REPEAT: MNI: Bulgaria Set For First Official Step On Euro Path

Repeats Story Initially Transmitted at 09:45 GMT Feb 2/04:45 EST Feb 2

--ECB Said To Be Concerned Bulgarian Banks' Situation

--Sofia To Apply For Full ERM Membership By June

By Jean Comte

     BRUSSELS (MNI) - Bulgaria is readying an application to join the European

Exchange Rate Mechanism (ERM) by June -- a first step on the path toward

membership of the euro, despite concerns at the European Central Bank, MNI has

learnt.

     MNI understands that the ERM application will be made after the publication

of the next "convergence report" -- a yearly document from the European Central

Bank and the EU Commission joint report which assess progress of every EU member

state toward the euro. Publication is currently planned on the May 23.

     But according to one source, the ECB is not enthusiastic at this stage.

"Mario Draghi is blocking, he is worried about the state of Bulgarian banks,"

the source said.

     MNI understands that the ECB is likely to submit a specific stress-test or

asset quality review for Bulgarian banks when the country asks to join the ERM.

     Corporate Commercial Bank, then one of Bulgaria's major financial

institution of the , collapsed in 2014, amid what the ECB described as

"imprudent business practices", "inefficient supervision" and "fundamental

institutional problems".

     Sofia's move comes after a push from the EU Commission to bring more EU

member states into the single currency club, as already reported by MNI last

September. Bulgaria is widely seen as the best candidate on the list -- even if

the last convergence report points to 'medium risks' to fiscal sustainability

and stressing the need for institutional reforms.

     Bulgaria's currency is already de facto pegged to the euro -- with an

exchange rate of 1.95583 levs per euro.

     The ERM is the mechanism used to peg a non-euro currency to the euro, in

order to prevent large exchange rate fluctuations. Under European Union rules, a

country wishing to join the euro must first spend 2 years in the ERM before

officially applying for single currency membership.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com