Bulgaria has been accepted in the ERM II euro zone’s “waiting room”
The European Central Bank (ECB) said on July 10 that Bulgaria and Croatia have been accepted to join the Exchange Rate Mechanism (ERM II), the euro zone’s “waiting room”.
“At the request of the Bulgarian authorities, the finance ministers of the euro area Member States of the European Union, the President of the European Central Bank, and the finance ministers and central bank governors of Denmark and Bulgaria have decided, by mutual agreement, to include the Bulgarian lev in the Exchange Rate Mechanism,” the ECB said in a statement.
The central rate of the Bulgarian lev was set at 1.95583 leva for one euro, the same fixed rate maintained under Bulgaria’s currency board.
“Following a careful assessment of the appropriateness and sustainability of Bulgaria’s currency board, it was accepted that Bulgaria is joining the exchange rate mechanism with its existing currency board arrangement in place, as a unilateral commitment, thus placing no additional obligations on the ECB,” the statement said.
The agreement on the participation of the lev in ERM II is based on Bulgaria's commitment to join both the banking union and ERM II and the implementation by the Bulgarian authorities of a set of measures described in their letter of intent dated 29 June 2018, which are crucial for a smooth transition to and participation in ERM II.
These measures cover the following six policy areas: banking supervision, macro-prudential framework, non-banking financial sector supervision, the anti-money laundering framework, the insolvency framework and the governance of state-owned enterprises.
The ERM II Parties welcome the positive assessment of the implementation of these commitments by the European Central Bank and the European Commission.
“The agreement on participation of the Bulgarian lev in ERM II is furthermore accompanied by a firm commitment by the Bulgarian authorities to pursue sound economic policies with the aim of preserving economic and financial stability and achieving a high degree of sustainable economic convergence,” the ECB said.
The Bulgarian authorities are committed to implementing specific policy measures with regard to the non-banking financial sector, state-owned enterprises, the insolvency framework and the anti-money laundering framework.
Bulgaria will continue to implement the large-scale reforms carried out in the judicial system and in the fight against corruption and organized crime in Bulgaria, given their importance for the stability and integrity of the financial system.
The authorities, together with the responsible bodies of the European Union, will closely monitor the development of the macroeconomic policy and the implementation of these policy measures, in an appropriate framework.
The Governing Council of the European Central Bank (ECB) adopted a decision to establish close cooperation with the Bulgarian National Bank after the necessary supervisory and legislative prerequisites have been met. This is happening in parallel with the inclusion of the Bulgarian lev in the foreign exchange mechanism II.
Together, these two steps prepare the conditions for Bulgaria's future membership in the eurozone.
The decision on close cooperation will enter into force 14 days after its publication in the Official Journal of the European Union. From 1 October 2020, the ECB will be responsible for the direct supervision of significant credit institutions in the Republic of Bulgaria and for the general procedures for all supervised entities, as well as for the supervision of less significant credit institutions.
In the meantime, the ECB will carry out an assessment to determine which banks meet the criteria for classification as significant institutions.
Banking supervision at the ECB and the Bulgarian National Bank are taking preparatory action to ensure a smooth transition to the new supervisory regime.
"We are very pleased to welcome Bulgaria into the single supervisory mechanism and into the ECB's banking supervision family," said Andrea Enria, President of the ECB's Supervisory Board. "This marks an important stage in the history of the Banking Union, as its scope extends beyond the euro area member states."
The Bulgarian National Bank will have a representative on the Supervisory Board of the ECB, with the same rights and obligations as all other members, including the right to vote.