Sofia Breaches Its Deficit Rule

Bulgaria’s 2026 budget row starts with a rule Sofia wrote for itself and now appears ready to breach. Committee material reported by Infobusiness/BCCI puts the planned consolidated deficit, the gap between what the state spends and what it collects, at 5.7% of GDP in 2026. Bulgaria’s Public Finance Act reportedly caps the deficit at 3%, which makes the draft a domestic legal problem before Brussels even enters the room, Fakti reported. The plan says the deficit would fall to 3.8% in 2027 and 3.0% in 2028; in other words, the government is promising to fix the breach later rather than avoid it now, according to Infobusiness/BCCI.

Low debt makes the immediate danger look smaller, but it does not solve the credibility problem. The draft puts state debt at €37.7 billion, or 30.1% of GDP, by the end of 2026, rising to 35.2% in 2028; the EU debt reference value is 60% under Article 126 TFEU. Sofia therefore has room to borrow before debt itself becomes alarming. The cost is more political and financial: once a fiscal rule is moved aside when spending pressure rises, it stops doing the job it was meant to do.

Low Debt Is Not a Free Pass

Dimitar Radev, governor of the Bulgarian National Bank, put the warning plainly: the draft deepens a negative budget trend visible since 2020 instead of reversing it, BTA reported. A deficit always has to be financed. The state either borrows from lenders today, asks taxpayers to pay more tomorrow, or cuts later.

The government’s best argument is that rushing back to the 3% ceiling could mean sudden cuts, delayed investment, or tax pressure. The draft instead offers a slower correction, as Infobusiness/BCCI reported. That case holds only if the deficit is genuinely temporary and the political system can deliver the promised correction.

The danger is sharper if the gap is baked into the budget rather than caused by a short-term shock. Fiscal Council member Lyubomir Datsov was cited as saying the deeper problem is a structural deficit of about 4% by the Commission’s estimate; put simply, this means the state would still be spending more than it raises even after normal economic ups and downs are stripped out, Fakti reported. Growth alone would then not close the gap. Sofia would have to cut commitments, raise revenue, or keep borrowing.

Who Pays If Trust Weakens

The immediate winners are easy to identify: people and institutions spared cuts in current public spending. The losers arrive later. Future taxpayers carry the interest and repayment bill, businesses may face more expensive credit if the state takes up more borrowing capacity, and households live with the possibility of higher taxes or tighter public services.

The inflation risk is harder to pin down. A larger deficit can add pressure when demand is already strong, because the state keeps spending beyond stable revenue. The public record does not show that this draft has already pushed up prices or yields, the interest investors demand to hold government bonds. The narrower point is enough: it weakens the benchmark investors and Brussels would use to judge the next budget.

EU rules give Brussels a formal route when the 3% deficit reference value is breached, as the Commission’s guidance and the Council’s note set out. The record does not show a case over this draft. It shows why Sofia has made that risk easier to raise.

The euro question is about the signal sent after the test. ECB and Commission convergence material link euro entry to sustainable public finances, and a 5.7% target in 2026 would not rewrite earlier assessments; it would create a fresh credibility problem after Bulgaria had supposedly shown discipline (ECB, Commission, Infobusiness/BCCI). That is why the domestic cap matters beyond domestic law.

Malta understands this kind of trade-off well. A small state can defend a flexible fiscal path when it is investing, cushioning households, or protecting a growth model. But credibility is also a national asset. For countries on the EU’s edge of deeper integration, especially those trying to show they can live inside the euro’s discipline, the question is not only whether the numbers are affordable this year. It is whether the rules still mean something when they become inconvenient.

Romania matters because investors compare budget paths across the region. Digi24 reported, citing Romania’s central bank, that Romania’s EU-accounting deficit was 7.9% of GDP in 2025 and that the Commission’s spring forecast saw 6.2% in 2026, leaving Bucharest the more exposed south-eastern EU case. Bulgaria remains in a better position. The comparison also shows how quickly the debate can move from one annual budget to a country’s whole fiscal direction.

Bulgaria can afford some extra borrowing. What it cannot do cheaply is make a 3% rule look optional. Sofia now has to prove that the 2026 breach is a bridge back to discipline, not a rewriting of discipline.