Competition vs. Cooperation: Romania and Bulgaria on the road to the eurozone

Two states fight over the last two places in the EU`s rankings, but yearn for a better outcome

Vladimir Mitev

This article was published on 26 October 2018 on the Bulgarian section of the site ”Baricada”. 

Even before their accession to the EU it was a tradition in Bulgaria and Romania to compare the progress of the two countries` advance together along the common European road. These comparisons were irritating to some people – not only because of the results that were announced, but also because of the very idea that the countries are two of a kind, without distinctive characteristics. But there were also opinions that neither Romania, nor Bulgaria would ever become another Germany and that if we wanted to achieve some kind of recognition in the world, it might be based on the neighbour with whom we are grouped together by Brussels.

Since the accession to the EU it has became fashionable for Romanians to be cited as an example of good work in Bulgaria – because of the fight against corruption, redefined in the last two years by their own electoral will; because of the foreign investments they have attracted, that came as a result of the weakening of the negotiating power of Romanian workers and labour unions; and because of the increase in economic growth, which is not felt by a large part of the population (47% of labour contracts in 2018 were for the minimum wage).

In its turn Bulgaria has been presented in Romania as ”an excellent student”, because of its road construction, where it is known that companies are involved which have provoked massive indignation with their bad construction work or due to doubts about abuses in the absorption of EU funds. Some Romanians believe that Bulgarians protect their national interests better (even if, just like in Romania, western embassies are more influential than ”eastern” ones) or that the social state is stronger in Bulgaria (which might not sound convincing to the common man, even if statistical data is shown that supports this thesis).

Romanians praise Bulgarian tourism and services, while Bulgarians of the older generation are convinced that Romania preserved its industry better in the transition period. The latter thesis doesn`t quite convince our northern neighbour, where in contrast to Bulgaria there is a discourse against foreign corporations who have occupied its economic resources.

The latest episode of comparisons took place in this past year. This summer, while the Romanian president was removing the “icon” of anti-corruption, Laura Koveşi, from her position as leader of the anti-corruption prosecution office (the DNA), the Bulgarian government started moving towards the introduction of the common currency. It has promised to enter the banking union, and expects no earlier than next year to join the ERM II mechanism, also known as “the waiting room” for the eurozone. Still at the end of 2017, the Eurocommissioner for the Euro and Social Dialogue, Valdis Dombrovskis, announced that as far as the convergence criteria are concerned, Bulgaria “is substantially ahead of Romania, not least because of Romania’s fiscal performance”. The European Commission predicted that this year and next year the country will have a budget deficit of over 3%, which breaks the rules of the Pact for Stability and Growth.

In the spirit of competition the Bulgarian member of the European Parliament, Emil Radev, started a campaign for Sofia to be separated from Bucharest in the Cooperation and Verification Mechanism, which monitors the state of the rule of law and the fight against corruption in both countries (and in Bulgaria also the fight against organised crime). Historically, it is ironic that the representative of the European People`s Party and GERB in the European Parliament is expressing concern that Romania is a bad example. His suggestion is that Romania might hold Bulgaria back on its way to achieving ever greater access to the European integrational structures.

In fact Sofia`s progress in the evaluations of the Cooperation and Verification Mechanism (CVM) is one of the added criteria for joining the eurozone, even though there is no explicit condition that the supervision of the country must cease before it starts using the euro. It is expected that in the middle of November a new report on this mechanism will be announced. There has been discussion for a long time that the CVM might be improved and replaced with thorough supervision of all the member states in the EU. But in its current form it is designed especially for Romania and Bulgaria in a package. Instead of trying to capitalise on the weaknesses of their neighbour, perhaps both countries would have had more success if they had found out how to cooperate more efficiently in overcoming them. There have been some signals about this type of cooperation with regard to joining the Schengen area.

Joining the eurozone is a more complex issue. There, as Dombrovskis says, there are no “packages of countries“, who are expected to move together. The governor of the Bulgarian national bank, Dimitar Radev, affirmed in an English-language article of his own in October 2018 that Sofia has promised to accomplish a series of reforms, which are to guarantee its smooth joining to the ERM and the banking union simultaneously. Among them there are legal modifications, which are to guarantee greater independence of the central bank from political attacks and increased control over the non-bank financial sector.

After Sofia officially started the journey towards the eurozone, a lot of media publications were produced about how at the moment the country is de facto part of the common currency area, because of the currency union, even though de jure it is not there. That means that it feels the disadvantages of membership of the eurozone, but cannot use the advantages – such as easy access to capital. It is expected that the road to the eurozone and future use of the euro will lead to modernisation, more foreign investments and an escape from the country`s periferisation in a future EU of different speeds.

There is virtually no expert criticism in Bulgaria on the move towards the euro. Only the non-parliamentary “Revival” party opposes accession to the eurozone, but it is not a party which is known for economic expertise. Its opposition is rather based on patriotic or other reasons.

It is rare to hear or read expert opinions on the eurozone from Central European countries for whom the euro is not a priority. In this context the opinion of Daniel Daianu – an economist and member of the administrative council of the Romanian national bank – should stir up interest south of the Danube. In a series of articles in the last few years, which were published in a volume titled Central banks, crisis and postcrisis he presents the arguments why Romania should not hurry to enter the eurozone, which is obviously going to undergo reforms.

First of all, Bulgaria has a currency board, which places it in the same group as the Baltic states which have already joined the eurozone. At the same time Romania has preserved its monetary independence and that puts it in the camp of Poland, Czechia and Hungary. For Romanian economic governors it is important not only for the country to cover the formal Maastricht criteria, but also to have the economy and income which will permit it to survive in the same currency union with the countries of Western Europe. That is why Romanians need to achieve and overcome the threshold of 70% of the European level as far as the indicator of GDP per capita (purchasing power parity) is concerned. In 2016 the indicator stood at 58% for Romania and 49% for Bulgaria.

Some Baltic countries waited close to 10 years to enter the eurozone, given that upon their entering the “waiting room” they had a GDP per capita level close to the current Bulgarian one. The prognosis for Bulgaria is that it will not enter the eurozone quickly, and the mentioned date – 2022 – is wishful thinking.

As far as Romania is concerned, the deadline for entering the eurozone is set at 2024, the date already having been moved back several times. Daianu warns that the EU has played a major role in the Romanian economy in recent decades, but it should not be mythologised. European institutions are alleged to have made mistakes towards Romania too. Daianu speaks about development based on national capital, about the need to save the possibility of political choice and freedom in economic policies. He also points out that the eurozone creates imbalances – e.g. between the North and the South. That is why it matters not only that Romania simply joins the eurozone, but also when and how, and the actual nature of that zone.

Could Bulgaria learn from Romania`s strategy for the eurozone or could Romania follow the Bulgarian way? The starting points and the routes followed for both countries are not the same, which makes comparison difficult.

A publication in the Bulletin of the Polish Institute on International Relations from September 2018 points out that Bulgaria will save transactional expenditure of 450 million euro annually, once it enters the eurozone. Such an accession would limit Poland`s capabilities “to build a coalition to defend the interests of the countries outside the eurozone” and will have an unfavourable effect on Warsaw`s desire “to limit the EU`s division into various speeds of integration”. The prognosis of the author, Jakub Pieńkowski, is that it is realistic for Bulgaria to become a part of ERM II next year, which will give it additional economic stability.

In fact, Bulgaria has had macroeconomic and political stability for more than a decade, which is paid for with the poverty of a large part of the population. Even if Romania doesn`t have a currrency board, the social problems there remain serious. Instead of competing over who will occupy the penultimate place in the European social-economic rankings, Romanians and Bulgarians need a greater spirit of cooperation.

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