Bulgaria Gets EU Deficit Repair Order

Bulgaria has barely arrived in the euro and already its first budget inside the currency union is being turned into a correction plan. The Commission has decided to recommend an excessive deficit procedure, the EU mechanism used when a government’s annual gap between spending and revenue breaches the rules.

The numbers have moved the wrong way. Bulgaria’s deficit rose from 3.0% of GDP in 2024 to 3.5% in 2025, with the Commission forecasting 4.1% in 2026 and 4.3% in 2027 in its 2026 European Semester Spring Package. Bulgaria joined the euro area on 1 January 2026, Eurostat says, and Fakti reported from Luxembourg that the Commission still intends to proceed.

Debt gives Sofia some breathing space. The stock of past borrowing is rising, but it remains well below the EU’s debt yardstick. The pressure is in the annual overspend. Commission Executive Vice-President Valdis Dombrovskis has also narrowed the defence argument: 2025 military spending can be treated under the escape clause, which gives governments leeway for extra defence outlays, but the 2026 breach can no longer be explained fully by defence spending, BTA reported.

The Budget Math Lands In Sofia

The number that now matters is net expenditure. That is state-funded spending after items such as EU money and some temporary costs are stripped out. Under Regulation 2024/1263, it has become the main gauge for judging whether a government is keeping spending under control.

Prime Minister Galab Donev told parliament the Commission had referred to a 0.5% of GDP reduction in net expenditure. He said roughly 76% of spending went on salaries, social payments and pensions, leaving around 24% for investment, BTA reported.

That split is where the politics begins. If three-quarters of spending is tied up in wages and benefits, trimming office costs will not do the job. Sofia has to choose between slower payroll growth, pension indexation, tighter tax collection, procurement cuts, delayed investment, new borrowing, or some combination of them.

Each option moves the bill somewhere else. Public employees, pensioners, suppliers, construction firms, taxpayers or future budgets will feel the adjustment, depending on the route chosen.

Tax Collection Is The Cleaner Route

Donev wants to raise more money without increasing headline taxes. He has promised action against the shadow economy, meaning business kept off the books, and better tax collection while saying basic taxes and social-security contributions will not rise. Social-security contributions are payroll charges that fund benefits.

His list also includes administrative mergers, moving services online, spending limits and wage-control tools, with most effects expected in 2027-2028, Investor.bg reported.

That approach rewards compliant firms, because competitors taking cash off the books lose part of their price advantage. But administrative savings land elsewhere. Public workers may face fewer posts or reorganised offices. Citizens may pay indirectly if merged services become slower or harder to reach.

Croatia shows why digital tax control appeals to governments. Its fiscalisation system, which digitally records invoices and receipts, has processed more than 56 million e-invoices across more than 325,000 businesses, including 96,000 small taxpayers using a free app, Poslovni reported.

That points to a way for Bulgaria to make hidden activity visible without raising rates. The danger is in the design. If small firms end up carrying most of the paperwork, the political cost can build quickly.

Borrowing Markets Are Watching

Romania shows what happens when repair is delayed. Termene reported a 7.9% deficit in 2025 and public debt at 59.3% of GDP, a mix that can push up borrowing costs, the interest investors demand to lend.

Malta sits at the other end of the story. Proceedings were dropped after its deficit moved sustainably below the limit, Bluewin reported.

Bulgaria has more room than Romania because its debt remains lower. But the structure of its budget makes the repair concentrated. The next budget has to show how much will come from tax collection, wages, pension formulas, procurement, investment timing or borrowing. The excessive deficit procedure makes the arithmetic public. Sofia still decides whose income, services or margins absorb it.