Question

Bulgaria is a member nation of the European Union. It does not yet qualify to join the euro zone, but aspires to eventually do so. What factors determine whether it would in fact benefit Bulgaria to adopt the euro? Are the interests of existing euro zone members aligned with those of Bulgaria? (No specific information about Bulgaria is needed to answer.)

Answer 1

If we look at Bulgaria, it is a relatively smaller economy than the other economies in EU. If the country joins EU, it will be quite beneficial for the county to get connected with the other economies and have the advantages of internationalization of trade and free trade among the EU member countries. As of now Bulgaria is having different currency and when it also adopt Euro as a currency, then the different types of risks associated with the exchange rate fluctuations will be overcome and it provides more stability in the Foreign exchange market. This will also make the economy to have greater price transparency which will benefit the economy as a whole. Due to being connected to the international trade, the economy will be more prone to international fluctuation and business cycles. However, the country can attract greater investment.

If we look closely, it is quite evident that both the smaller and larger economies have different aspects of interests. The smaller country will be more beneficial to be the par of Euro Zone by having greater price stability, political stability and exchange rate stability. This will also help the county to have a more stable interest rate regime,