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Albania: Study Considers Feasibility Of Euro

  • Alban Bala

Albania's state financial institutions are considering the feasibility of replacing the national currency, the lek, with the euro. While any formal adoption of the euro is not likely any time soon, analysts have voiced support for the idea, saying it would have many positive regional effects. Alban Bala of RFE/RL's South Slavic and Albanian Languages Service reports from Tirana.

Tirana, 30 April 2002 (RFE/RL) -- The euro is the official currency of all of Albania's neighbors, with the exception of Macedonia. Albania's central bank, the Bank of Albania, recently completed a feasibility study on whether Albania too should discard its national currency, the lek, and replace it with the euro.

The bank's director of research, Selami Xhepa, an economist, carried out the study and discussed its results with RFE/RL.

Xhepa said adopting the euro would help officials control the country's informal and often illegal economy, which is estimated to encompass between 40 and 55 percent of all money in circulation in Albania.

"The question is not whether the Albanian economy will be eurocized [incorporated into the euro zone], but when such a thing has to happen. Certainly, I think that even if the national currency were to be completely replaced physically by introducing the euro, the black, informal economy would not disappear. But this would narrow the maneuvering space of these forces operating outside of the officially registered economy," Xhepa said.

Xhepa said a switch to the euro would be beneficial for the country and that transparency is the key.

"I believe that [introducing the euro] will have a positive effect, enabling Albania to gain credibility while fighting inflation. With the euro as the country's currency -- at least all scholars believe this -- the country would import a culture of disciplined prices, a lower inflation rate, which would curve down the interest rates as well. As a result, important economic advantages would follow," Xhepa said.

The European Commission in Tirana welcomed the initiative. The European Commission's charge d'affaires in Tirana, Guido de Fraye, said: "Since the overwhelming part of the exchanges of the country in trade goes to European partners, it is clear that such a step would, I think, facilitate economic and trade exchanges. And there is another element. As you know, Albania, with the other countries of southeastern Europe, is on an irrevocable path to coming closer to Europe. So one might consider this as an important step in...coming closer to the European Union. So, in that sense, I think, this could be a step of a highly significant nature."

Zef Preci, the director of the independent Albanian Center for Economic Research, said switching to the euro would give Albania increased momentum for development.

"Replacing our national currency, the lek, with the euro would be a very important measure to connect de facto the Albanian economy with international trade, to decrease the risk of a crisis erupting over domestic issues, mainly the inflation generated by the state budget policies. And it would legally mobilize the savings of the population," Preci said.

Preci said the most important result would be the free movement of capital in and out of the country, as well as increased cooperation by Albania with other countries in the region. At the same time, it would lead to greater public faith in the national currency, leading to a reduction of the informal economy.

Xhepa said the idea has found broad support not only among those who live in Albania, but also from the 600,000 to 800,000 Albanian citizens working outside the country, mainly in Greece and Italy, both of which are in the euro zone. The Albanian economic journal "Monitor" says money sent home by these workers totals some $1.3 billion and represents significant income for the state's coffers.

Many Albanian businesses save their profits in foreign currency and transfer these funds abroad for security reasons, particularly following the social and economic crisis five years ago that sent a wave of anarchy across the country.

More than 90 percent of Albania's trade is with European Union member states, above all Italy. Moreover, the euro is the currency in neighboring Kosovo and Montenegro.

Xhepa also predicts that introducing the euro in Albania would help to resolve discord among the Balkan countries and would make them more attractive for foreign capital and investment.

"The monetary policies of the countries of the region or of our neighboring countries, I believe, do sustain the idea of having Albania switch to this monetary regime, something that would eliminate the economic disadvantage created between us and the countries in the region, because of the highly stable monetary standard these countries have achieved. As a result, they have become far more attractive for investors and businesses from [European Union] countries," Xhepa said.

Any formal switch to the euro is probably still some time away and would take more than a feasibility study to make it happen.