Bulgaria Reluctant to Seek ECB Scrutiny Before Euro Entry

Bulgaria, which is seeking to cement its path to euro adoption this year, said it has no plans to join Europe's banking union before switching to the common currency.

The Balkan nation wants to join the exchange-rate mechanism -- the waiting room for euro adoption -- this summer. While becoming a member of the union before entering the euro area could help allay concerns over banking transparency in the wake of money-laundering scandals elsewhere in eastern Europe, such a step isn't on the cards.

Bulgaria "is working actively for accession to ERM-2, which is the first step to continuing with simultaneous membership of the euro zone and the banking union," the Finance Ministry said in an emailed response to Bloomberg questions. While the country's bid to become the euro region's 20th member has garnered support from the leaders of Germany and France, the European Central Bank sees its lenders as a key concern, according to two people familiar with the discussions. News from Latvia -- whose No. 3 bank was closed by the ECB amid U.S. accusations it handled illicit cash, and whose central bank governor is fighting a bribery probe -- has complicated Bulgaria's plans. 

Efforts to place its banks under ECB supervision have stalled since 2014, when the government initially sought to join the Single Supervisory Mechanism amid the worst banking crisis in 17 years.

Stress tests two years later showed the financial system to be stable. Even so, there were "pockets of weaknesses,'' according to the European Commission, as two domestically owned banks of the country's 22 lenders needed to replenish their capital, including First Investment Bank, the third-biggest.

"The events in Bulgaria and lately in Latvia, after the banking crisis there, show that as...