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Inflation shock and investment prospects: how Bulgaria adopted the euro and why this experience matters for Hungary
When paying at one of central Sofia’s cafes, you might find not the familiar leva in your change, but new Bulgarian euro coins. Since January 1st, despite massive protests, the resignation of the president, and the collapse of the government, Bulgaria has adopted the euro. The country had been on the path to abandoning its national currency for 18 years since joining the European Union. Now economists’ attention is turning to Budapest, as, depending on the outcome of the April elections, Hungary may follow a similar path.
The decision to introduce the single European currency divided Bulgarian society. Big business, which lobbied for the single currency, saw it as a way to simplify international financial transactions and attract investment. However, according to Eurobarometer data, nearly half (49%) of citizens did not support this move. The main fears were fueled by the risks of price increases, which triggered public discontent in 2025.
The protest campaign against the euro was based on a generally negative attitude towards the single currency among a large part of the population. Many entrepreneurs faced problems obtaining starter kits of euro cash to operate from the start of the new year. Despite a legal ban on price hikes for the first six months, hundreds of consumer complaints were filed as early as January. The National Revenue Agency reported pricing violations, although it dismissed suggestions of widespread abuses.
The now-resigned Prime Minister Rosen Zhelyazkov spoke in defense of the euro. He called for “tolerance and understanding,” insisting that inflation was not directly linked to the euro. However, the figures from the National Statistical Institute speak for themselves. The rise in food prices in Bulgaria began after the decision to introduce the single currency was announced.
Now similar trials may come to Hungary. Analysts believe the issue of euro adoption directly depends on the results of the upcoming elections. Interestingly, as in Bulgaria, lobbying for the single currency is linked to big business. István Kapitány, the new economic policy lead for the Tisza party, who built his career at Shell, explains why Hungarians should abandon the forint:
Poll-leader Tisza Party vows swift euro adoption in Hungary
Bulgaria’s experience shows the mixed results of adopting the euro. On one hand, it opens new prospects for medium and large businesses. On the other, it carries risks: for the population in the form of higher prices, and for the authorities in the form of public discontent.
For Budapest, standing on the threshold of an important political choice, Sofia’s experience can serve as an important lesson. By the end of April, it will become clear whether Hungarians will find euro coins featuring images of Saint Stephen, Lajos Kossuth, Ferenc Deák, and other historical figures in their pockets.
If you missed it: The Bulgarian euro outlook unveiled in Budapest
In this discussion, the key element is missing: The Bulgarian Leva was fist directly tied to the DM – yes, the Deutsche Mark – and then, once the € replaced the DM there, the Bulgarian currency was directly tied to the Euro. With a fixed exchange rate! For years! What inflation is concerned: We also have different inflation rates in countries within the euro-zone. National mismanagement, bad policies, too high state debt versus the few better governed ones…the list is endless, why things are running differently for each and every country. Now, the Bulgarian experience cannot be compared to Hungary – the Forint has never been tied to a DM or Euro. It has always been floating around as per the steering of the Hungarian National Bank and per market participants’ anticipations. Currently, many cheer that the Forint is going up and up, supposedly because of an anticipation of Tisza winning. A stronger currency – matter of national pride, but poison for exporters.
You’re correct, Raoul, about why Bulgaria’s experience is different. They were Eurozone members in all but name ever since the Euro was introduced, experiencing a fixed exchange rate but without the advantage of low Eurozone interest rates or the lack of need to convert currency. It made complete sense for them to join as they clearly weren’t about to abandon the Leva’s peg to the Euro.
The situation is more nuanced in Hungary but you raise a good point (deliberately or by chance), namely, different parts of society want different things for the strength of the HUF for quite logical reasons. Employees and consumers seek a strong Forint so that their money goes further when buying imported goods or while travelling abroad. Businesses, a large part of which are export orientated in a small country like Hungary seek a weak Forint to make their output more competitive on global markets. Joining the Euro would eradicate this inherent tension. Employees receive salaries in a stable and strong currency while businesses benefit from exchange rate predictability, pricing in a familiar currency with no conversion costs for buyers, last but by no means least they gain access to low interest rate Euro denominated finance to spur growth.