BULGARIA TARGETS EUROZONE ENTRY

C O N F I D E N T I A L SOFIA 000698 SIPDIS E.O. 12958: DECL: 12/09/2019 TAGS: ECON PGOV PREL BU SUBJECT: BULGARIA TARGETS EUROZONE ENTRY REF: SOFIA 666 Classified By: CDA Susan Sutton for reasons 1.4 (b) and (d) ¶1. (C) SUMMARY: Having succeeded in unfreezing millions in EU funds, passing a balanced budget, and seeing signs of green shoots in the economy, Bulgaria's new government is now revving up for a renewed push to secure ERM-II membership in ¶2010. According to Deputy Prime Minister and Finance Minster Simeon Dyankov, eurozone membership is Bulgaria's new "number one foreign policy priority." In a December 4 meeting with SPE Richard Morningstar, Prime Minister Borissov devoted considerable time to a request for USG assistance in making the case for a truncated eurozone procedure for Bulgaria with our EU interlocutors. Three days later Central Bank Governor Ivan Iskrov, in a major address, called eurozone entry "a right not a privilege" and noted that Bulgaria is out-performing most "old" member states in terms of the Maastricht criteria. The Bulgarians know they face an uphill battle, but they appear ready to renew this fight. END SUMMARY. ¶2. (C) Membership in ERM-II and the eurozone has been a sore subject for Sofia for the past several years. In the boom years preceding the global financial crisis, Bulgaria consistently met or exceeded all Maastricht criteria except inflation. When the financial crisis finally hit, Bulgaria fell into recession, but inflation numbers also tanked. Since coming to office in July, the Borissov government has been able to avoid an IMF package and has passed a balanced budget for 2010. With green shoots appearing in the economy, it is increasingly likely that Bulgaria will be one of the only EU countries that meet the Maastricht criteria in 2010. In addition, the government's work on rule of law and the handling of EU funds has earned praise from Brussels and won the release of millions of euros in frozen EU funds. The Prime Minister clearly sees it is time to cash in on his success and has his sights set on eurozone membership for Bulgaria during his mandate. In a December 4 meeting with SPE Morningstar, Borissov asked for USG help in making Bulgaria's case for eurozone membership with the EU. ¶3. (C) While the numbers support Bulgaria, quick ERM-II and eurozone entry won't be easy. Iskrov and other contacts warn Bulgaria will be up against unwritten political criteria and the need for political consensus among the EU and the European Central Bank (ECB) on Bulgaria's bid. Planned for late January/early February 2010, Bulgaria's ERM-II application will likely face resistance from senior eurozone members and ECB officials who are still gun shy in the face of the global financial crisis. Some here cite Greece's substantial deviation from the Maastricht criteria as a negative factor which could give eurozone decision makers pause about another "Balkan" country's candidacy. ¶4. (C) COMMENT: Claiming some initial successes in the economy and rule of law -- two areas where the PM believes he's received far too little assistance from Brussels -- Borissov wants additional EU recognition and sees eurozone membership as the best form. This isn't just a political challenge for Borissov; it's all about the money. As he noted to SPE Morningstar, Borissov is eager to see his financially-strapped government tap into the nearly four billion euros kept by the currency board to guarantee the Lev's stability, something that can only happen after euro adoption. END COMMENT. SUTTON