Bulgaria to apply to join EU’s banking union

Bulgaria will formally apply to join the European Union’s banking union as part of its bid to enter the “waiting room” for eurozone membership, the Black Sea state’s finance minister said.

The eurozone’s finance ministers and the European Central Bank have already given Bulgaria the green light for the move and for its plans to adopt the euro. Finance Minister Vladislav Goranov, who was authorised by the government to send a request for close co-operation with the ECB, said the official letter would be sent “in a few hours”.

Sofia has made a number of commitments, including co-operating with the ECB so that next July it can join both the banking union and the ERM-2, the two-year obligatory precursor mechanism to joining the euro. With low inflation, budget surpluses and low public debt, Bulgaria, which has pegged its lev currency to the euro for decades, meets the nominal criteria for adopting the single currency.

But it is also one of the EU’s poorest and most corrupt member states, and its low income levels and the impact that a legacy of graft may have on the stability of its banks has promoted EU officials to slow Bulgaria’s pace to joining the euro. Bulgaria is the first non-eurozone member state that is seeking to enter into close co-operation with the ECB and join the banking union that will allow ECB to monitor its top lenders.

The ECB is expected to carry out an asset quality review and stress tests on the country’s banks before it gives its nod for entry in a process that may take a year, but could be longer, depending on Bulgaria’s progress.

Bulgaria’s overall financial system has stabilised since the collapse of its fourth largest lender in 2014, which triggered the worst financial crisis in the country since the 1990s and undermined trust in its banking supervision.

Bulgaria has pledged to take more action to combat corruption and organised crime, strengthen supervision of pension funds and insurers and step up anti-money laundering measures.