BRUSSELS — Bulgaria will officially adopt the euro as its currency at the start of next year, cementing its place in the heart of the EU at a time of ongoing upheaval on Europe’s eastern flank.

The European Commission and the European Central Bank have both approved a move that will make Bulgaria the 21st member of the eurozone, recognizing its success in meeting the required economic criteria even as concerns linger over issues such as money laundering and high-level political corruption.

“The answer that we give to Bulgaria is yes,” Commission official Massimo Suardi told reporters in Brussels on Tuesday. However, “there are a number of policy challenges Bulgaria still needs to tackle … related to the fight against corruption, judicial independence, and efficiency of the public administration, public procurement.”

“Joining the euro area is the best investment Bulgaria can make in its future,” Commission Vice President Valdis Dombrovskis told reporters on Thursday, saying that membership would help Bulgaria in the same way that it has helped his home country Latvia and the other Baltic states.

“Given the geopolitical situation in the region and Russia’s war against Ukraine, the euro acts as a shield … Our savings are safe, the currency is stable and our countries have proven resilient in the face of consecutive economic shocks.”

He added that “our economies and companies have benefited from the removal of currency conversion costs, increased price transparency, access to cheaper financing and greater interest from international investors.”

The move binds one of the EU’s poorest countries more tightly into the bloc’s institutional structures at a time when Russia is exerting economic, political and even military pressure on its former eastern-bloc neighbors, leading some to flirt with a more Kremlin-friendly foreign policy.

Unsurprisingly, European officials close to the process have told POLITICO that it expects no opposition from other eurozone members in the final decision on the accession, which will be taken during a meeting of EU finance ministers on July 8.

The Balkan country of 6.4 million people committed to join the eurozone in 2007, but has been repeatedly rebuffed after failing to meet a slew of so-called convergence criteria that aim to ensure economic and legal compatibility. Persistently high inflation in the wake of the pandemic and the invasion of Ukraine scuppered its chances of joining the club in 2024 and 2025. 

But the financial authorities have tamed inflation, which averaged 2.7 percent in the 12 months through April. Domestic inflation had risen to 4 percent at the start of this year due to increases in VAT and the end of some pandemic-era support measures, but Suardi noted on Tuesday that the effect will be “temporary.”

Suardi also applauded Bulgaria for its “relatively flexible and efficient” labor markets and “very low” public debt which, at 24.1 percent of gross domestic product, is the second lowest in the EU and well below the 60 percent reference rate required to join the bloc.

 “I wish to congratulate Bulgaria on its tremendous dedication to making the adjustments needed,” ECB Chief Economist Philip Lane said in a separate briefing.

But concerns linger — inside the country and outside. On Saturday, thousands of people took to the streets in Bulgaria, calling on the government to preserve the lev, which has been the country’s currency to date. As is usual during such transitions, there are fears that merchants and companies will use redenomination as an opportunity to raise prices, while increased trade with the rest of the bloc may also drag local prices higher.

“Ensuring price transparency and combating abusive price increases will require a special effort,” Dombrovskis warned, but noted that other countries that had made the same step had ultimately overcome any issues it created.

In a report, the ECB acknowledged that looking ahead Bulgaria needs to flank euro membership with “appropriate policies in order to avoid unduly jeopardizing Bulgaria’s competitiveness and to prevent the build-up of unsustainable levels of credit growth and other macroeconomic imbalances.”

While hourly labor costs in Bulgaria are still the lowest in the EU, growth in wages needs to be consistent with that in productivity, among other things, in order to stay competitive and keep the country attractive for foreign investors, the central bank said. 

Questions over the rule of law and transparency are also on policymakers’ minds. Organized crime and oligarchy have plagued Bulgaria for years, and the EU’s latest rule-of-law report raised concerns about the lack of independence of some regulatory authorities, while noting that “a robust track-record in high-level cases of corruption remains to be
established.”

Monetary authorities are also nervous about Bulgaria’s record on money laundering, which saw the country confirmed on the Financial Action Task Force’s money laundering “gray list” last year, requiring increased monitoring and putting it alongside Syria, Venezuela and Yemen. That designation is reserved for countries that the FATF deems cooperative but which nevertheless need to do better to control and prosecute money laundering.

“Further progress is needed to address the outstanding shortcomings in the area of anti-money laundering and countering the financing of terrorism,” the ECB said. Importantly, however, these commitments are not an integral part of the convergence criteria and will thus not have an impact on the membership decision.  

Suardi added Tuesday that the country was also overreliant on fossil fuels, and pointed to a skills shortage in the labor force and deficiencies in the education system. According to the Commission, 30.3 percent of the country’s population is at risk of poverty or social exclusion.

Antoaneta Roussi contributed to this report.