Euro Sets Out in Bulgaria, Too

Business Upturn Expected in Conditions of Single Currency

AIM Sofia, January 5, 2002

Simultaneously with its official debut in Europe the new common currency, the euro, was also launched in Bulgaria. The new banknotes are already rustling in the hands of the Bulgarians and even if it until recently seemed like some virtual reality, nowadays it has become quite real and tangible.

Until February 28, the former currencies of the states of the euro-zone that are withdrawn from circulation will be exchanged for the euro at a commission of 0.25 per cent in four partner banks of the Bulgarian National Bank (BNB) - Biohim, United Bulgarian Bank, Bulbank and Post Bank. On the very first working day after the New Year's Day long queues formed in front of them although the purchase of former currencies will continue after February 28. But then, they will be exchanged for levs and the commission will be somewhat higher.

On the first working day after the introduction of the euro on January 1, 2002, 243 thousand euros were taken out of the central office of the BNB, and almost two million euros from the four banks.

Almost all the banks in Bulgaria exchange 12 European currencies for euros. According to incomplete data of BNB, in just the first two working days of this year currencies worth more than 300 million euros were exchanged by the whole banking system. At the moment, after the German mark the currency that is exchanged the most in Bulgaria is the Greek drachma according to the data from BNB.

In majority of exchange offices, however, the new currency that they should get from banks is still scarce. The enormous number of people they are expected to offer services to in the first days after the New Year's holiday, however, and not quite clearly formulated coordination between exchange offices and commercial banks are the reasons for the lack of the new currency.

According to dealers the interest for exchange offices will gradually diminish because of the introduction of the euro, but that will not seriously affect their business. In the meantime, in Biohim commercial bank an observant client detected defective notes. Three 100-euro notes had a defect in manufacture - they lacked the hologram sign. According to the head teller of the bank, Rumen Popov, the notes were not counterfeit but defective. Such cases are comparatively few, although there were some. The central bank in Finland also found seven such notes without the hologram, but 500 euro ones.

Deputy governor of the central bank Martin Zaimov commented that it was not surprising that among 14 billion manufactured notes some were defective. If a man should come across such a banknote he should simply report to BNB and have it replaced.

The assessments that introduction of the euro is a true "currency revolution" in view of the fact that this is the first time in world history that whole nations are voluntarily giving up their own financial sovereignty. How this "revolution" will affect pensions, salaries, standard of living of the Bulgarians, whether there will be problems with the assets of the banks and accounts of firms? How will the new currency affect the economy in general? These questions are preoccupying the Bulgarians now and they are persistently demanding an answer to it.

>From the point view of the currency board in Bulgaria absolutely nothing will change because of the introduction of the euro. The board is linked to the German mark and at the same time for the euro, so it will not be necessary to establish the exchange rate again, because the ratio between the lev and the euro has been quoted for quite some time. The fact that the rate is not a round figure like with the mark (1 lev = 1 DEM) should not cause concern. The appearance of new banknotes has just a psychological effect on ordinary Bulgarians who did not know the foreign currency rate.

It is true that for the time being the euro is not a strong currency in relation to the American dollar, so there are fears that it might continue to devalue. Experts believe, though, that the euro will consolidate its position. The question is more of psychological nature, because the dollar exists for more than 90 years, while the euro is only three years old, and can be seen since only ten odd days. It is expected that by the introduction of the additional currency into Bulgarian currency board - the euro, and by the increase of confidence in it, its price in relation to the dollar will gradually rise. That would automatically lead to the increase of the value of Bulgarian lev, as supporters of the new currency believe.

According to their belief, Bulgarian business will profit from the conditions of the single European currency. The euro will bring about better transparency in formation of prices and reduction of taxes on transactions. It is expected that European investors will look upon Bulgarian economy as a sound economy because of the absence of currency risk. This should increase the attractiveness of the facilities for privatization.

There is no reason to expect that the euro will have a negative effect on salaries and the standard of living of the Bulgarians. Speculations about a rise of prices or an inflationary shock are completely unfounded, experts are resolute, because, after all, Bulgarian economy operates in levs, not euros.

According to President of Bulgarian Commercial and Industrial Chamber, Bozidar Bozinov, business deals will also become more transparent, and Bulgaria as a tourist country will become more attractive. Thanks to the euro it will be much easier to make comparisons of the prices in Bulgaria with those in the countries of the euro-zone.

Although it is not a member of the EU, with its economy Bulgaria is connected with the countries of the EU by quite strong links. About 60 per cent of Bulgarian export is turned towards the EU, and the import from these countries also amounts to between 55 and 60 per cent. The euro can only stimulate its future trade with the EU. On the other hand, the connection with the single European currency increases the self-confidence of the Bulgarians who are doing their best to join the European family. That will happen only after their pockets become sufficiently stuffed with euros. But for the time being these prospects are quite far away.

Plamen Kulinski

(AIM)