[size=75:28ecjhpb]novinite 22 December 2009

Bulgaria to Apply for ERM 2 in March

Bulgaria's Finance Minister Simeon Djankov has announced that the country will apply in March next year to join the exchange-rate mechanism, the two-year currency stability test prior to euro adoption, and seek to switch to the common currency by 2013.

Bulgaria initially planned to apply to join the exchange-rate mechanism in November, but delayed it till next year after all member states submit their convergence programs, which contains the mid-term goals of the fiscal policy.

Joining the exchange-rate mechanism would bring Bulgaria closer to the umbrella of the euro region and the protection of the European Central Bank and is conditional on whether the new government will succeed to restore Brussels trust.

The lev is already linked to the euro in a currency board that keeps the Bulgarian currency at 1.9558 to the euro. Joining the exchange-rate mechanism may allow the lev to fluctuate by as much as 15 % around a central band, though the central bank has said it will leave the lev tightly pegged to the euro through the duration of the two years.

Bulgaria's entry in the eurozone, initially scheduled for 2010, has been set back as it is conditional on continued fiscal prudence and lower inflation.

The following is taken from "
Business Monitor International"
who have a website at
[url=http:
//www.
emergingeuropemonitor.
com.
:3ogr5dra][You must be registered and logged in to see this link.] They have a monthly newsletter with analysis of the financial standing of Eastern European countries, and forecasts of the changes over the next two years. BMI argue that Bulgaria has a serious problem with bank debt (who doesn't?), and with increasing unemployment, expected higher interest rates from European Central Bank and the US Federal Reserve, "
we continue to highlight the banking sector as a major source of risk. [] Indeed, around 80% of banking sector external debt is in the form of short term liabilities, greatly exposing the industry to to a potential constriction in credit conditions, which would impede debt rollover and could very quickly drive the least well capitalised banks toward insolvency"


BMI goes on to say that Bulgarian debtors will become increasingly less able to repay their liabilities, leading to a deflationary spiral, and the only way out of a deeper recession is for the banks to seek financial assistance from the EU and the IMF.
The BMI says that the "
Government appears commited to its internal devaluation strategy"
and will seek to devalue the Lev as soon as is possible, on accession to the ERM, possibly as soon as March this year. The Lev will still be pegged to the Euro, just at a different level. The forecast level for EU:BGN, currently 1.96, is 2.40, by the third quarter of 2010
At todays rates UKP:EU of 1.15 gives UKP:BGN of 2.24
if nothing else changes then UKP:BGN would go up to 2.76
or around 50 stotinkies more for your pound, around 20% increase.

This is a mixed blessing, more cash in your pocket if your income is in UKP, a big drop in property values priced in Leva.

Keith

Seems whaever you do we can't win at the moment its no win situation all round