Observations

The EU is desperate to deliver some good news. Whether some of the more successful countries in the EU will view the addition of two economic minnows to the Eurozone and Banking Union as being good news is debatable, in our view. Nevertheless, the EU will soon be able to boast of having 21 member countries using its currency instead of the current 19.

The EU Commission is of course trumpeting this news. The reality, as usual, is somewhat different. Both of these countries were part of former Communist empires. In the case of Bulgaria it was the Soviet Union. In the case of Croatia is was Tito’s Yugoslavia. In this respect it is welcome that both countries are moving further towards becoming democratic states, freer of state control and of systemic corruption.

Regardless of the geo-political arguments, however, the economic facts are important

Brexit is a devastating financial blow to the European Union’s empirical ambitions. Not only will the United Kingdom never join the Euro now that it has (in name only) left the EU, but its GDP can no longer be counted in the EU’s total. The economic power of the EU has weakened considerably.

The addition of two small economies to the Eurozone – both of which are being subsidised by the EU (and therefore by the British taxpayer) – will most probably be an added burden to the EU. The EZ numbers will rise from 19 to 21, yes, but this 10.5% increase in the number of participating countries only equates to a mere 0.96% increase in GDP.

Added to this, there are still some serious issues over corruption and organised crime in Bulgaria which must be resolved.

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