As Bulgaria moves into the summer season, the tempo of political developments remains high, particularly with the country on the brink of a final decision regarding eurozone accession. Within this context, several key narratives are set to unfold over the coming months - narratives that will shape the economic and political climate in the lead-up to the euro's adoption.

One of the dominant themes will be continued public anxiety over prices. The atmosphere will likely be marked by persistent, campaign-style rhetoric focusing on price hikes. Isolated examples, such as the rising cost of a specific brand of mineral water, will be used to illustrate broader claims of inflation, with some media portraying food price jumps of up to 40%. This type of narrative will become commonplace. Oversight agencies - the Commission for Protection of Competition, the Consumer Protection Commission, and the National Revenue Agency - will be active in issuing press briefings and taking visible actions, though this may only serve to fuel public hysteria. Media coverage and online discourse will mirror previous waves of discontent, such as the grocery store boycotts, accompanied by calls for tough controls and accusations of market speculation.

Such discontent will naturally feed into opposition to the euro. Any official statistics on inflation will be met with skepticism - either as validation of the problem or as alleged manipulation. Already, critics have suggested that April's inflation data was distorted to create the appearance that Bulgaria had met the price stability requirement for euro adoption. Much attention has been given to the temporary reduction in hospital fees during that period, conveniently overlooking more impactful state decisions since the beginning of the year, such as reintroducing VAT on bread and restaurant services and raising household electricity prices. These actions have had a significant cumulative effect on inflation, a fact clearly acknowledged in the European Commission's convergence reports.

However, the core issue isn?t just about prices or the euro. It's the state budget. Amidst all the noise around inflation and currency change, fiscal health is the more pressing concern. Bulgaria is heading toward an excessive deficit procedure in 2025, and there is already notable pressure to raise taxes. An increase in social insurance contributions is already embedded in the country's medium-term fiscal plan. In addition, proposals are circulating about increasing VAT, raising corporate taxes, and introducing new levies on certain sectors - banks? so-called 'super-profits? being a prime target.

The country will need to pass its first budget in euros this autumn. That new fiscal plan must commit to consolidation and a significant reduction in the deficit. Particular attention will need to be paid to reigning in spending, especially by eliminating mechanisms that automatically raise public sector wages. On the revenue side, adjustments are possible, but they must be targeted to address specific weaknesses in the tax system - such as the underperformance of toll collection, loopholes in gambling taxes, unrealistically low property valuations, and the need to reassess certain tax breaks. These efforts must be carefully balanced to avoid harming national competitiveness.

All of this is playing out in a landscape of high political risk. The threat doesn?t stem solely from opposition parties attempting to mobilize anti-euro sentiment, but also from the ambitions of those already in power. Their drive to concentrate more authority could lead to snap elections. More worryingly, it may result in an expansion of state control over economic life. Recent developments - the channeling of large public funds into the Bulgarian Development Bank and the hyperactivity of price oversight agencies - may be early indicators of this trend.

None of these problems have simple solutions. But recognizing the emotionally charged climate, the fiscal vulnerabilities, and the political power plays at work may be the first step toward navigating them with clarity and focus.

Source:Institute of Market Economics