On a sunny morning in Sofia in early June 2025, excitement spread quickly through the Bulgarian National Bank. The long-awaited convergence report, requested from the European Commission and the European Central Bank in February, had arrived. It assessed Bulgaria’s economic and legal readiness for eurozone membership. Unlike previous reports, this time Bulgaria met all criteria, and the country prepared to take its final step toward joining the euro.

Bulgaria’s journey to the euro began long ago. The country entered the European Union in 2007 and had aspired to join the eurozone soon after. Eighteen years later, on January 1, 2026, Bulgaria became the 21st member of the single currency, marking the culmination of decades of economic and political transformation.

To understand this success, one must look back to the 1990s. After the fall of communism, Bulgaria’s transition to a market economy was fraught with hardship. State-owned enterprises dominated the economy, accumulating debts that banks continued to fund, while the central bank and government often stepped in to cover losses. By 1996, over 60 percent of loans were in default, and bank closures eroded public confidence. Inflation surged, the economy contracted, and public debt reached unsustainable levels of over 120 percent of GDP.

By March 1997, annual inflation had soared above 2,000 percent. Savings vanished, pensions lost value, and ordinary citizens struggled to meet basic needs. A change in government brought Prime Minister Ivan Kostov and the International Monetary Fund together to stabilize the economy. Weak banks were closed, and the government implemented a currency board, pegging the lev to the Deutsche Mark and later the euro. The board allowed the issuance of levs only against reserves of foreign currency and gold, with strict transparency and parliamentary oversight, helping restore public trust.

The results were immediate. Inflation dropped to 22 percent in 1998, interest rates fell, and GDP rebounded by 3.5 percent after steep contractions in prior years. Public debt was nearly halved. Over the next decade, despite political turbulence - including 18 governments and emigration of almost 1 million people - the currency board remained popular for maintaining fiscal discipline and low inflation. By 2007, Bulgaria joined the EU with 75 percent of its economy privatized, including all banks, and had achieved upper-middle-income status.

EU membership brought new challenges. Policymakers aimed to enter the European Exchange Rate Mechanism (ERM II) quickly, but global financial shocks and domestic economic imbalances delayed progress. The banking crisis of 2014 highlighted lingering governance issues, but reforms under Prime Minister Boyko Borissov’s second government prepared Bulgaria for ERM II entry, which came in 2020 alongside accession to the European Banking Union. Continued fiscal discipline, legal reforms, and anti-corruption measures laid the groundwork for eventual euro adoption.

By 2024, Bulgaria’s economic standing strengthened further. The World Bank classified the country as high-income, and Schengen membership reinforced confidence in Brussels. Inflation had fallen, the pandemic’s economic impact was waning, and energy shocks had been mitigated. In February 2025, Bulgaria requested a special convergence assessment, bringing it to the final stage of euro adoption.

The June 2025 report confirmed Bulgaria’s readiness. On January 1, 2026, the euro replaced the lev, ending nearly three decades of the currency board. The transition was met with mixed emotions: citizens valued the stability the lev had provided but also recognized the benefits of full eurozone integration.

Euro adoption offers several advantages. Travel within Europe will no longer require currency exchanges, financial stability is strengthened through the ECB and Single Supervisory Mechanism, and Bulgaria gains a voice in eurozone monetary policy. Investor confidence rises as currency risk disappears, while access to euro-area capital markets could reduce borrowing costs and sovereign risk premiums. Bulgaria’s experience with the currency board also positions it to advise other countries on monetary stabilization and fiscal discipline.

Despite ongoing challenges, including population decline and corruption, Bulgaria’s transformation from hyperinflation and economic chaos to a eurozone member stands as a testament to long-term reform and perseverance. As one young Bulgarian reflected, “The euro in my pocket finally makes me a full member of the club.”

Author: Charles Enoch and Anne-Marie Gulde, IMF