Sofia Breaks Euro Deficit Rules

Bulgaria has barely settled into the euro area and already it is testing one of its basic disciplines. Parliament in Sofia has approved a 2026 budget with a deficit of 5.7% of GDP and permission for up to €10.1 billion in new borrowing (BTA). The EU ceiling is 3%: in plain terms, the gap a government is allowed to run between what it spends and what it raises.

That makes this more than a Bulgarian budget row. A new euro member, already inside the EU’s formal process for correcting overspending, has voted through a deficit almost twice the permitted level. Sofia is asking a question Brussels would rather not face so early: what do the euro’s fiscal rules mean when a country simply presses ahead?

The Numbers Keep Getting Worse

The European Commission had already seen trouble coming. Its spring forecast pointed to Bulgarian deficits of 3.5% in 2025, 4.1% in 2026 and 4.3% in 2027 (European Commission). The budget now adopted goes well beyond that. Eurostat’s quarterly figures show the direction of travel: Bulgaria ran a 7.6% government deficit in the first quarter of 2026, the highest in the EU (Eurostat).

Brussels has opened the Excessive Deficit Procedure, the EU mechanism triggered when a member state breaches the 3% limit. It is not just a warning letter. Sofia must produce enacted budget measures, not aspirations, by 15 October 2026 (Council of the EU, Global Banking & Finance/Reuters). If non-compliance continues, the process can eventually lead to fines. Under the newer EU fiscal rules, Brussels also looks at how fast spending is growing, not only the headline deficit, because a tidy number in one year means little if expenditure is still running away underneath (European Commission).

There is, however, a reason this is not yet a classic debt scare. Bulgaria’s public debt is roughly 28.5% of GDP, low by European standards (Eurostat). Sofia is not broke. The issue is credibility: a country has entered the common currency while adopting a budget path that the Commission can hardly pretend is compatible with the rules.

France shows why the Bulgarian case matters beyond Sofia. The IMF expects France to run a 5.2% deficit in 2026, with public debt at 117.6% of GDP, about four times Bulgaria’s ratio (IMF, Eurostat). As we reported earlier this week, Paris is under growing pressure to deliver a credible plan, with savings already cutting into health spending (To Brief). Bulgaria tests whether Brussels can move quickly against a small euro-area member whose deficit is worse than forecast. France tests whether the same system can keep pressure on a large state whose debt makes the consequences harder to contain. Capitals from Vienna and Berlin to Bucharest and Warsaw will be reading the two cases together.

Who Actually Pays

If Bulgaria chooses to comply through spending restraint, the room for manoeuvre is limited. Salaries, social payments and pensions make up about 76% of expenditure (BTA). That does not mean they must all be cut. It does mean they cannot be left outside any serious adjustment unless taxes rise or investment is delayed. The domestic debate in Bulgaria already includes public-sector wage freezes as part of the price.

If Sofia waits, the bill moves rather than vanishes. Investors look for higher yields, interest costs take a larger share of the budget, and later governments inherit less freedom. Bulgaria’s finance minister has suggested the final deficit may come in below 5.7% if the late start to the budget leaves capital projects unfinished (Economic.bg). That would help the headline without changing the structure. Sofia has used that kind of device before, improving near-term numbers with one-off measures such as advance bank taxes while narrowing future room.

Bulgaria’s low debt gives it time most European governments would envy. But the adopted budget has made enforcement, rather than solvency, the point. The October deadline will show whether euro membership brings fiscal discipline with it, or whether it can become simply a new currency wrapped around old habits.