site.btaUPDATED Prof. Philipp Harms: Joining Eurozone Another Step on Bulgaria’s Promising Economic Path

Bulgaria’s upcoming accession to the eurozone is a natural continuation of the country’s economic development over the past 25 years, marked by strong growth and low inflation, said Prof. Philipp Harms, Professor of International Economics at Johannes Gutenberg University Mainz, in an interview for BTA.

Harms noted that although Bulgaria still has the lowest GDP per capita among several comparable countries, its economic performance since the early 2000s places it on a “very, very promising path.” He said Bulgaria ranks third in growth among the countries he compared and has had the lowest average inflation.

He emphasized that there is substantial evidence showing that joining a currency union enhances trade and investment by removing exchange rate risks and reducing transaction costs. These benefits, he said, will apply to both Bulgarian and German firms, as trade involves both importing and exporting.

From a geopolitical perspective, Harms described the adoption of the euro as a strong signal of cohesion within the European Union. He said that sharing a common currency with countries such as Portugal, Finland, and Italy reinforces the sense that Southeast Europe is fully part of the European family.

Regarding potential disadvantages, Harms explained that while replacing a flexible exchange rate with a fixed one generally has drawbacks—such as losing monetary policy autonomy and the ability to absorb shocks through the exchange rate—these do not significantly apply to Bulgaria. He noted that Bulgaria has already operated under a fixed exchange rate and a currency board for more than 25 years, meaning the transition to the euro mainly involves technical steps such as converting prices from lev to euro.

Looking at Bulgaria’s broader economic development, Harms said that compared to countries like Romania, Poland, Serbia, and the Czech Republic, Bulgaria’s long-term growth record is strong. He added that joining the euro area is “just one step” on the country’s current economic trajectory.

Following is the full text of the interview: 

Q: Germany is Bulgaria's largest trading partner. How will the adoption of the euro affect trade and investment relations between Bulgaria and
Germany in your opinion?

A: We have substantial evidence that joining a currency union — which Bulgaria is about to do — enhances trade and investment. This will also apply to Bulgaria
because there is no exchange rate risk. Bulgaria has had a fixed exchange rate for the past 25 years, but having the same currency removes the necessity to
convert from one currency into another. This reduces transaction costs and enhances economic activity. When we talk about trade, it's necessary to consider both exporting and importing. German firms will benefit from the euro, but Bulgarian firms will benefit as well.

Q: How will the enlargement of the eurozone to include Bulgaria be viewed from a geopolitical perspective? What does this mean for the eurozone, the region, and Europe as a whole?

A: Adopting a common currency enhances cohesion. It is a strong signal that a country is part of a unified group. You see this in everyday life: it is the currency used in Portugal, Finland, Italy, and Bulgaria. It strengthens European cohesion. Southeast Europe is as much a part of Europe as Western and Northern Europe.

Q: The advantages of the EU are well known, as they have been repeatedly highlighted by politicians and experts. On the other hand, do you think there are any disadvantages that go hand in hand with the change of currency?

A: Having a flexible exchange rate has some advantages, and replacing it with a fixed exchange rate comes with some disadvantages, because you lose your own monetary policy and the exchange rate cannot buffer shocks. This is well known. Bulgaria has had a fixed exchange rate for the last 25 years. In fact, it had a currency board, which means there was no autonomous Bulgarian monetary policy. This made sense because the inflationary experience of the 1990s was dramatic and led to the introduction of the currency board. For Bulgaria, going from the currency board to adopting the euro does not change much, except for some technicalities, such as translating prices from lev into euro. That is the
Bulgarian perspective.

Q: Bulgaria is a member of the EU, a member of NATO, will soon become a member of the Eurozone, and is expected to become a member of the OECD next year, I hope. How do you assess Bulgaria's economic progress over the past three decades?

A: I looked at the numbers before this meeting and compared Bulgaria to Romania, Poland, Serbia, and the Czech Republic. In terms of per capita GDP, Bulgaria is still the lowest. But when you compare the evolution since the turn of the millennium, Bulgaria ranks third highest. It has experienced very high growth rates in the past 25 years. It has had the lowest average inflation rate, so I would say it is on a verypromising path, and joining the Euro area is just one step on it.

The interview is part of a visit of Bulgarian journalists to Germany organized by the Bulgarian Ministry of Foreign Affairs under the Action Plan for the Communication Strategy on Bulgaria’s eurozone accession.