Bulgaria Must Double Down on Rule-of-Law Reforms Before Eurozone Entry

Just four months since the formation of its current government, Bulgaria faces further political turmoil. Instigated by the pro-Russian populist Vazrazhdane and ITN parties with the backing of the Bulgarian Socialist Party (BSP), the ruling coalition of Democratic Bulgaria-We Continue the Change (DB-PP) and GERB faced a no-confidence vote on 13 October.

While it failed to oust the government of Prime Minister Nikolay Denkov, this powerplay reflects the country's ongoing political instability – and Russia's destabilising influence in Bulgaria. Indeed, despite Vazrazhdane leader Kostadin Kostadinov's framing of the vote as a response to the government's green energy plans, this opportunistic explanation likely masks deeper motivations related to the new administration's strong push for eurozone accession.

Influenced by Russian propaganda, Bulgaria's pro-Kremlin parties are amplifying anti-euro disinformation. Although the country's ongoing rule of law problems render it unfit for immediate euro adoption, the current government is taking encouraging steps to prepare Bulgaria to join the zone and unlock its myriad benefits while debunking Kremlin myths.

Reason for cautious optimism

Originally slated for 1 January 2024, Bulgaria postponed euro adoption by one year last February. While the reasons for the delay are partially technical – namely Bulgaria's inability to sufficiently reduce inflation – political turmoil and ineffectiveness during the previous caretaker government notably stalled the passage of required legislation.

Given the Denkov government's strong start, analysts project enhanced reform and eurozone prospects. As part of its policy agenda, the ruling coalition agreed on various commitments to meet eurozone criteria, including low-deficit budget proposals as well as price stabilisation and economic climate-enhancing reforms.

Sofia views euro adoption as key to boosting living standards, with much of the foundation already laid. Bulgaria joined the bloc's exchange rate mechanism (ERM II) in 2020 – essentially the eurozone "waiting room" – while its monetary policy is closely aligned with the European Central Bank (ECB) and it comfortably fulfils public debt, budget deficit and long-term interest rate requirements. What's more, Bulgaria could introduce the euro as a parallel currency alongside the Bulgarian lev – which has been pegged to the euro since 1999 – as early as January 2024.

Not yet out of the woods

While promising, Sofia's monetary and fiscal reforms alone will not ensure a safe entry into the euro, with entrenched rule of law issues cultivating a climate of economic instability incompatible with future growth and eurozone membership. Although the Commission ended its special monitoring mechanism for Bulgaria in September – a development which Justice Minister Atanas Slovav hailed as having a favourable impact on the country's eurozone integration – there is still much work to be done, particularly in Bulgaria's deficient judiciary.

In recent years, former Prosecutor General Ivan Geshev – finally ousted in June – embodied Bulgaria's deeply flawed justice system. Geshev has faced Western criticism for his failure to root out endemic corruption and implement judicial reform, with US Representative Warren Davidson notably spotlighting his negligence in investigating US-sanctioned figures operating a system of high-level graft that impedes Bulgaria's full integration in the global economy.

While burying graft investigations into his corrupt allies, Geshev weaponised his largely unchecked authority to target his enemies. In July 2020, Geshev infamously ordered the raid of a presidential palace office that led to the arrest of two advisers to President Ruman Radev – after the president had opposed Geshev's Prosecutor General candidacy, sparking mass protests.

What's more, the chief prosecutor's office has made a habit of looting profitable businesses, as infamously displayed in the "Eight Dwarves" case, in which corrupt judiciary officials appropriated the assets of elevator manufacturer Izamet. Only recently has the Bulgarian judiciary acknowledged these abuses that have significantly undermined public confidence.

In a similar vein, Geshev's investigators raided the Sofia offices of global FinTech firm Nexo in January, a powerplay which Nexo's founders have condemned as being politically motivated given their support of the anti-corruption parties that had long been a thorn in the side of Geshev and his cronies.

What's more, the Nexo raids' timing – just as these parties were on the verge of forming a new reformist government – further suggests the nefarious motives of a protocol-violating investigation, marked by the failure to provide the defendants with a search warrant and summon them before issuing European arrest warrants, prompting Sofia City Court to revoke the unlawful warrants.

Although Geshev's removal is undoubtedly a positive step, the Supreme Judicial Council's highly questionable process for ousting Geshev and his succession by long-time loyal deputy Borislav Sarafov, show that Sofia still lacks an independent, eurozone-fit justice system.

Russian disinformation offensive

Beyond these internal rule of law challenges, Bulgaria's eurozone bid also faces an influx of Russian propaganda. In late September, Bulgarian Finance Minister Assen Vassilev accused the Kremlin of launching a disinformation offensive to undermine public trust in the euro and impede Bulgaria's European integration.

Hundreds of Russia-associated fake news websites have spread myths that euro adoption would fuel soaring inflation and poverty, with this propaganda falling on fertile ground. Bulgaria has long been the EU country most vulnerable to this type of disinformation, a reality starkly displayed by a recent Alpha Research poll finding that nearly half of Bulgarian citizens oppose joining the euro.

Concerningly, Russia's anti-euro narratives have been enthusiastically adopted and spread by local pro-Kremlin parties, with Vazrazhane leading protests against euro adoption attended by masses of Russian flag-wielding citizens and party leader Kostadinov suggesting that the euro could lead to "civil war" in Bulgaria.

Moreover, Vazrazhane launched a referendum petition earlier this year to postpone eurozone membership for 20 years, which – while ultimately shot down by the National Assembly – garnered nearly 500,000 signatures.

Stakes too high for failure

Despite the impact of Kremlin propaganda, there are reasons for optimism, with Vassilev observing that the "mood is changing". In late July, Prime Minister Denkov announced the launch of a "campaign against the disinformation around Bulgaria's adoption of the euro", to counter Kremlin myths and promote the benefits of joining the eurozone, including higher wages, as well as the recovery of the BGN1.5 billion Bulgarian firms lose to fee transactions every year.

As Postbank CEO Petia Dimitrova has highlighted, Bulgaria's eurozone accession would lift living standards while optimising trade relations and improving the business environment. Moreover, Sofia-based Commission communications expert Boyko Blagoev has dismissed post-eurozone inflation hike fearmongering, citing Croatia's successful recent adoption. of the single currency, in which isolated price increases were quickly addressed by local officials.

Facing a range of economic and political threats, Bulgaria's reformist government has little margin for error, particularly with the parliament's pro-Kremlin parties waiting to pounce on the slightest misstep or sign of public pressure.

But with responsible leaders who understand the pressing need for rule-of-law reforms to prepare a sustainable eurozone accession, the country appears to be on the right path.