Sofia’s deficit breaks euro rules

Bulgaria’s parliament has approved a 2026 budget with a deficit of 5.7% of GDP and up to €10.1 billion in new borrowing (BTA). The EU’s deficit ceiling is 3% of GDP. In plain terms, that is the maximum gap Brussels allows between what a government spends and what it collects. Sofia is almost double that limit.

The timing matters. Bulgaria has just joined the euro area and is already under the EU’s formal correction process for overspending. For Maltese readers, this is not a distant technical row. Malta remembers how euro membership changes the room for manoeuvre: once a country enters the common currency, its budget choices become a matter for the whole club.

The Numbers Keep Getting Worse

The European Commission’s spring forecast had already flagged the problem: deficits of 3.5% in 2025, 4.1% in 2026 and 4.3% in 2027 (European Commission). The budget now adopted goes beyond even that warning. Eurostat’s quarterly figures show where the trajectory is heading: 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 formal EU process triggered when a member state breaches the 3% line. Sofia must present enacted budget measures, not political assurances, by 15 October 2026 (Council of the EU, Global Banking & Finance/Reuters). If the breach continues, the process can eventually lead to fines. Under the new EU fiscal rules, Brussels also looks at how fast spending is growing. The question is whether a government is changing the path of expenditure, not merely producing a better headline number for one year (European Commission).

This is not yet a debt crisis. Bulgaria’s public debt is about 28.5% of GDP, low by European standards (Eurostat). The issue is credibility. Sofia has entered the euro area while approving a budget course that Brussels cannot easily square with the rules it is supposed to enforce.

France shows the other side of the same problem. The IMF projects a French deficit of 5.2% in 2026, while French public debt reaches 117.6% of GDP, about four times Bulgaria’s ratio (IMF, Eurostat). As we reported earlier this week, Paris is under growing pressure to produce a credible plan, with savings measures already cutting into health spending (To Brief). Bulgaria tests whether Brussels can move quickly against a small euro-area member. France tests whether the same system can keep pressure on a large economy whose debt carries continental weight. The two cases are being read together in Vienna, Berlin, Bucharest and Warsaw.

Who Actually Pays

If Bulgaria complies through spending restraint, the room is limited. Salaries, social payments and pensions make up about 76% of expenditure (BTA). That does not mean automatic cuts. It means no serious adjustment can avoid those areas unless taxes rise or investment is delayed. Bulgaria’s domestic debate already includes public-sector wage freezes as part of the price.

If Sofia delays, the cost moves elsewhere. Investors demand higher yields, meaning the government pays more to borrow. Interest payments then take money from other parts of the budget, and the next government inherits less space. Bulgaria’s finance minister has suggested the final deficit may come in below 5.7% if the late-starting budget leaves capital projects unfinished (Economic.bg). That would improve the headline without changing the structure, a familiar device in Sofia: one-off measures such as advance bank taxes can flatter the near term while narrowing future choices.

Bulgaria’s low debt gives it time most European governments do not have. But the 2026 budget has made enforcement the real test. By October, Brussels will have to show whether euro-area membership still comes with fiscal discipline, or whether a new currency is easier to adopt than the rules behind it.