The European Council's decisions from July 8, 2025, marked the final approval for Bulgaria to adopt the euro as its official currency starting January 1, 2026. This outcome concludes a lengthy journey that began with Bulgaria’s EU accession talks and moved through the country’s participation in the Exchange Rate Mechanism II and the banking union in 2020. The process culminated in June with a favorable assessment in the convergence reports by the European Commission and the European Central Bank. Some trace the roots of this development even further back, to 1997, when Bulgaria introduced a currency board and pegged the lev to the German mark, laying the groundwork for future euro adoption.

There is, however, a risk of reducing this milestone to political symbolism. Comparisons to joining the “core of Europe” or the “club of the rich” oversimplify what eurozone membership actually entails. Simply switching to the euro does not automatically place Bulgaria at the heart of innovation, technology, or economic success. Nor does it directly lead to higher incomes or greater prosperity.

As one former finance minister noted, the greater risk now is that Bulgaria finds itself without a strategic long-term objective. The fear is that politicians might view euro adoption as a box checked, believing the hard part is over. Yet, for every government up to this point, the goal of joining the eurozone has acted as an anchor, motivating consistent reforms. The real long-term vision must go beyond currency and focus on building a nation where citizens can thrive, prosper, and achieve their aspirations.

Eurozone accession does not eliminate the need for deep reforms or responsible fiscal management. At the time of accession, Bulgaria’s GDP per capita in purchasing power terms is only 66% of the EU average. A near-term goal should be to catch up with Central and Eastern European countries that have reached 70–90% of the EU level. But why stop there? Reaching the economic standards of countries like Germany, France, or Italy is within reach - if Bulgaria manages to sustain high levels of growth supported by rising productivity over a prolonged period.

This kind of economic leap demands policies that foster entrepreneurship, attract investment, and support innovation and the transfer of advanced technologies. In practice, reforms must span every sector - from education and healthcare to infrastructure, the judiciary, and public administration. Only with a holistic approach can Bulgaria improve the quality of its public services and create a climate conducive to higher productivity and added value.

Calls for these reforms are not new. They have been a recurring theme in the European Semester’s country-specific recommendations and in reports assessing Bulgaria’s eurozone readiness. These documents highlight persistent issues: inefficient public institutions, weak regulatory bodies, lack of transparency in public procurement, limited energy sector liberalization, and an underdeveloped capital market. Without access to capital and with poor school performance among students, particularly in reading, math, and science, the country’s long-term economic outlook is constrained by a workforce ill-equipped to meet future challenges.

If Bulgaria fails to implement serious reforms, it risks becoming stuck in the so-called “middle-income trap,” where economies plateau due to stagnant productivity and dependence on cheap labor and low-value outputs.

Moreover, sound economic policy is only one side of the equation. Even the best growth strategy can be derailed by reckless fiscal behavior. The idea that budget discipline was only necessary before eurozone entry is dangerously misleading. Within the eurozone, fiscal rules continue to apply, and the cost of large deficits is real, as it adds to national debt and pressures tax policy. More worryingly, increased state spending often fuels dependency rather than sustainable private-sector growth.

This year’s state budget and the government’s medium-term fiscal framework already raise red flags. Projected increases in public debt and growing deficits suggest a concerning trajectory. Although the EU has recently relaxed its deficit rules to allow for more defense spending - a provision Bulgaria is seeking to use - this creates the temptation to increase borrowing without adequate safeguards.

A recent boost in Bulgaria’s credit rating by Standard & Poor’s and Fitch may provide temporary relief, lowering borrowing costs. But using cheap debt to finance unchecked spending is a dangerous gamble. In a downturn, that comfort can quickly vanish, leaving the country reliant on bailout loans, accompanied by mandatory reform programs and tax hikes from mechanisms like the European Stability Mechanism.

Adopting the euro creates the opportunity to enhance the impact of reforms and prudent fiscal management, but it doesn’t eliminate the need for either. Sustainable prosperity will only be possible if Bulgaria prioritizes human capital development, strengthens the rule of law, and protects economic freedom. Without these foundations, the benefits of euro adoption will remain limited, and the country may find itself having missed a crucial opportunity.

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The author Lachezar Bogdanov is a Chief Economist at the Institute for Market Economics. His research focuses on macroeconomic policy, public finances, the tax system and the labor market. He is the author of a number of analyses supporting reforms and initiatives to increase economic freedom, remove regulations and improve the investment climate.

The article is from the newsletter of the Institute for Market Economics and is published HERE.