Sofia turns to €3.8 billion debt

Bulgaria entered the euro with its public finances already under strain. The Commission’s spring forecast put the budget deficit, the gap between state spending and revenue, at 3.5% of GDP in 2025, 4.1% in 2026 and 4.3% in 2027. That keeps Sofia above the EU’s 3%-of-GDP ceiling throughout the forecast period (Bulgaria forecast, European Parliament fiscal brief).

The June file matters because Bulgaria now has to turn the promises made around euro entry into a budget that investors, Brussels and eurozone finance ministries can take seriously.

Markets move before fines

As of 15 June, Bulgaria had not been fined by the EU. 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 the case opens, Sofia must submit a correction plan and show it is acting on it. The Council’s own guidance sets out the sequence: assessment, decision, recommendation, and sanctions only if a government keeps missing the agreed adjustment.

The market pressure comes earlier. Investors buying government bonds will ask whether Bulgaria’s deficit is a temporary overrun or something built into wages, pensions, subsidies, defence commitments and weak tax collection.

If they decide the gap is structural, they will demand higher interest to lend. The government’s interest bill then starts eating into the same spending that 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 Bulgaria 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. Part of it would finance the current deficit, while part would 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 writing a deficit target into a budget table will not, by itself, restore confidence.

The squeeze is not hard to identify. 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 less political protection. Higher revenue would fall on households and firms through taxes or stricter collection. More borrowing would push 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 an easy warning that joining the euro brings fiscal trouble. The evidence points to a narrower lesson: euro entry does 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. 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 issue 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 question is whether Sofia is reversing the slippage or carrying it into the next budget.