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26 Feb 10

Euro: A Force for Stability in Kosovo

Despite fears that Greece’s floundering economy could damage the Euro, banking experts say that Kosovo’s adoption of the currency has served it well.

Lavdim Hamidi

Kosovo’s decision to adopt the Euro in 2002 has proved a wise move, despite the higher prices that the strong currency has brought, experts have told Prishtina Insight.

Fears that Greece would default on repaying its huge debt, which now exceeds its GDP, pushed other members of the Eurozone to demand the country reigns in its public spending earlier this month.

But not before confidence in the Euro had already been dented in the international markets.

Experts, however, believe Kosovo, which unilaterally adopted the Euro and is not part of the Eurozone, will not be impacted by the crisis.

A weaker Euro could even play to Kosovo’s advantage, by making its products more competitive outside of the Eurozone, although this would only happen if other currencies did not take a tumble.

Research by Kosovo’s central bank in 2006 however suggested that the country’s export market was too small to benefit substantially from a weaker currency.

The unilateral adoption of the European Union currency in Kosovo has brought financial and economic stability, economic experts told Prishtina Insight.

"For a small, open economy, the adoption of the euro is considered a very important step," said Gani Gerguri, Vice Governor of Kosovo’s Central Bank.

The problem of ensuring monetary stability is a serious one that has challenged and continues to challenge many countries in the region and beyond, and Kosovo, he says, has minimised this issue by bringing in such a strong currency.

"Having the Euro contributes to monetary stability and overall macroeconomic stability," said Gerguri.

Before the Euro, Kosovo’s official currency between 1999 and 2002 was German Marks (DM).

Banking expert Flamur Keqa agrees that the Euro has brought financial and economic stability to Kosovo.

"Had Kosovo not adopted the Euro in 2002, you can be sure that the economic situation in our country would be more dramatic and more complicated," he said.

Management of economic-financial activities and public finances is significantly facilitated with the Euro, and its use avoids the risk of hyperinflation, as well as the risk of possible losses from exchange rates, he added.

Keqa, however, admits that the use of the euro initially had a negative impact on Kosovo by making products more expensive and, as a result, reducing consumer purchasing power.

He said that the use of the Euro will not have a negative impact on the economy, despite problems elsewhere, adding that the structure of the economy and financial system of Greece is very different from Kosovo’s.

Before the decision to introduce the Euro, the late former President of Kosovo Ibrahim Rugova had suggested the idea of adopting its owned currency, the Dardan.

According to Safet Gerxhaliu, vice president of the Kosovo Chamber of Commerce, such a decision would have been fatal for Kosovo’s economy.

He pointed to the inflationary dangers facing other countries in the region such as Serbia and Albania as proof.

As Kosovo is not part of the Eurozone, its central bank cannot issue notes and does not have control of its monetary policy.

However, within its legal powers, the central bank of Kosovo does issue money to ensure that enough is circulating, including to replace damaged notes.

According to Gerguri, in 2009 around 24 million euro of new notes were brought into the country, while in 2008 the figure was 16 million euro.

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