FRANKFURT (Reuters) - Bulgaria and Croatia have been accepted into ERM-2 mechanism, a mandatory stage for joining the euro and beginning the currency bloc’s first expansion in half a decade, the European Central Bank said on Friday.
Following the approval from euro zone finance ministers and ECB officials, the two eastern European nations will also join the bloc’s banking union, putting their biggest lenders under the ECB’s supervision from Oct. 1, the bank said in a statement.
The two nations must spend at least two years in ERM-2 before starting the practical preparations to join the euro, a process that takes roughly another year, making 2023 the earliest year for their membership.
The decision “represents an important milestone in Bulgaria and Croatia’s efforts to join the euro area,” the European Commission said.
Joining the euro would be a particular breakthrough for Bulgaria, which joined the EU in 2007 and has struggled against concerns about organised crime and its relative poverty. It has the lowest per capita economic output of the bloc.
For Croatia, which joined the EU in 2013, it represents a means to cement its economic gains and stability since the break-up of Yugoslavia in the 1990s.
Already many in Croatia save in euros and the country is also seeking to join the bloc’s passport-free Schengen travel zone.
During the minimum two years of ERM-2, the two nations need to pursue sound economic policies, meet membership criteria and have a stable exchange rate.
Both countries will sit on the ECB’s Supervisory Board from October with full voting rights.
As part of ERM-2, the ECB set the central rate of the Bulgarian lev at 1.95583 against the euro and the Croatian kuna’s central rate was set at 7.53450.
Additional reporting by Robin Emmott in Brussels; Editing by Toby Chopra and Barbara Lewis