The Lek has risen against the European Currency in recent months. What are the reasons behind this appreciation?
The appreciation of a currency can be caused by various events, such as low inflation, higher interest rates compared to other countries, net inflow of foreign currency, current account surpluses, increased demand for a currency on the foreign exchange market.
However, a revaluation can also be a targeted instrument for a country like Albania if it has foreign currency loans and wants to improve its domestic debt situation. A stronger domestic currency reduces the loans taken out in other currencies. A first reason for nominal appreciation against other currencies is usually the inflation differential: In recent decades, inflation in Albania has not been lower than in the eurozone, but rather higher in some cases.
But and this is essential, Albania remains a very attractive location for black money from Russia and Serbia as well as for drug capital during the coronavirus and Ukraine crises, as long as the legal system and the legislature and thus capital market control in Albania are inactive and the executive is highly corrupt.
These factors attract a considerable amount of capital from the world’s dark channels. Albania seems to have degenerated into a bank for black money, led by an administration that feels legitimized by fraudulent elections and whose leader recently appeared to be involved in a corruption scandal with the Russians against the head of the FBI in New York (who was responsible for protection against foreign espionage).
So, the lek is strongly driven by black capital flows?
This can be assumed. For one thing, there is hardly any industrial production in Albania. Since 2013, the lucrative international tourism industry has given Albania a wide berth. Who wants to go on holiday to a country that is ruled by a MAFIA government, as the largest European newspaper wrote. Cheap tourism was lured to Albania when the LEK was not yet so valorized.
But even serious international investors who must pay attention to their compliance structure will not invest in Albania if the system does not change.
The legal productive economy in Albania is therefore close to zero.
But Trump’s son-in-law wants to build a resort in a nature reserve / Natura 2000 area, doesn’t he?
I’ve heard about that too. It’s interesting that one of the families from the USA, of all places, who apparently have considerable differences with the American rule of law and parliamentary democracy and the financial administration there, might want to invest in Albania. Coincidence? Cui bono? In addition, Albania has a unique nature – regions, Albanian DNA and impressive cultural sites.
These three factors, which also have considerable economic value, are currently being irretrievably destroyed by the Rama government’s commitment, as we can see from the port of Durres, the demolition of the valuable National Theatre in Tirana and the large dam projects in the north.
In this respect, the loss of Albania’s DNA is also likely to bring the tourism sector to a standstill in the medium term if Albania’s special features are removed. Without this DNA, Albanian tourism is not competitive.
Moving back to the initial question. So, the lek is strongly driven by capital flows?
In the short term, yes. This is typical for times of political uncertainty. Be it geopolitical unrest or crises in the monetary union of the EU or the USA or, as is now the case in Ukraine/Russia.
This makes the LEK attractive to foreign Albanians, criminals and secret services.
Conversely, the flow of capital from Albania abroad through certain players is also weaker in such times.
For example, criminal investors have had little confidence in the eurozone in recent years and have invested in Albania. Look at the tower blocks where hardly anyone really lives for long.
In the long term, however, capital flows and thus the value of a currency are determined by fundamental factors and not by the short-term decisions of individual investors.
Were you surprised by the recent wave of appreciation of the lek?
Not really, but look at the Swiss franc, which has depreciated against the euro at the same time as the lek has appreciated.
Is Switzerland weaker than Albania? Certainly not.
Three points are therefore interesting:
Firstly, the issue of banks in Tirana and foreign currency bonds.
Currency bonds, also known as foreign currency bonds, are fixed-interest bonds that are not quoted in LEK. The purchase of foreign currency bonds is already calculated using the current exchange rate. Once the foreign currency has been purchased at the current exchange rate, the outstanding coupons and the nominal value of the bond must be converted back into LEK.
The advantages of foreign currency bonds lie in the currency loss in the event of an appreciation of the LEK against the respective foreign currency. In addition, yield advantages in other currencies can be utilized. Higher given foreign currency interest rates can also represent a loss buffer in the event of a possible devaluation of the foreign currency against the LEK.
So, who benefits from this development?
The Albanian people? Does this development optimize Albania’s ability to join the EU? No.
Are the winners of this financial strategy the financial actors of the autocratic Rama system? Yes. It is striking that Soros Junior is a frequent guest of Rama.
Secondly
Expenditure in the healthcare sector, for example, is reacting more strongly towards an appreciation than I thought. I would have estimated the development of expenditure to be more constant, I had the impression that at least the Rama administration considers the healthcare system to be important – after all, these are investments in the future.
The Rama administration’s monetary, economic and credit policies have made medical products considerably more expensive, while at the same time budgets in the healthcare sector have been cut. As a result, the quality of medical care in Albania is declining, which will lead to more deaths among Albanian patients. A fatal failure of the Rama administration, Veliaj.
And the third point?
In Albania, a problem is developing with the so-called Dutch disease effect. Here, too, the Albanian government is suffering from a loss of control.
The point here is that productive export industries indirectly burden other, less productive industries because demand in favor of strong export industries can lead to an appreciation of the domestic currency. The impact on tourism and agriculture is currently much greater.
So, the Albanian economy has not coped well with the revaluation in the long term?
Yes, this is a key realization: the constant revaluation of the LEK is an additional burden on the national economy and is accelerating Albania’s economic decline and development into insignificance and a takeover candidate for Serbia and Russia. Only a stable social market economy can stabilize and protect the nation state. When I look at the results of 12 years of Rama, Veliaj government policy, nobody seems to be interested in this.
Albania’s exports are declining because of the real appreciation. Services, i.e. tourism in particular, will become more expensive, and the less affluent tourists who previously travelled to Albania will return to Turkey, Bulgaria, Greece and Ukraine.
Studies show that the foreign economy is generally more important for export development than the exchange rate: if things are going well on the sales markets, exporters can export even with a relatively strong currency. However, Albania has hardly any competitive export products and, as already mentioned, the special tourist features that are unique in Europe are currently being destroyed by the policies of the Rama government.
How do you assess the advantages and disadvantages of a revaluation of the Albanian currency for the future development of Albania?
When a currency is revalued, this can have positive effects on the country in some areas and negative effects in others: Currency appreciation makes domestic imports more favorable. This is because consumers can buy products from abroad more cheaply. Example: Before the revaluation, a product from abroad costs 100 LEK. After the revaluation of the LEK by 20 per cent, Albanian consumers only must pay around LEK 80 for imports.
Export transactions become more expensive because of the appreciation, as prices for export products, e.g. agricultural products, electricity and minerals, rise abroad. Internationally active companies run the risk of losing their competitiveness. Falling export figures can also lead to a decline in production, which in turn can lead to a downward economic spiral in Albania. An appreciation of the LEK is disadvantageous for tourists, as they must spend more money on their trip. The appreciation of a currency might have short-term effects:
Products manufactured in Albania with a revalued currency become more expensive for foreign trading partners, which can reduce the export rate, giving Albanians the idea of consuming the cheaper Serbian olives.
This in turn can lead to a reduction in the profit margin of Albanian companies and the income of Albanian households, which reduces investment and consumption in Albania and can lead to a higher unemployment rate. This is a fundamental problem for Albania in particular, with industrial production close to zero and a large agricultural and tourism sector.
Who has an interest in currency appreciation?
The Rama government finances the Albanian state primarily through loans, international aid and indirect income from black money investments.
For the repayment of loans denominated in euros or US dollars, for example, which is the rule for the Albanian state, less capital must be raised in its own currency. As a result, there is a possibility that hardly any loans will be granted, and that new loan and bond programs will be organized. The problem with this is that Albania will gradually slide into greater debt. If, as is foreseeable, the LEK is then massively devalued, the Albanian state will be bankrupt, the economy will collapse, and Albanian citizens will lose all their assets. Only the oligarchs, including the Rama family, have certainly taken precautions and moved their capital to various locations, where it is managed by trustees, including in Germany.
The Albanian economy is stagnating, the national debt is growing, the cost of living is rising and healthcare for the Albanian population is becoming increasingly problematic. What should be done, what is your advice to the opposition?
That would go beyond the scope of this interview.
I am a big cat lover. When I usually come home for the weekend, my three cats, three siblings, always greet me first.
One of them is particularly clever, his name is Duke. Duke’s specialty is that he jumps on the door handle and opens the front door. That’s the only difference between my cat and Rama. Duke can open the door. But unfortunately, he can’t close it. Rama is about to close the Albanian door again. Under Rama, democratic structures and the rule of law have been undermined since 2013, a criminal government has been organized and is currently ruled in an autocratic, authoritarian manner. Should this organization want to legitimize itself again in 2025 through a falsified election, the delusions of grandeur and control will certainly become stronger and more totalitarian in Albania and change the party law and other structures in such a way that a free society will no longer exist there.
Albania needs a fresh start.
And it is unacceptable that one year before the parliamentary elections, opposition leaders, be they representatives of the Greek minority or the opposition leader Sali Berisha, are in prison without legal grounds despite their immunity.
The opposition leader’s immunity has been withdrawn, hasn’t it?
That is the case, but the Rama administration does not seem to be familiar with constitutional law. This is not about immunity, but about indemnity. Indemnity means that members of parliament and government representatives may not be prosecuted in court and/or in the course of their duties or otherwise held accountable outside parliament at any time because of their votes on laws or their statements in the Albanian parliament, in the parliamentary group or in a committee.
The legal position is that the protection afforded to politicians by indemnity cannot be lifted by any parliament or court. It is an integral part of the constitutional status of a member of parliament or prime minister.
As in the case of Sali Berisha, who is accused of having co-authored a law and ordinances more than 12 years ago that were intended to return land expropriated by the communists and the Italian/German occupying powers to its rightful owners. The successor party to the communists, the Rama Party, is now accusing Berisha of corruption, as his son-in-law was also involved in this law.
On the one hand, the process is already formally time-barred, on the other hand, the draft law at the time follows a requirement of the Albanian constitution, moreover, a comparable law was drafted in Germany in the 1990s and, on the other hand, Berisha protects his constitutional immunity.
The fact that the Albanian judiciary and government are not observing this shows that there is no rule of law in Albania, no one is safe unless they are part of Rama’s entourage.
Berisha’s house arrest, quasi solitary confinement, which has now lasted for over 8 months, shortly before the parliamentary elections, is a very good illustration of the existing conditions in Albania. As in Myanmar and Moscow, the democratic opposition in Albania is attacked with unfounded, fabricated and unlawful accusations of corruption, lawyers are beaten up or eliminated in the street, and the children and wives of opposition members are intimidated.
This culture of dictatorship and government corruption, the Albanian
Administration is one of the most corrupt in the world, and it is not the opposition that is responsible for corruption in Albania. Last noticed by Rama who is apparently involved in the corruption scandal around Mc Gonigal/FBI who was in charge of protection from foreign espionage in NY. This Rama government is characterized by the fact that it has been organizing the government in Albania since 2013 and only wants to prove its legitimacy through falsified elections.
Putin adopted the concept of elections from Stalin, and Putin has many imitators in the former socialist parties, including Rama. The Soviet dictator is credited with saying: “I consider it completely unimportant who votes and whom. What is very important is who counts the votes and how. Adding ballot papers and reporting false results is not the only method used in Russia and Albania.
As early as 2018, one year after the parliamentary elections were rigged by members of the Albanian Socialist Party – the largest European newspaper BILD published tape recordings of Rama and his comrades from the MAFIA, they were never prosecuted, on the contrary, the investigating prosecutors and police officers had to flee the government and found asylum in Switzerland and Germany – Albanian acquaintances who work in state organizations and companies told me that the company or school management had asked them to take part in the elections and vote for Rama.
What is that? Moscow? No, it’s Albania in the year 2024.
This was not so easy to control in 2013 and 2017. For the so-called parliamentary elections in Albania in 2021, modern means are finally being used, paradoxically also financed by the EU: Electronic counting devices, online portals, cameras in polling stations and municipal and state employees are supposed to prove to their bosses by screenshot that they voted for Rama.
The next official result of the Albanian parliamentary elections in 2025 will therefore come as no surprise, as Rama has brought the state, almost all municipalities and the economy of Albania under his control:
The Albanian election commission claims that the majority will vote in favor of Rama. Serious opposing candidates will not be admitted or, like the previous opposition leaders, will be persecuted, pressurized or imprisoned by state institutions. The partially synchronized press will celebrate Rama’s success and some ambassadors in Tirana will repeatedly congratulate Rama on his campaign.
So, what needs to be done, in short, what needs to be done to secure the future of the Republic of Albania and integrate it into the EU and reintegrate it from the role of a rogue state?
We have summarized the following recommendations for Albania:
1) The rule of law, democracy and absolute freedom of the press must be restored without delay. Adopt a democratic electoral law scrutinized and approved by the Vendig Commission.
2) the flawed judicial reform must be put on a new footing, under exclusive Albanian control. Albania is a sovereign state. The commission of experts should be composed of well-known personalities from Albanian civil society, universities, business and religious communities. In this context, foreign embassies should be reminded of the ban on intervention and interference under international law. Legal reform is not per se the task of an American, British, Russian, Chinese or German embassy. There are enough Albanian experts who can speak for their country.
3) The problematic parliamentarians suspected of corruption: Rama, Veliaj, Ball, Basha, Alibeaj and Tabaku should resign from office and no longer stand as candidates; they and their families should be guaranteed immunity from prosecution if they voluntarily resign. The opposition leader in Albania, Sali Berisha and his son-in-law, who were imprisoned for no reason, as well as the representative of the Greek minority, must be released immediately and should be allowed to resume their previous functions. The Albanian state must pay compensation to all three of the unjustifiably imprisoned actors and the state must apologize.
4) An interim government of experts is to take over the reins of government until the parliamentary elections in 2025 and thus also ensure a democratic election.
5) The previous head of SPAK and the Albanian president should also resign due to their proximity to the Rama government, which came to power through electoral fraud. They should also be granted immunity from prosecution.
6) the replacement of the judicial commissions, the replacement of the head of the Albanian Central Bank, the replacement of the heads of the Albanian Television and Radio, the Albanian Telecommunications and Electricity Company and the heads of the Central State Police and the Secret Service.
7) Protection of investments by foreign and Albanian investors and support in the search for investment locations and obtaining permits. This requires a state agency that serves as a central point of contact for all investors; this agency should report directly to the Prime Minister in executive terms; a special parliamentary committee, supplemented by experts (from the judiciary, regions and academia), should be given supervisory powers over the agency.
8) Taxes are basically an instrument with which a state can prevent something in the economy, such as excessive CO2 pollution, as is the case in the EU. In Albania, however, the situation is different. Taxes are far too high; the economy and the people are extremely burdened. On the one hand, this means that a lot of income is not reported to the tax authorities and, on the other, that regular economic growth is fundamentally prevented. The tax burden on companies and citizens should therefore be gradually reduced to 19 %, a standardized tax rate (flat tax). All other types of tax, including VAT, should be abolished. The Albanian tax return should be reduced to a Dina 4 page. Anyone who nevertheless evades taxes should be severely penalized with a minimum sentence of 5 years. To safeguard this fundamental decision, a separate constitutional article should be included in the economic section of the Albanian constitution and other regulations in the constitution and the penal code should be adapted accordingly.
9) Further investment in infrastructure. For the public infrastructure in Albania, it is important not only to massively increase investment in maintenance and modernization (education, tourism, health, agriculture, mobility/housing), but also to stabilize it. This stabilization enables private investors, e.g. road construction companies, tourism and schools/universities as well as clinics, to invest in corresponding capacities also to hire and train large numbers of staff. To this end, it is important to put the financing of the modernization of Albanian infrastructure on a new footing. It is obvious that the Albanian state does not have sufficient financial resources to realize this project. Like the EU, national and international private investors should therefore be involved in the financing. The state should set up a reconstruction fund with its own borrowing capacity. The financing itself must be structured and dovetailed. This means: 1/3 state basic financing, 2/3 private investment. For the realization itself, PFI / PPP concepts should be used, as we know them from Germany and Great Britain. This requires the enactment of a corresponding PPP law and the creation of a management structure in the legal form of a public-private project management company. The state reconstruction fund outlined above should also be assigned to this company, and international aid should also be processed centrally via a separately established development bank.
10) Pension only from 60, for those born after 2000 there should only be a state pension from 70. The state pension payment should be future proofed through reinvestment in the state infrastructure, including interest on equity capital through a bond system and investment on the capital market. The pension fund should be managed by the Albanian central bank, for which purpose a state financial agency should be established within the bank. Private investors should be given the opportunity to participate in this development bank at a ratio of 1/4 state to 3/4 private capital.
11) Parallel to this, a development bank should be set up by the Albanian state for the population and the economy, modelled on development banks such as those in the EU, e.g. the KFW in Germany. Private investors should be given the opportunity to participate in this development bank, ratio: 1/4 state; 3/4 private capital.
12) strategy for entrepreneurship and business start-ups. The new Albanian government should vigorously pursue Albania’s membership of the EU and the European single market. Albania should utilize its best experts for this, as there are many young, well-educated Albanians. The opposition must also make improvements in this area and involve its young colleagues. It is unacceptable that poorly qualified members such as Mrs. Tabaku, whom I unfortunately had to meet several times, are included. The future of Albania is at stake here, and all those involved in Tirana should be aware of this.
The aim should be for Albania to become a member of the EU in 2029, but not through the back door. To this end, it may be helpful to conclude an association agreement with the EU as a first step, which would give Albania immediate and unilateral access to the EU single market. This should lead to considerable economic growth in Albania.
13) The new Albanian government should step up its efforts in favor of free trade agreements so that Albanian farmers, industry, banks, insurance companies and the population can sell their products and services better and the prices of imported goods can also fall. Duty-free trade must be one of the primary goals of Albanian trade policy.
14) Cooperation between the Balkan countries with a large Albanian population, such as Kosovo, Montenegro, Bosnia-Herzegovina and North Macedonia, is necessary. Coordinated investment projects and joint preparations for EU accession would be topics that could be focused on, as would a common currency.
15) Cooperation with Serbia, which has committed war crimes in the Albanian countries for 10 years, can only take place if Serbia recognizes the Republic of Kosovo in its current borders, reparation payments to all Albanian countries, stops secret service activities in the states and joins NATO. All agreements in connection with the Russian-Serbian infiltration project “Open Balkans” should be cancelled immediately.
16) Albania is in a position where to recover it must create more prospects for the Albanians future and encourage Albanians living abroad to return home and/or invest in Albania. Such a growth program is not without its problems.
For example, tax breaks for private investment or the increased use of public funds to rebuild infrastructure mean less revenue for the state, meaning that the balance between revenue and expenditure must be restored in other areas. This can and must be achieved primarily through economic growth with private capital, an iterative process.
The good news is that Albania can free itself from the economic stagnation and human desolation of the state and become the Switzerland of the Balkans.
Whether this succeeds depends on whether politicians in Albania find the strength
agree on the necessary decisions. This can only be done together. The opposition leaders must therefore be released immediately. The economy must stop kowtowing to the current administration. A functioning and democratic society thrives on changing governments and a free economy and opinion-forming.
To achieve this, the Albanian people must wake up, put their mobile phones aside and take action themselves and not always blame foreign countries. The opinion of the embassies in Tirana should be heard, but first the Albanians must assert their own interests and not implement the interests of other countries.
Without a fundamental change, as the Albanians achieved in 1992 and we Germans in 1989, it will not work.
Radical and painful measures are needed in Albania, now and only by the sovereign, i.e. the Albanians, including the Albanian economy. Albania must belong to the Albanians again.
