Sofia seeks €3.8 billion as deficit climbs

Bulgaria entered the euro with a deficit already moving the wrong way. The Commission’s spring forecast put the budget deficit, the gap between public spending and revenue, at 3.5% of GDP in 2025, 4.1% in 2026 and 4.3% in 2027, above the EU’s 3%-of-GDP ceiling across the forecast period (Bulgaria forecast, European Parliament fiscal brief). The June file matters because Sofia now has to turn euro-entry promises into a budget investors and EU institutions can believe.

Markets Move Before Fines

As of 15 June, the EU had not fined Bulgaria. The Commission had recommended opening a formal deficit case, while the Council still had to take the legal decision after preparatory work by finance officials, according to the Commission’s spring package and Parliament’s June fiscal brief.

Once that case opens, Sofia has to submit a repair plan and show it is acting on it. The Council’s own guidance sets the order: assessment, decision, recommendation, and sanctions only if a government keeps missing the agreed fix.

The economic pressure arrives earlier. Investors buying government bonds ask whether the deficit is temporary or built into wages, pensions, subsidies, defence commitments and weak tax collection. If they decide the gap is built into the budget, they demand higher interest to lend, and the government’s interest bill starts crowding out the same spending politicians were trying to protect.

Sofia Still Has To Write The Budget

Parliament’s withdrawal of the 2026 state, health-insurance and social-security budgets left Sofia without a settled fiscal plan around euro adoption. The budgets were pulled after protests over tax and contribution increases, according to BNR.

The clearest cash signal is the government’s request for authority to raise up to €3.8 billion in new debt, partly to finance the current deficit and partly to pre-finance Recovery and Resilience Plan spending, BTA reported. Parliamentary reporting also said the finance ministry had already reached its initial 2026 debt-issuance limit by January-May, according to Investor.bg. That does not prove a funding crisis. It does show why a deficit target written into a budget table will not be enough.

The pain is easy to locate. Finance Minister Galab Donev told Parliament that discussions included reducing net spending by 0.5% of GDP and that salaries, social payments and pensions made up about 76% of expenditure, according to BTA. Spending cuts would hit public-sector workers, pensioners, benefit recipients and ministries with weaker political protection. Higher revenue would fall on households and firms through taxes or stricter collection. More borrowing would move the bill into later budgets through debt service, meaning interest and repayments.

The Rules Followed Bulgaria Into The Euro

Bulgaria’s case will travel beyond Sofia. Euro-sceptic parties in Poland or Italy can use it as a simple warning that euro entry brings fiscal trouble. The evidence supports a narrower lesson: joining the euro did not suspend budget discipline.

Bulgaria became the euro area’s 21st member at the fixed conversion rate of 1.95583 levs per euro after the Council’s July 2025 approval, as the ECB later summarised in its economic bulletin. The deficit path comes from domestic budget choices meeting EU rules. The currency change made the test more visible, but it did not mechanically create the gap between spending and revenue.

Romania shows the more expensive version of the same credibility problem. Romanian reporting put its 2025 deficit at 7.9% of GDP and the 2026 projection at 6.2%, while describing it as the EU’s largest deficit case, according to Termene. Other Romanian reporting cited a 10-year yield near 7.3%, meaning investors were demanding that interest rate to lend for a decade, Gândul reported. Bulgaria is not Romania, but the channel is the same: fiscal doubt moves from official meetings into wages, taxes, pensions, investment plans and interest bills.

The question now is how Sofia adjusts. A credible budget would show which fixes are permanent, which only work once, how much comes from tax collection, and how much comes from slower spending or delayed investment. It would also separate borrowing used to cover the deficit from borrowing used to pre-finance EU-backed projects. Until that table exists, the live issue is whether Sofia is reversing the slippage or carrying it into the next budget.