Fitch sees Bulgaria as next eurozone entrant

Fitch sees Bulgaria as next eurozone entrant
By bne IntelliNews August 26, 2019

Bulgaria is set to be the next adopter of the European single currency, leaving behind its peers in Central Europe even though they joined the EU three years earlier, says a report from international rating agency Fitch.

Having formally started the Exchange Rate Mechanism 2 (ERM 2) process — seen as the eurozone “waiting room” — in July 2018, Sofia is expecting a decision on whether it can join ERM 2 by end-2019. Fitch considers the earliest Bulgaria could adopt the euro is January 2023. 

Croatia — the only other eastern EU member seen as a near-term candidate for euro adoption — is about a year behind Bulgaria in the process. It sent a letter applying to join ERM 2 in July, and Fitch believes that country's earliest euro adoption date is January 2024. The dates do, however, depend on the two countries successfully meeting ERM 2 criteria and then the wider convergence criteria, Fitch notes. 

The rating agency sees this as a positive factor for their sovereign ratings, writing: "Access to the eurozone's reserve currency status and a likely reduction of the share of public sector debt denominated in foreign currency (FC) would have a direct positive impact on the output of our [Sovereign Rating Mechanism] SRM. Therefore, all else being equal, Fitch would likely upgrade a sovereign's Long-Term FC Issuer Default Ratings (IDRs) by two notches from the country's admission to the Exchange Rate Mechanism (ERM 2) to joining the euro.”

Of the Central and Southeast European countries that joined the EU in 2004 and 2007, five — the Baltic states, Slovakia and Slovenia — are already eurozone members. However, among the other entrants, while Romania has expressed an interest in joining ERM 2 and eventual euro adoption, Bucharest does not yet have a formal timetable. Political ructions recently have all but ruled out making long-term plans, despite Prime Minister Viorica Danicla’s announcement at the start of this year that the country will aim to join the single currency by 2024.

Meanwhile, “the prospects of euro adoption in Hungary (BBB/Stable), Poland (A-/Stable) and the Czech Republic (AA-/Stable) in the foreseeable future remain remote, with little political willingness and in some cases very low public support for euro membership,” Fitch analysts write.

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