![]() (3) Dilution of voting power of smaller economies in the Governing Council Moreover, it is anybody’s guess whether or not the 60% limit will carry significance at all in a post-COVID-19 world in which public debt levels will have risen drastically across the board. But the rule hasn’t been enforced zealously in the past, to say the least, as both Italy and Greece joined the euro area with government debt-to-GDP ratios beyond 100%. It should be noted that Croatia’s debt-to-GDP ratio exceeds the 60% maximum level, enshrined in the Maastricht Treaty, by more than 10 percentage points. In 2019, both countries had a budget surplus-+2.1% for Bulgaria and +0.4% for Croatia-whereas the euro area as a whole featured a budget deficit of -0.6%. In fact, Estonia (8.4%) is the only eurozone member with an even lower ratio than Bulgaria.Īnd, at least before the COVID-19 crisis struck, there was little reason to assume that government indebtedness was on the rise in Bulgaria and Croatia. Based on Q4 2019 Eurostat data, the government debt-to-GDP ratios of both Croatia (73.2%) and, even more so, Bulgaria (20.4%) are below the euro area average. Second, average government indebtedness in the euro area would decline, if only marginally. (2) Lower average government indebtedness Still, I think it is fair to say that the expansion into the Balkans would be accompanied by growing heterogeneity and inequality within the eurozone, which begs the question of what this may mean for cohesion and stability of the currency union. It should be noted, however, that there are other key economic parameters, such as unemployment rate or GDP growth, in which Bulgaria and Croatia have performed better than the eurozone average. Also with regards to annual net earnings, disposable income, labour cost levels, etc., the lower bound of the euro area range would be shifted downwards when including Bulgaria. Rising disparity would by no means be limited to GDP per capita. The figures of Massachusetts at top of the list and Mississippi at the bottom are only off by a factor of two. In comparison, GDP per capita differences among the 50 U.S. Moreover, Bulgaria’s GDP per capita is only around one quarter of the euro area average and less than 10% of Luxembourg’s number. The GDP per capita of Latvia-currently the worst performing euro area country by this measure-is still nearly twice as high as Bulgaria’s figure. Using 2019 Eurostat data, Croatia and especially Bulgaria have substantially lower GDP per capita numbers than any of the 19 eurozone members. I survey three of them below.įirst of all, economic disparity within the euro area would rise significantly. But, conversely, there would also be implications for the currency union as a whole when expanding into the Balkans. Undoubtedly, a membership in the euro area would have profound consequences for Bulgaria and Croatia. ![]() Further convergence criteria have to be met with regards to inflation, long-term interest rates and sustainability of public finances. As stipulated in the Maastricht Treaty, prospective members are expected first to demonstrate at least two years of exchange rate stability-in particular no devaluation of their currencies against the euro-in the ERM II. ![]() Bulgaria and Croatia won’t imminently join the currency union, though. The inclusion of the Bulgarian lev and the Croatian kuna in the Exchange Rate Mechanism II (ERM II), which was announced last Friday, marks a crucial step for both countries to becoming the 20th and 21st members of the euro area.
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