The adoption of the euro in 2025 is a possible and realistic scenario. This was stated by Dimitar Radev, governor of the BNB, in an interview with the magazine “Economy”.
Mr. Radev, to what degree is Bulgaria ready to join the Eurozone at this moment?
In terms of technical infrastructure and logistical preparation, the degree of readiness is very high, at least in terms of the BNB and the banking sector, which are the main factors in this process. Our technical readiness must be supported by adequate political action.
In mid-April of this year, you predicted that Bulgaria would enter the Eurozone probably next year, but not at the beginning, as were the initial expectations. Is this prediction of yours still valid now?
Yes, and at the moment, this is a possible and realistic scenario.
Political and management rotations delayed the adoption of the Euro Law. What do you think, as the governor of the BNB, is important to be present in it?
The draft Law on the introduction of the euro has already gone through the procedures of interdepartmental discussion and public consultations, as well as through the consultations with the ECB and the EC. It regulates the administration of the euro introduction process. From the BNB's point of view, everything that needs to be included is already present in the project. I see no reason why he should not be accepted by the end of the summer.
Business in Bulgaria insists on our country joining the Eurozone sooner. Do you see pitfalls that the Bulgarian business does not yet see in this optimistic aspiration to abandon our national currency?
When it comes to economic and financial conditions in a country, not only in the short term but also in the long term, no one is more forward thinking than business. This is about pragmatism, not excessive optimism. The voice of business is the voice of common sense. It would be good for politicians to listen to him more.
Economists are of the opinion that, in general, Bulgaria has not come close to the countries of the Eurozone in terms of competitiveness, standard of living and other indicators, a number of other countries are ahead of us by these criteria – EU members who are in no rush to join. Do you think it makes sense for us to want to overtake them?
Bulgaria will find it difficult to achieve the economic development and standard of living in the Eurozone if it stays outside it on the periphery of the EU. So far, 20 countries have joined the eurozone and 7, including Bulgaria, are outside it. What is the logic of wanting to be last in this process as well? I am convinced that joining the Eurozone will speed up the convergence processes with all the positive effects for the economy and the standard of living.
Some Bulgarians fear and oppose joining the Eurozone, as they expect the very act of joining to increase inflationary processes. Are such fears well-founded? Are there tools with which the government can control a possible price spike, or is this best left to the “invisible hand of the market”?
The Eurozone is not a factor for strengthening inflationary processes. On the contrary, it is an economic zone of low and stable inflation and has the full tools to control it, with price developments similar to those we have seen in recent years. The actions of the ECB are evidence of the achievement of this goal with the instruments of monetary policy.
Bulgaria has already started to join the Eurozone, but what is particularly important to do now in this whole process?
To complete it successfully. With the right political framework and the level of technical readiness we have, this is entirely achievable.
BNB took measures regarding mortgage lending. What potential risks does the credit market face in the foreseeable future? Is there a real danger of a collapse of the real estate market in our country?
Let me emphasize that this is a potential risk arising from the growth of mortgage lending, not a real problem at the moment. Our assessment is based on an in-depth analysis that we have made public. It shows that at this stage we need to create a formal framework for assessing potential risk through supervisory monitoring and reporting on certain mandatory indicators for banks, something we have done without yet establishing hard limits. There should be no doubt, however, that we are ready to take further macroprudential steps, including preventive ones, upon indications that the potential risk may materialize.
The Central Bank of Bulgaria always carefully monitors the economic situation in the country. Are there any alarming symptoms?
Global and regional risks, including the war in Ukraine and the crisis in the Middle East, create uncertainty, but overall we expect economic growth in the country to remain firmly in positive territory this year and next, and that is good news.
Do you think the flow of foreign investments in Bulgaria is satisfactory, even though it will be higher in 2023 than the previous year? Does Bulgaria have unused potential in your opinion?
The short answer is no in terms of quantity and quality of investments. I expect joining the Eurozone to help realize the huge potential the country has in terms of investment activity, something we have witnessed in Croatia since its accession
The banking market in the EU is increasingly concentrated in a few leading banking groups. In 2008, there were 24 banks in Bulgaria, and now there are 17. They say that the signs of an oligopoly are growing. Is there room for concern?
In terms of leading banking groups, Europe is trying to catch up with the US and Asia, and this is not necessarily a bad thing. As far as Bulgaria is concerned, the consolidation of the banking sector is a strategic goal that we as the central bank support. With the existing number and size of Bulgarian banks, the topic of oligopoly is not relevant at this stage.
Do the banks in our country become stronger after the consolidation? Are there serious problems in the merger process?
They definitely become more adequate from the point of view of the market and the development of banking services. So far, consolidation in the banking sector has proceeded smoothly. I hope it will continue like this in the future.
In 2023, the profits of the banks in Bulgaria have a new record - BGN 3.4 billion, which is a 64% annual growth. What caused this? Should we accept it without comment?
When a business makes a profit, it's usually because it's doing well. This also applies to our banking sector, which is well capitalized and highly liquid, with last year's growth in profits being crucially due to their core business. As in any business, economic factors also have an impact. This is well recognized in the banking sector, which largely uses profits to further enhance its capital buffers. Otherwise, all professional comments on the subject are welcome.
What gives banks reasons to raise fees and commissions? Who can influence this process?
Banks use the income from fees and commissions to improve the quality and security of the services they provide. The market dictates the price of banking services and this is not a one-way process.
Why is the trend of rising interest rates on savings transferred so slowly in the country's banks?
The main reason is the huge liquidity in the banking sector, which is fueled by household and business deposits.
What does “comfort“ most depend on? of the governor of the BNB in this position?
People in important public positions need to feel in place, but not comfortable. If they are looking for comfort, then they are not for these positions.
What is your recommendation for better money management – to entrepreneurs and to every person?
Common sense and at least basic financial literacy.