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UPDATE 1-INTERVIEW-No pause in Bulgaria euro entry bid-minister

Published 04/16/2010, 01:29 PM
Updated 04/16/2010, 01:32 PM

* Finance minister: may apply for ERM-2 this year, join in '11 * Minister: euro adoption may come in 2014 or earlier * Says Bulgarian 2010 growth seen around 1 percent * Minister: may issue eurobond in H2, but not for deficit

(Updates with details, quotes, background)

By Marcin Grajewski

MADRID, April 16 (Reuters) - Bulgaria is pushing ahead with efforts to adopt the euro single currency, Finance Minister Simeon Diankov said on Friday, contradicting suggestions by his prime minister that the plan had been put on ice for now.

Diankov also said his government was likely to revise up its economic growth forecast for 2010 from 0.3 percent to around 1.0 percent as expected by the International Monetary Fund, and that it may issue a eurobond in the second half of this year.

He told Reuters in an interview that his Black Sea country may apply to join the ERM-2 pre-euro currency grid this year, hoping to be allowed into the grid next year.

Should this happen, Bulgaria might adopt the euro in 2014 or slightly earlier, he said on the sidelines of a meeting of European Union finance ministers.

"This year we can apply and next year, if all goes well, we can join (ERM-2)," he said. "For sure it can happen this year, the application."

Bulgarian Prime Minister Boiko Borisov has said his country had officially dropped its bid for now to join ERM-2 because of a lack of clarity over the size of the budget deficit.

"We officially give up the plan to bid for ERM-2 because it will be offensive given this deficit," Borisov told a news conference on April 9.

The statement came after Bulgaria had revealed a hidden deficit for last year, hitting the credibility of the 27-country EU's poorest nation.

Borisov, whose centre-right GERB party came to power last July, said the previous Socialist-led government had signed dozens of unaccounted procurement deals, meaning the 2009 budget gap was 3.7 percent of gross domestic product rather than the 1.9 percent reported under EU rules.

But Diankov, who is also deputy prime minister, said the deficit was not a problem for Bulgaria's euro aspirations as the European Commission and EU finance ministers had assessed positively the country's medium-term fiscal plan, the so-called convergence programme.

"The deficit was 0.8 percent of GDP last year, on a cash basis, 1.9 percent on the accrual basis. If all those annexes to contracts were counted -- and some or all of them can be annulled by the court -- we will get to 3.7 percent," he said.

NO PROBLEM?

He said that in any case, this year's deficit would be below 2 percent of GDP. This would allow Bulgaria to meet the fiscal criterion for euro zone entry -- that such a gap must be no higher than 3 percent of economic output.

A country wishing to adopt the euro must stay for at least two years in ERM-2, where its currency is allowed to fluctuate within a certain band around a fixed rate against the euro. The minister said this would not be a problem since Bulgaria's lev was pegged to the euro in a currency board.

"We treat entry into the ERM-2 not as a waiting room, but as a fitness room in which we need to finish structural reforms that we have just started," he said.

He brushed aside suggestions that the fiscal problems of Greece and Bulgaria's unclear deficit situation had made euro zone countries reluctant towards Bulgaria's bid to join the 16-country currency bloc.

"No, we have a different story than Greece. We have low foreign debt, in fact one of the lowest debts in the EU, one-tenth of Greece's foreign debt and our deficits are much lower," he said.

A decision to allow a country to join ERM-2 needs unanimity among euro zone countries, the European Central Bank and the EU's executive European Commission.

Some EU diplomats have said privately that there is limited enthusiasm towards allowing Bulgaria to move closer to the euro, because of its reputation on corruption and organised crime.

On a possible eurobond issue, the minister said it would not be used to cover the budget deficit.

"We have enough fiscal reserves to cover the deficit. We may think about the eurobond for some investment projects, particularly in road infrastructure," he said. (Editing by Dale Hudson)

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