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Wednesday, September 5, 2012

Bulgaria Shrugs Off the Euro

In early September 2012, Reuters reported that Bulgaria had “abandoned plans to adopt the single currency in response to deteriorating economic conditions and rising uncertainty over the prospects of the European Union. Finance Minister Simeon Djankov was quoted as saying as much.  Bulgaria was at the time the poorest state in the E.U. (similar perhaps to Mississippi in the U.S.). It is significant that Bulgaria was one of the least indebted states and was “trying to stick to tight fiscal discipline to avoid risks to the lev currency, which [was at the time] pegged to the euro.” In this regard, Bulgaria was like Finland and Germany in that it faced the prospect of paying for other states’ profligacy and lack of self-discipline. From this vantage point, it makes perfect sense for Bulgaria to demur. However, the perspective may be short-sighted in another respect. Specifically, Bulgaria risked missing the boat on the E.U.
Djankov’s comment on the rising uncertainty on the European Union itself is too broad; even if the euro currency fails, it would be a long shot to say that the E.U. itself would follow suit. After all, the E.U. existed before the euro went into circulation. To be sure, irrational reactions to the demise of the euro could prompt a self-fulfilling prophesy concerning the E.U. itself, but such a self-inflicted suicide would not necessarily follow from the loss of the euro. In fact, the increased integration among the states using the euro could leave the E.U. in a strengthened position for those states. In focusing on its own particular fiscal interests, the Bulgarian state government risked missing out on that E.U.

"Right now, I don't see any benefits of entering the euro zone, only costs," Djankov said in an interview with the Wall Street Journal. "It's too risky for us and it's also not certain what the rules are and what are they likely to be in one year or two." Such a focus on rules evinces a micro perspective. Alternatively, Djankov could have assessed whether a shift of more governmental sovereignty from the states to the union would be a good or bad thing for the E.U. (i.e., not just for Bulgaria). Looking beyond likely rules, in other words, would itself have been in Bulgaria’s interest. Looking above particular rules to the viability of the federal system is what I am getting at here. Part of the reason why more sovereignty needed to be shifted to the E.U. during the debt crisis is precisely because of the narrow strategic perspectives of state officials such as Djankov.
A union is more than the sum of the parts, and definitely more than the strategic interests of the stronger states, such as Germany. In opting out of the euro, Bulgaria unwittingly was placing itself on the periphery, yet again, as well as on the side of the states outside the euro that oppose additional shifts of sovereignty in the federal system (those states, such as Britain, even deny the federal system itself, supposing the E.U. to be some kind of network). It makes sense in a narrow fiscal sense for a responsible state such as Bulgaria to beg off having to rescue states that had been much less responsible fiscally. However, the state’s interest belies a lack of responsibility in the larger sense—in what one might call statesmanship. The hypertrophy of state power in the E.U. makes this kind of responsibly rare indeed (which is why the U.S. went early to shift relatively more sovereignty to the federal level—albeit not to consolidate).


Reuters, “Bulgaria Abandoning Eurozone Push on Concerns over Debt Crisis, EU Economy,” The Huffington Post, September 3, 2012. http://www.huffingtonpost.com/2012/09/04/bulgaria-eurozone_n_1852995.html?utm_hp_ref=business