Bulgaria won’t ‘do a Greece’ when it joins eurozone, central bank chief promises

SOFIA — Bulgaria’s central bank governor expects the country to keep its political and fiscal discipline, even as its entry into the eurozone transforms its ability to borrow.

“Fiscal discipline has been a cornerstone of our macroeconomic framework for more than a quarter of a century, and this should remain unchanged,” Governor Dimitar Radev said in exclusive comments to POLITICO. “The convergence process should reinforce — not weaken — our long-standing commitment to fiscal stability.”

Previous expansions of the eurozone have often led to boom and bust cycles in the countries joining. This is because the ECB’s interest rates have tended to be too low for such economies, given that they have lower debt and higher growth potential than the big Western European economies.

While the most spectacular example was Greece, most such busts have affected countries that, like Bulgaria, were emerging from communism with stunted financial systems and controls. But fears of a debt-fueled spending spree once Bulgaria secures low interest rates and easier access to international capital markets are misplaced, Radev said.

“We are fully aware that joining the eurozone implies adopting a policy framework designed for the whole area,” Radev said. “The solution is to strengthen national policies, particularly in fiscal and structural domains, to ensure resilience under a common monetary regime.”

The European Commission and the European Central Bank gave Bulgaria the final approval last week to adopt the euro on Jan. 1, 2026, making it the 21st member of the currency union. It’s a historic moment for the Balkan country of 6.4 million, which first committed to the step in 2007 but faced years of delays — most recently due to a bout of inflation after the pandemic and Russia’s invasion of Ukraine.

In order to join the euro, Bulgaria’s average inflation rate from April 2024 to April 2025 had to fall within 1.5 percentage points of the rate of the three EU countries with the lowest inflation. It jumped to 4 percent at the start of the year as various measures to protect the population from the inflation surge — such as VAT holidays on restaurants, bread and flour — expired. However, it fell back to an annual average of 2.7 percent through April, with the help of a substantial drop in state-directed administrative prices.

The numbers may now look alright but Brussels noted that Bulgaria still faces challenges in fighting corruption and improving judicial independence.

Radev made clear that Bulgaria’s new status won’t radically alter its economic philosophy. “The key challenge is not whether we can borrow more, but whether we remain committed to using debt in a prudent and growth-oriented manner,” he said.

New pressures

Bulgaria's central bank, too, will face a significant adjustment. Under the currency board regime, inflation has been kept largely in check not through interest rate policy — which Sofia has ceded — but through fiscal discipline and tax policy.

The Bulgarian National Bank’s main levers have instead been bank reserve requirements, currently set at 12 percent, and the interest rate charged on those reserves, which is set at zero. But it will lose control of both those levers from next year, with potentially big consequences: The ECB’s reserve requirement is only 1 percent. That means that, other things being equal, Bulgarian banks will suddenly have a lot more money available to lend, stoking a credit boom that is already in full swing: Mortgage lending was up 26 percent in the year to April, while consumer credit was up 14 percent.

Joining the eurozone and shedding the currency board removes an automatic discipline mechanism and makes the Stability and Growth Pact rules — a framework that the EU has deliberately made more flexible — the ultimate constraint on fiscal policy. Those rules are all enshrined in national law too, but in its convergence report, the ECB noted that “further progress is still desirable” to ensure that Bulgaria’s fiscal council, which is responsible for monitoring the government’s observance of the rules, can provide adequate accountability.

“It is a structural characteristic of the monetary union that monetary policy is common, while fiscal policies remain national,” Radev said, acknowledging the potential asymmetries. “We should not expect the ECB to tailor policy for individual economies — the responsibility lies with national authorities to align and adapt.”

Digital euro and monetary innovation

Bulgaria is joining the eurozone at a unique juncture: the potential introduction of a digital euro. Banking associations across the bloc are fretting that this will make their members more susceptible to deposit runs and crimp their ability to lend, if designed wrongly. That could be a particular problem for Bulgaria, where banks play an even larger role in financing the economy than in most parts of the eurozone, due to the lack of a domestic capital market.

While Radev dismissed concerns that the digital euro would complicate Bulgaria’s entry, he acknowledged it adds “a layer of strategic thinking, particularly in the payments and technology domains.”

He added that Bulgaria is participating actively in Eurosystem discussions about the digital euro’s design, advocating a model that preserves financial stability and protects privacy. “Any digital euro must respect European values, including the right to privacy,” he said, calling for a “calibrated approach” to avoid creating a surveillance tool.

He argued that Bulgaria’s experience under the currency board — which has enforced conservative reserve management and strict liquidity practices among commercial banks — positions it well to manage the risks associated with a future digital euro.

A conservative force

As Bulgaria prepares to take its seat at the table in Frankfurt, Radev signaled that the BNB will keep a cautious, stability-focused approach to monetary policy.

While avoiding the traditional ‘hawk’ or ‘dove’ labels, Radev made clear he will side with policies that strengthen resilience, reduce fragmentation, and safeguard price stability in the euro area.

“I lead one of the more conservative central banks, and we have no intention of revisiting that stance,” he said.