Can Kosovo Avoid Fallout From Eurozone Crisis?

By Muhamet Brajshori

Nearly a decade ago, in an attempt to gain financial security, Kosovo adopted the euro as its currency. By turning from the Deutsche Mark in 2002, the then-province hoped to avoid devaluation of its currency.

However, does Kosovo now face a possible crisis with the other 17 countries that use the euro?

Though the Kosovo Central Bank maintains that adopting the euro brought monetary stability, Pristina banking expert Liridona Hashani stresses that this stability and integration with Europe’s financial sector involved significant trade-offs.

“The transformation from the Deutsche Mark to the euro was not easy. There was an increase of prices, which still today has its own impact, but it helped Kosovo to be financially stable and to be part of a larger zone with the same currency,” Hashani tells SETimes.

She believes the crisis in the eurozone will not impact Kosovo.

“Kosovo depends on the currency circulation of Germany, and so far these two countries have not experienced any challenge in their financial stability,” Hashani says.

Rudina Heroi-Puka of GAP Institute for Advanced Studies agrees that events in Germany will be determining factors in Kosovo.

“We are more connected with the crisis of the euro in Germany, so the possibility of a crisis there will also reflect on us,” Heroi-Puka tells SETimes.

Lumir Abdixhiku, executive director of RIINVEST Institute, says that Kosovo is more at risk as a result of the government’s management of public finances.

“I rather see a domestic financial crisis caused by hyper-expenditure of government and potential debts that await the country than the effects of the European crisis. Remember that our country has a worrisome imbalance of revenues with expenses, and the country’s only hope remains the immediate revenue generated by the privatisation of PTK (Kosovo’s Post-Telecom),” Abdixhiku tells SETimes.

He says these risks will increase since that privatisation is not expected this year.

“[This could] seriously jeopardise the financial stability in the country and relations with the IMF,” Abdixhiku says.

Heroi-Puka warns that in developing countries like Kosovo, a financial crisis will have more dire effects.

“If such a crisis strikes, the country will have a more difficult economic situation compared with other, developed countries … price increases and a reduction in purchasing power will [be reflected by] an increase in unemployment and poverty.”

Abdixhiku said that Kosovo lacks stable trade relations with the EU, thus avoiding a major impact from the eurozone crisis.

“Kosovo is not an exporting country; therefore any change in the value of the euro … enables the country to [easily trade] in markets that are not part of the eurozone,” Abdixhiku said.

However, the impact may be felt in terms of donations by European countries that will be less able to offer aid due to their domestic financial situations.