site.btaIn Home Stretch to Euro, Think-Tank Warns of Continuing Price Hysteria, Budgetary Pitfalls and Political Overambition

As the economy switches to summer mode, political events in Bulgaria remain as intense as ever while the country looks forward to the final decision on its expected accession to the euro area on January 1, 2026. At this point, it is important to outline some developments which are likely to unfold until the end of 2025 and to determine the environment on the eve of the euro changeover, Institute for Market Economics (IME) senior research fellow Petar Ganev says in an analysis published on the IME website on June 27.

The price hysteria will go on, Ganev predicts. According to him, it can be safely assumed that in the next few months the domestic environment will be marked by strong campaign-style rhetoric about prices. As was seen recently, a price rise on a certain brand of bottled water in a particular store can be taken to mean an increase in food prices by up to 40%. Such fireworks will be the norm, the expert says. The control authorities (the Commission on Protection of Competition, the Commission for Consumer Protection and the National Revenue Agency) will give regular briefings and will try to show how hard they are working, which will only serve to spur on the hysteria. The media and public environment will be like in the days when people boycotted food stores – a lot of TV airtime taken up, agitation on social networks, incantations against “profiteering”, and ideas of strict measures and control tossed around.

This, of course, will be harnessed into anti-euro rhetoric, the analysis goes. Official data on inflation will be interpreted either as confirming the price problem or as fake. According to one allegation, inflation data were manipulated in April to show that Bulgaria met the price stability requirement for euro area entry. Shining the spotlight on the reduction of the in-patient treatment fee in April is an adept way of blurring the fact that earlier in the year the government had taken a series of administrative and taxation measures, most important of which were to raise VAT on bread and on restaurant services back to the standard 20% rate and to increase the price of electricity for household consumers – and the cumulative effect was a tangible rise in inflation. This was directly acknowledged in the convergence reports of the European Commission and the European Central Bank and was clearly communicated later in a reply from the Commission.

The big question is, in fact, the state budget, according to Ganev. While everyone keeps talking about the euro and the prices, the important underlying topic is the budget. Bulgaria’s public finances are seriously shaken, and the country risks entering an excessive deficit procedure next year. The worse part is that this already exerts huge upward pressure on taxes. Increasing the social insurance burden is even written in the medium-term framework, and discussions are underway about such measures as raising VAT and the corporate income tax and introducing taxes in various sectors, including a tax on banks’ “excess profits.”

This autumn, Bulgaria is set to adopt its first annual state budget in euro. In the new framework, it will be necessary to plan clear steps towards consolidation and reduction of the government deficit. The focus should be on the expenditure side of the budget, which has been out of control over the last year, and one of the objectives should be to remove all automatic pay rise mechanisms in the public-financed sector. The revenue side also leaves room for improvement. However, revenue-boosting measures should not be targeted in ways that reduce competitiveness but should be geared against the weaknesses of the tax system, including far too low proceeds from road toll charges, deficiencies of gambling taxation, very low property evaluations for tax purposes, and some tax reliefs which need rethinking.

Political risks remain too high. Amid ongoing disputes about the euro and issues with the state budget, there are potential political risks stemming not from the opposition’s conduct (including attempts to foment public anger at the euro) but from overambitious political players who wield the most power even now. The lust for power can precipitate early elections, but more importantly, it seeks the maximum possible institutional and financial means of control. Therefore, the channelling of huge public resources into the Bulgarian Development Bank and the overly intense activities of the control authorities on the price front seem to be Act One in an offensive for stronger state control over the economy.

There are no automatic solutions to the issues described above, the analyst says. Successful approaches are more likely to be found if there is clear awareness of the hysterical elements of the environment, the high strain within the state budget and the ambition of political players to change the rules of the game, Ganev concludes.