Bulgaria joined the eurozone on January 1, becoming the currency union’s 21st member. The euro replaced the Bulgarian lev, with a final exchange rate set at 1 euro = 1,96 levs as of Dec. 31. President Rumen Radev said in his New Year’s statement: “The introduction of the euro is the final milestone in Bulgaria’s integration into the European Union — a place that we deserve with the achievements of our millennial culture and the civilizational contribution of our country.” The Bulgarian central bank’s governor, Dimitar Radev, has taken a seat on the table with the Governing Council of the European Central Bank. “I warmly welcome Bulgaria to the euro family and Governor Radev to the ECB Governing Council table in Frankfurt,” ECB President Christine Lagarde said in a statement on Thursday. People will still be able to pay in levs for about a month, but they will start getting their change in euros. Until June 30, old money can be exchanged for no fee at banks and post offices, and indefinitely at the Bulgarian Central Bank. Public opinion, however, remains mixed. According to a Eurobarometer poll from March, 53 percent of 1,017 Bulgarians surveyed opposed joining the eurozone, while 45 percent were in favor. A majority also felt Bulgaria was not ready to introduce the euro. The main fear was concern over “abusive price setting during the changeover.”  Bulgaria joined the European Union on January 1, 2007. In an official EU survey from May, 58 percent of Bulgarians said the country has benefited from its EU membership.

BRUSSELS — EU taxpayers will have to pay €3 billion per year in borrowing costs as part of a plan to raise common debt to finance Ukraine’s defense against Russia, according to senior European Commission officials.  The bloc’s leaders agreed in the early hours of Friday to raise €90 billion for the next two years, backed by the EU budget, to ensure Kyiv’s war chest won’t run dry in April.  The war-ravaged country faces a budget shortfall of €71.7 billion next year and is in desperate need of funds to ensure its survival after Russian President Vladimir Putin pledged to keep the conflict going on Friday.  Czechia, Hungary and Slovakia will not join the bloc’s other 24 countries in sharing the debt burden, but agreed not to obstruct Ukraine’s financing needs. As part of the carve-out deal, the Commission will propose a so-called enhanced cooperation early next week, giving the 24 countries a legal platform to raise joint debt. Many of the hallmarks of the €210 billion financing package for Ukraine will be transferred to the new plan for common debt. These include payout structures in tranches, anti-corruption safeguards, and an outline for how much money should be spent on Kyiv’s military and the country’s budgetary needs. European governments resorted to joint debt after failing to agree on a controversial plan to leverage frozen Russian assets across the bloc. The new plan would provide Ukraine with €45 billion next year, handing Kyiv a crucial lifeline as it enters its fifth year of fighting. The remaining funds would be disbursed in 2027. COST OF BORROWING The new plan won’t come cheap. The EU is expected to pay €3 billion annually in interest from 2028 through its seven-year budget, which is largely financed by EU governments, senior Commission officials told reporters on Friday. Interest payments would begin in 2027, but would cost only €1 billion that year. Ukraine will only have to repay the loan once Russia ends the war and pays war reparations. That seems unlikely, which means the EU could continuously roll over the debt or use frozen Russian assets to repay it.  That would require another political agreement among EU leaders, as Belgium is strongly opposed to using the frozen assets, most of which are held in the Brussels-based financial depository Euroclear. It was Belgium’s resistance that ultimately forced leaders to pursue common debt. Belgian Prime Minister Bart De Wever wanted unlimited financial guarantees against the Russian asset-backed loan, a demand too great for his peers. 

EU governments pursued additional privacy safeguards to ensure people’s payment habits are kept under wraps as part of a legislative framework for minting a virtual extension of euro banknotes and coins. The Council of the EU rubberstamped its negotiating position for a digital euro on Friday afternoon after clinching a deal earlier this week, as reported by POLITICO. The onus is now on members of the European Parliament to agree on a legal text so that both sides can begin legislative negotiations next year. The digital euro was the European Central Bank’s answer to Meta’s (failed) plan to launch its own virtual currency, called Diem, for its 3 billion users. Since Diem’s demise, ECB policymakers have pitched the project as a vital strategy to reduce the bloc’s reliance on U.S. credit card giants, Mastercard and Visa, for cross-border payments. EU shoppers would be able to pay with the virtual currency, backed by the central bank, across the bloc in the form of plastic or a smartphone app. The spread of Big Brother-style conspiracy theories, meanwhile, has forced policymakers to take extra precautions to reassure the public that authorities will not use the digital euro to snoop on people’s payment habits. “You cannot disregard” the concern of “many millions of citizens,” Fernando Navarrete, the center-right MEP shepherding the bill through the Parliament, told POLITICO in November. “In China, it’s explicit that they wanted to build [a digital yuan] in order to increase control over the people. I’m scared of this.” Navarrete, who hails from the European People’s Party, is highly skeptical of the initiative but is comfortable with the notion of an offline version of the digital euro that protects people’s privacy. “I’m not saying it will be used” for snooping, “but they know that the technology has potential,” he said. On the contrary, consumer groups have praised the initiative, assuming the digital euro is safe, free, and private. Banks are far less enthusiastic. Especially, as they’ll be on the hook for distributing basic digital euro services to their clients at no extra cost — a bill that could amount to over €5 billion over four years, according to ECB estimates. Bankers’ protests aside, the biggest obstacle facing the digital euro is countering conspiracy theories that the authorities will use the ECB’s project to control the populace — despite reassurances from the European Commission and the ECB. The Commission’s original proposal and the ECB’s envisioned design for the project already prevent the central bank from matching people’s digital euro accounts with citizens’ personal data. That wasn’t enough for some countries, in particular Belgium and the Netherlands, which fear the project could be politically weaponized. The final text has even strengthened privacy safeguards, making it explicit that central banks “shall not be in a position to lift these [segregation] measures during any processing of the data.” APPEASING THE BANKS Mindful of the crucial role that banks will play in getting digital euros into citizens’ virtual wallets, EU governments have tried to make the project more palatable for the industry. The key to pleasing bankers is ensuring they make money from the initiative. Once the digital euro is minted, banks can charge shopkeepers a fee for processing transactions at the cashier. These fees would be capped at the average cost of international and domestic debit cards for at least five years until the overall cost of distributing the digital euro becomes more stable. Then, new fees can be calculated. The bankers aren’t convinced, however. The Council’s bid to get banks “a ‘fair’ remuneration,” while making digital euro payments “cheaper for merchants and consumers,” is a ‘squaring the circle problem’ [that] cannot be solved,” Tobias Tenner, head of digital finance at the German banks association, said. “At least if one takes the huge necessary investments [for banks] into account.”

BRUSSELS — President Vladimir Putin slammed EU leaders for trying to leverage frozen Russian state assets to fund a €210 billion financing package for Ukraine — despite the plan ultimately falling through. Facing stiff resistance from Belgium, where most of the Russian assets reside in the financial depository Euroclear, leaders decided in the early hours of Friday to raise €90 billion in EU debt instead and lend the money to Kyiv, at zero interest, so it could keep defending itself against Russian forces. The assets, however, will remain frozen until Moscow ends the conflict and pays war reparations to Ukraine. If that doesn’t happen, the EU reserves the right to use Moscow’s assets to pay themselves back. “It’s robbery,” Putin said Friday during his annual question and answer session with journalists and the Russian public. “But why isn’t it working? Why can’t they carry out this robbery? Because the consequences could be severe for the robbers.” “No matter what they steal or how they do it, sooner or later they will have to give it back,” the Russian president added, warning that such actions undermine investors’ trust in the eurozone. “We will defend our interests, particularly in the courts.” Putin’s legal threats aside, Ukraine’s fresh cash injection in the new year means Russia will be forced into a longer war, as its economy begins to creak under the strain of international sanctions. Official estimates suggest the Russian economy will only grow 1 percent this year, with all of that and more accounted for by military spending. Residential construction — always a key concern — has also fallen around 4 percent this year. As polls have indicated, the second-most pressing issue for Russians is the economy. Putin batted away any concerns about the state of his economy during the press conference. The sharp slowdown in growth this year has been a “deliberate action” by the government and central bank to stop it from overheating, he said. Putin went on to claim that the government’s actions had helped to “balance” the budget, but noted it will be in deficit both this year and next, despite extensive tax hikes. Current projections see the deficit at 2.6 percent of GDP this year, falling to 1.6 percent next year. While that looks small in an international context, the country’s stunted capital market means that it has to pay heavily to finance it. The government currently has to pay nearly 15 percent to issue 10-year debt.

PARIS — French lawmakers tasked with finding a compromise on the 2026 state budget failed to strike a compromise, all but ensuring France will enter the new year without having finalized its fiscal plans for the next 12 months.   Seven lawmakers from each of France’s two legislative chambers had sat down Friday in a joint committee in search of consensus, but it quickly became clear there was no deal to be had.  Prime Minister Sébastien Lecornu in a statement confirmed France would now end the year without a proper state budget and would meet with lawmakers Monday to forge a path forward. Lecornu had warned in November that failing to pass a budget before the end of the year was a “danger” for the French economy. Markets have been eyeing France with concern out of fear it has become too ungovernable to balance the books.  “I regret the lack of willingness on the part of certain parliamentarians to reach an agreement, as we had unfortunately feared for the past few days,” Lecornu said. Lawmakers will now move to pass a stopgap measure that rolls over the 2025 budget into next year and then get back to work on finalizing a 2026 budget in the new year. While that temporary solution will prevent a U.S.-style shutdown, it does nothing to bring down a budget deficit that this year is projected to come in at 5.4 percent of gross domestic product.  Lecornu said in October that the 2026 budget deficit must not exceed 5 percent of GDP.

EU leaders will find a solution to the problem of how to get money to Ukraine but must stay on the right side of the law, European Central Bank President Christine Lagarde said Thursday. Addressing a press conference in Frankfurt after the ECB’s Governing Council meeting, Lagarde said she was “confident” that heads of government meeting in Brussels would thrash out a mechanism for lending to Kyiv, but immediately warned against expecting the ECB to underwrite it. “We are an area of the world which praises itself for respecting the rule of law,” Lagarde said. “I’m sure that there are solutions that can be debated and discussed, and … constructions that can be elaborated, but it’s not for the central bank to actually encourage [or]support a mechanism under which we would be called upon — and scheduled — to breach Article 123 of the Treaty.” Article 123 of the Treaty on the Functioning of the European Union forbids the ECB from printing money explicitly to finance government spending, which is what an EU loan to Ukraine would represent. EU leaders are trying to put together a loan package that would be secured against Russian sovereign assets currently frozen at the Euroclear depository in Belgium. Russia has threatened legal action if it goes ahead, and Belgium has refused to back the EU’s proposal, for fear of being left on the hook for the legal liability. In that context, various reports have suggested that leaders have leaned on the ECB to “backstop” the loan with guarantees of its own. “You cannot expect me to validate a mechanism under which there would be monetary financing,” Lagarde said. “This is pretty obvious.”

The European Central Bank kept its key interest rate unchanged at 2 percent on Thursday as fresh staff projections painted a brighter future ahead for the eurozone economy after a rollercoaster year. The Bank revised up its forecast for growth this year to 1.4 percent from 1.2 percent three months ago, reflecting the fact that the destructive trade war with the U.S. that many feared six months ago hasn’t materialized. It also expects the economy to grow 1.2 and 1.4 percent over the two coming years, up from 1.0 percent and 1.3 percent previously. The ECB’s first-ever projections for 2028 put growth at 1.4 percent. The new numbers are likely to lock in the view that the ECB — which has now left rates unchanged for the fourth meeting in a row — is heading for an extended period on the sidelines. Most economists and investors now expect borrowing costs to remain unchanged throughout 2026, barring a major economic shock. “Economic growth is expected to be stronger than in the September projections, driven especially by domestic demand,” the ECB said in its statement, repeating again that it will respond to any material changes if incoming economic data demand it. The ECB has become gradually more upbeat since the EU decided not to escalate trade tensions with the U.S., and since the risk of a regional conflict in the Middle East receded. That helped the economy to grow by a stronger-than-expected 0.3 percent in the third quarter, and business surveys suggest that it has continued to expand through the year-end. The ECB also updated its inflation forecasts for the next two years, and now sees inflation at 1.9 percent in 2026 and 1.8 percent in 2027. That is little changed from 1.7 and 1.9 percent respectively three months ago. The first inflation forecast for 2028 sees prices right back at the 2 percent level that the ECB considers to represent price stability. While the new forecasts will likely have secured broad backing for today’s decision, Governing Council members have diverging views on the years ahead. Executive Board member Isabel Schnabel said last week she believes the next move is likely to be up, while Finland’s central bank governor Olli Rehn kept the door to further easing ajar, warning that downside risks to the inflation outlook still dominate. ECB President Christine Lagarde will hold her regular press conference at 14:45 CET, and will likely give a sense of where she stands on that debate.

The Bank of England cut its key interest rate by a quarter-point to 3.75 percent, saying that the U.K. economy had cooled enough to justify loosening financial conditions. The move was widely expected after data earlier this week showed that unemployment had risen to its highest in over four years in October, while inflation slowed more sharply than forecast in November as supermarkets and other retailers found it harder to pass on price increases. “We think that Bank Rate is likely to fall gradually further in future, but that will depend on whether variables like pay growth and services inflation continue to ease,” Governor Andrew Bailey said in a statement accompanying the Monetary Policy Committee’s decisions. The cut was the fourth this year, and the sixth since it started cutting rates in 2024 as the post-pandemic wave of inflation started to ebb. It brings the U.K.’s key rate down to its lowest in nearly three years, and will immediately benefit businesses whose borrowing costs are largely floating. It’s also likely to bring down the key two-year government bond yield, to which most new mortgages in the country are closely linked. That rate has already fallen some 0.15 percentage points in the last week in anticipation of today’s move. The MPC voted 5-4 in favor of the move, with both Chief Economist Huw Pill and Deputy Governor for Monetary Policy Clare Lombardelli, voting against a cut.

PARIS — French lawmakers will begin Friday what appears to be their final shot to green-light fiscal plans for 2026 before the end of the year. Fourteen lawmakers from the French National Assembly and Senate are set to sit down in a joint committee on Friday to hammer out a deal on the state budget, though forging a consensus will prove difficult given the radical disagreements between political parties and the two chambers of the French legislature on budget priorities. The current version of both the state budget and its social security counterpart are set to carry a budget deficit of 5.3 percent of gross domestic product, well above the 5 percent threshold Lecornu had set in October and the 4.7 percent level that Paris had promised Brussels it would target. And while lawmakers reached reached a compromise on a social security budget for next year, the state budget — a separate piece of legislation — has proven trickier. During its first vote on the state budget bill, only one lawmaker in the 577-strong National Assembly voted in favor of the legislation as amended by lawmakers. The more conservative Senate passed its own version of the law earlier this week, setting the stage for Friday’s meeting and discussions that could continue through Saturday. Should those talks fail, lawmakers will likely be forced to pass a stopgap measure that rolls over the 2025 budget into next year and get back to work on finalizing a 2026 budget in the new year. Prime Minister Sébastien Lecornu warned in November that failing to get the budget done by Jan. 1 was a “danger that weighs on the French economy.” The French government last year also failed to finalized its fiscals plans before the calendar turned to 2025. “We must have a budget before the end of the year,” Lecornu said Wednesday while answering questions in the Senate. Lecornu and his government have expressed confidence that a compromise can still be found and are vowing to do whatever it takes to reach that goal, including facilitating informal talks ahead of Friday’s meeting. During a Cabinet meeting on Wednesday, Lecornu asked his ministers “to bend over backward” to make sure a budget gets passed, according to government spokesperson Maud Bregeon. The Socialist Party, which was instrumental in passing the social security budget, could again play a kingmaker role. After warning that they could vote against the current text, they are now reportedly mulling an abstention in exchange for €10 billion of extra spending, which would be financed by tax hikes. But lawmakers from various political persuasions directly involved in budget talks are little optimistic of the chances of success. Far-left MP Eric Coquerel, the president of the National Assembly Finance Committee, predicted that talks would fail, as did centrist Charles de Courson. “The die is cast, it can’t pass,” de Courson said. Paul de Villepin contributed to this report.

Less than 24 hours before EU leaders descend on Brussels for vital talks on financing Ukraine’s war effort, Belgium believes negotiations are going in reverse. “We are going backward,” Belgium’s EU ambassador, Peter Moors, told his peers on Wednesday during closed-door talks, according to two diplomats present at the meeting. The European Commission and EU officials are in a race against time to appease Belgian concerns over a €210 billion financing package for Ukraine that leverages frozen Russian state assets across the bloc. Belgium’s support is crucial, as the lion’s share of frozen assets lies in the Brussels-based financial depository Euroclear. Bart De Wever, the country’s prime minister, refuses to get on board until the other EU governments provide substantial financial and legal safeguards that protect Euroclear and his government from Russian retaliation — at home and abroad. One of the most sensitive issues for Belgium is placing a lid on the financial guarantees that currently stand at €210 billion. Belgium believes that the guarantees provided by other EU countries should have no limits in order to protect them under any scenario. Talks looked to be going in the right direction. The Belgians backed a Commission pitch for EU capitals to cough up as much as possible in financial guarantees against the Ukrainian package — only for Belgium’s ambassador to drop a bombshell at the end of the meeting. “I just don’t know anymore,” one diplomat said, on condition of anonymity in order to speak freely. A spokesperson for the Belgian permanent representation declined to comment. Another key demand from Belgium is that all EU countries end their bilateral investment treaties with Russia to ensure Belgium isn’t left alone to deal with retaliation from Moscow. But to Belgium’s annoyance, several countries are reluctant to do so over fears of retribution from the Kremlin. Moors said during the meeting that any decision on the use of the assets will have to be taken by De Wever, according to an EU diplomat. Belgium is pushing the Commission to explore alternative options to finance Ukraine, such as issuing joint debt — a position that’s gained traction with Bulgaria, Italy, and Malta. European Commission President Ursula von der Leyen cautiously opened the door to joint debt during a speech at the European Parliament in Strasbourg on Wednesday morning. “I proposed two different options for this upcoming European Council, one based on assets and one based on EU borrowing. And we will have to decide which way we want to take,” she said. But joint debt requires unanimous support, unlikely given Hungarian Prime Minister Viktor Orbán’s threats to veto further EU aid to Kyiv.  Moors proposed a possible workaround on Tuesday by suggesting triggering an emergency clause — known as Article 122 — that would nullify the veto threat. The Commission and Council’s lawyers rebuffed the Belgian pitch at the same meeting, saying it was not legally viable. The idea was first proposed by the president of the European Central Bank, Christine Lagarde, during a dinner of finance ministers last week, but has been challenged by Northern European countries. De Wever is expected to suggest this option during the meeting of EU leaders on Thursday.