convergence program until 2012, which outlines the preparations for joining the ERM II mechanism and the adoption of the euro.

The move is the first step towards an application to join the exchange-rate mechanism, the two-year currency stability test prior to the switch to the common currency, planned for 2013.

Earlier in the week Bulgaria's Finance Minister Simeon Djankov forecast a return to slight economic growth this year, reversing a previous forecast for a 2% contraction.

He said the economy was poised to expand by 0.3 % in 2010 due to the centre-right government's prudent fiscal policy and measures to increase budget revenues.

This forecast has been included in the Ministry’s Convergence Program, which includes the parameters of the country’s fiscal policy in accordance with the recommendations of the Stability and Growth Pact, the Lisbon Treaty, and the Maastricht Criteria for accession to the Eurozone.

Bulgaria, which joined the EU in 2007, posted the smallest budget deficit among the 27 member states last year, according to the finance ministry. It is expected to be the only EU nation to balance its budget in 2010.

The government, elected last July, is targeting balanced budgets in line with its goal to apply to join the pre-euro ERM-2 waiting room in the first half of this year.

There have been months of speculation over when the former communist state would formally apply to the bloc's exchange-rate mechanism.

Bulgaria initially planned to apply to join the exchange-rate mechanism in November, but delayed it for the beginning of 2010 after all member states submit their convergence programs, which contains the mid-term goals of the fiscal policy.

Bulgaria's Finance Minister Simeon Djankov, a World Bank economist, hopes to offset a possible reluctance to admit Bulgaria into the ERM, stemming from the global 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.

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.

Bulgaria's entry in the eurozone, initially scheduled for 2010, has been set back as it is conditional on continued fiscal prudence and lower inflation.

EU members' swelling debt burdens however may end up foiling Bulgaria's aspirations to join the euro in three years, despite the country's budgetary rigor.

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