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Bulgaria’s journey from adopting the euro to facing formal EU disciplinary action over its budget was remarkably short. On 1 January 2026 the country introduced the single currency. By 3 June the European Commission proposed launching an excessive deficit procedure against it.
That same day Reuters reported the essence of the coming fiscal pressure: the Commission recommended disciplinary steps because Bulgaria’s budget deficit exceeded the limits set by EU rules. Finance Minister Galab Donev acknowledged that the deficit would likely reach 7.4 percent of GDP in 2026 and that this would trigger EU measures. He noted that previous governments had repeatedly reported annual deficits of around 3 percent of GDP for five years by postponing certain payments. The government would now have to freeze revenues and cut public spending to bring the deficit back within EU limits. Countries placed under the procedure receive deadlines and prescribed fiscal measures. Failure to act can lead to warnings and, for eurozone members, financial sanctions.
The Commission’s detailed recommendation (Recommendation for a Council Recommendation on the economic, social, employment, structural and budgetary policies of Bulgaria) laid out the numbers. According to Eurostat data, Bulgaria’s general government deficit rose from 3 percent of GDP in 2024 to 3.5 percent in 2025. The increase was driven mainly by higher public-sector wages—especially in defence and security—rising social expenditure including automatic pension indexation, and state investment in the energy sector.
Looking ahead, the Commission warned that demographic trends would play a decisive role. Population ageing would steadily increase pressure on social spending, particularly pensions and healthcare, while also raising questions of adequacy. Additional outlays required to strengthen national and collective defence capacities would further strain public finances. Without appropriate policies these factors would make fiscal discipline harder to maintain. Tax revenues as a share of GDP remain well below the EU average, limiting the country’s ability to fund public services and investment.
The Commission listed a series of structural weaknesses: low tax collection, the largest shadow economy in the EU, high-level corruption, problems in public procurement, unsatisfactory research and innovation performance, energy poverty, low energy efficiency and limited decarbonisation, few electric trains, vulnerability to climate risks, poor education outcomes, skills shortages that hamper competitiveness, four consecutive years of declining total employment despite a record-low unemployment rate of 3.5 percent, a labour shortage estimated at more than 230 000 workers, a high share of young people neither in employment nor education (especially among people with disabilities and the Roma community), and persistent poverty, inequality and challenges for social protection.
Recommended measures included sticking to maximum net expenditure growth rates, increasing defence spending, making public expenditure more efficient and gradually adjusting the budget, improving energy efficiency, fighting the shadow economy, raising tax collection, continuing reforms and investment under the Recovery and Resilience Facility and cohesion policy, strengthening public administration, tackling high-level corruption, reinforcing judicial independence, improving public procurement, strengthening independent regulators, raising the efficiency of public research and development investment, accelerating decarbonisation including onshore and offshore wind, promoting cleaner transport, aligning vocational education with labour-market needs, increasing employment among under-represented groups, addressing social inclusion, and making the health system more efficient (fewer hospitals, more outpatient care) while distributing medical staff more evenly across the country.
These observations point to more than a temporary budgetary shortfall. They describe an existential challenge for the EU’s most peripheral eurozone member. After the exodus of its most vital, educated and productive citizens—set in motion by EU accession—Bulgaria has been left with a shortage of workers and a surplus of pensioners, alongside numerous other acute problems. Together they produce a growing budget deficit, slower GDP growth and a darkening outlook for the country inside the official European framework. No EU measures or funds can fully mitigate, let alone resolve, the core issues, beginning with depopulation and population ageing. Even further inflows of hundreds of thousands of migrants from Asia and Africa—who largely view the Balkans as a transit route to Western Europe—would not reverse the trend. The domestic human capital that has already left is largely lost for good, and the mortality rate will continue to exceed the birth rate.
The budget deficit that triggered the Commission’s action was detailed in a June 2026 report covering several member states. Only Bulgaria, with a deficit of 3.5 percent of GDP, exceeded the reference value at the time of the analysis; Croatia stood at the 3 percent threshold. By 2026 all five countries examined were projected to run excessive deficits that would persist into 2027. Other member states were expected to keep deficits below the limit or to run surpluses.
In July 2025 the Commission activated a national escape clause to facilitate higher Bulgarian defence spending for 2025–2028. Without that increase the 2025 deficit would have been 2.9 percent. In 2026, however, the deficit excluding the additional defence outlays would still have reached 3.5 percent, above the reference value, prompting the recommendation to correct the excessive deficit.
Eleven EU countries were under excessive deficit procedures at the time—Austria, Belgium, Finland, France, Hungary, Italy, Malta, Poland, Romania and Slovakia—while sixteen had exited the procedure. Bulgaria benefits from having one of the lowest public-debt ratios in the Union (around 28.5 percent of GDP), alongside Estonia and Denmark. This compares favourably with the eurozone average of 88.9 percent and the EU average of 82.9 percent, and stands far below the most indebted members: Greece (143.5 percent), Italy (138.9 percent), France (117.6 percent), Belgium (109.1 percent) and Spain (101.6 percent). Even relative to Germany’s 64.4 percent, Bulgaria’s debt burden is more than twice as light. Public debt is simply accumulated past deficits; a moderately higher Bulgarian deficit in the coming years is unlikely to threaten the country’s ability to service its obligations, which are mostly held within the eurozone.
Yet membership of the euro area brings stricter constraints. Article 125 of the Treaty on the Functioning of the European Union prohibits financial assistance to member states in difficulty. By transferring monetary sovereignty to the European Central Bank at the beginning of 2026, Bulgaria did not surrender much additional power: its central bank had already operated under a currency-board regime since 1997, first pegged to the Deutsche Mark and later to the euro, with foreign-exchange reserves automatically determining the money supply. The key difference is fiscal. Every budget proposal must now be approved by the European Commission before reaching the National Assembly, and the country is subject to consolidation measures and the threat of fines that cannot be imposed on non-euro members.
More efficient public spending and better tax collection are the primary remedies suggested by the Commission. Slower adjustment of pensions to overall price levels is as much a political as an economic problem and will inevitably dampen domestic demand. A more serious economic and social risk lies in restraining public-sector wages, already the lowest in the EU. This will further reduce the quality of public services and, more damagingly, encourage another wave of emigration among skilled professionals. One definition of GDP is the sum of factor incomes (wages, profits and rents). The result is a threatening interactive spiral: depopulation → ageing → economic stagnation → permanent budget deficit → rising public debt → further emigration.
Is there a way out for Bulgaria? It is difficult—harder than for other Eastern European EU members. Freedom of movement within the Union cannot and should not be restricted by any member state. Similar problems confront candidate countries that still retain some monetary and fiscal autonomy. The immediate cause of this sombre outlook is not the euro itself but the rules of the eurozone and the strict interpretation of Article 125.
One comparative analysis that has yet to be properly conducted would weigh the public investment in the education and training of citizens who later emigrated against the net inflow of EU funds. A provisional estimate suggests that the “tax” paid in skilled, mostly young people regularly exceeds the financial transfers received.
The story of Bulgaria’s rapid move from euro adoption to budgetary discipline illustrates both the opportunities and the constraints of deeper integration. Low debt provides a buffer, yet structural weaknesses—above all demography—will continue to test the country’s capacity to reconcile eurozone rules with the realities of a shrinking and ageing population.
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