By Hans Bentzien
FRANKFURT (Dow Jones) – Bulgaria and Croatia have taken an important step towards membership of the euro. The finance ministers of the euro countries, the president of the European Central Bank, Denmark’s finance minister and his central bank governor agreed on Friday that both countries would join the exchange rate mechanism 2 and that the central banks of both countries cooperate closely with the ECB. In the future, Bulgaria and Croatia will have to keep the exchange rate of their currencies, the lev and the kuna, within a narrow range against the euro.
This phase lasts at least two years, followed by a one-year preparation phase. It would not be possible to join the euro until 2023 at the earliest. The last time Lithuania joined the currency area was in 2015.
In addition, their “significant” banks will be directly supervised by the ECB from October 1st. Until then, the ECB wants to decide which institutions it is. Both countries will send a representative to the supervisory board of the banking regulator.
According to the ECB, the “central” exchange rate of the Bulgarian lev was set at 1.95583 leva per euro and the exchange rate of the Croatian kuna at 7.53450 kuna per euro. In the future, the exchange rates may deviate up to 15 percent up and down from this central value. The mandatory intervention rates will be communicated on July 13th, just in time for trading in the foreign exchange markets.
Participation in the exchange rate mechanism 2 is linked to the commitment to join the banking union at the same time. In addition, the authorities of both countries have undertaken to meet certain requirements in the following policy areas:
-Bank supervision
-macroprudential supervision
– Supervision of financial institutions that are not banks
– Prevent money laundering
-Insolvency law
– Supervision of state-owned companies
Bulgaria and Croatia are committed to sound economic policies that are capable of ensuring economic and financial stability and economic convergence with the euro area. This policy is closely monitored.
The Green MEP in the European Parliament, Sven Giegold, praised the way the European authorities dealt with Bulgaria and Croatia. “Unlike other countries that have joined the euro in the past, both countries had to push ahead with further reforms,” he wrote in a statement. At the same time, however, Giegold demanded that the two countries not only meet the formal entry criteria for debt and price stability, but also resolutely tackle the fight against money laundering and financial crime.
“In this year’s country-specific recommendations by the EU Commission, Bulgaria was suggested to tackle deficits in the fight against money laundering. Unlike in neighboring Romania, convictions for corruption are a sad rarity in Bulgaria,” said Giegold. Bulgaria is also one Tax haven and systematically sell citizenships. Bulgaria’s corporate profits are taxed at just 10 percent and even as high as 5 percent.
“This weakens Bulgaria particularly the neighboring country Greece,” stated Giegold. Before Bulgaria is included in the euro, the Euro zone agree on a common minimum tax rate. The EU Commission must open infringement proceedings against all countries that sell Schengen visas or citizenships.
Contact the author: hans.bentzien@dowjones.com
DJG / hab / smh
(END) Dow Jones Newswires
July 11, 2020 06:24 ET (10:24 GMT)
