Bulgaria has committed to strengthening its banking sector, European Union officials said Tuesday, two days before a eurozone finance ministers meeting that could shed light on the Balkan country's progress toward joining the euro.
Bulgaria meets the nominal criteria to adopt the European common currency, with its lev currency pegged to the euro, low inflation and healthy public finances. But it is also the EU's poorest country, and widespread graft and troubles at some of its banks have cast a shadow over its prospects of joining.
Eurozone states and authorities have demanded that Sofia step up checks at its lenders and accept external oversight before it can join the bloc's ERM-2 exchange rate mechanism — usually a two-year waiting room that precedes euro membership.
After initial bickering, the Bulgarians have offered some commitments in a letter to the eurozone authorities.
The precise pledges have not been disclosed, but two EU officials, who asked to remain anonymous, judged the letter a positive move and one said it included commitments on the banking sector.
"We have received from the Bulgarian authorities a letter of prior commitments in view of their firm intention to join ERM-2 and the Banking Union," a spokesman for Mario Centeno, the head of the Eurogroup, said Tuesday.
The Eurogroup includes the finance ministers of the 19 eurozone member states, which are also members of the banking union project meant to enhance the bloc's financial stability.
Countries that want to join the eurozone are not legally required to be members of the banking union, but EU authorities have demanded this commitment of Bulgaria to extract more guarantees from the country, and to try to set a pattern for other future members.
In this, Bulgaria is "a kind of guinea pig," an EU official said.
Banking union member countries transfer to EU bodies the powers to oversee their top banks and deal with ailing lenders.
The Bulgarian letter was sent before the meeting of eurozone finance ministers on Thursday in Brussels that will discuss with the European Central Bank and senior Bulgarian financial representatives the next steps for the Balkan country.
EU officials said the outcome was open-ended, but one official said the meeting could set a target date for Bulgaria's membership in the ERM-2.
The assessment of the country's commitments could take more than a year, the official said. Only after that could Bulgaria could join the ERM-2.