Worrying About the Crisis Next Door

01/30/2012 05:49 pm ET | Updated Mar 31, 2012

As EU leaders discuss solutions for financial woes that have put a strain on the common currency and the entire European project, they have a very attentive audience in places like Albania in the Western Balkans, a corner of the continent that is not yet part of the European Union.

Despite its outsider status, there are very few places that stand to lose more from the Eurozone crisis in relative scale than Albania, a small country that is geographically, economically and demographically sandwiched between Greece to the south and Italy across the Adriatic Sea.

Albania had enjoyed high economic growth for more than a decade, bringing a sense of positive change to a country that despite a lot of progress remains one of the poorest in Europe. Even during the worst part of global financial crisis of the past three years, the country managed to stay afloat, seeing positive growth while much of Europe was in a recession.

But this latest Eurozone crisis is different -- and it really worries Albanians. The countries at the epicenter of the crisis, Greece and Italy, are Albania's largest trading partners. They also host the majority of 1.4 million Albanians working and living abroad. During the boom times these workers had been propping up the Albanian economy through remittances, but these have been declining steadily, and the crisis has only accelerated the drop.

The Albanian Institute for International Studies has been tracking and researching the effects of the Greek crisis on Albania since the start of 2011, and its executive director, Albert Rakipi, points out that despite Albania's lack of full integration with global markets, which has contributed to the country's relative safety, Albania clearly is not and will not be immune to the global economic forces.

"There is no doubt that the crisis in Greece and the latest developments in Italy will have serious implications for Albania. No one can argue against that when you have 50 percent of Albania's workforce in Greece and Italy," says Rakipi.

The effects are already showing in the latest Albanian central bank data. Migrant worker remittances have hit a new record low. Partial 2011 data indicate a dive of as high as 42 percent for the year's first three quarters compared to the same period in 2010. By comparison, remittances dropped by 12 percent from 2009 to 2010. And the weight of remittances is huge in the Albanian economy. They accounted for 10.7 percent of the GDP in 2009 and 13.5 percent in 2007.1

But beyond remittances, there are indications the migration flows themselves might be changing due to the crisis. So far Albania has had one of the highest out-migration rates in the world. The country has 2.8 million people, according to the 2011 census, while Eurostat, EU's statistical arm, shows 1.1 million Albanians live in the EU, with Greece and Italy holding the lion's share. In Italy alone, there are 467,000 Albanians. Greece is generally believed to host at least 500,000, though Eurostat did not provide specific data.2

There is some anecdotal evidence many Albanians migrants who have not been able to find work abroad are either returning home or thinking about doing so. That's the case particularly for Greece, where pessimism has hit hard due to the prolonged economic crisis. It is also made more likely by fact that industries like construction that employed many Albanian migrants were hit worst by the crisis.

Some worry returning workers will increase Albania's already high unemployment figures, fearing social unrest. But the Albanian government also sees opportunities, as the return of Albanian migrant workers would bring new skills and business models that would ultimately help the Albanian economy, the prime minister, Sali Berisha, has said in several media interviews.

Albania's government insists the country has held up fairly well during the global economic crisis. But even the most optimistic government experts admit the good times might be over. Just a few days ago the government lowered its 2011 economic growth figure to 3 percent, down from its original forecast of 3.9 percent. International bodies like the World Bank and the International Monetary Fund think that once all the numbers come in, it will actually be around 2 percent or lower.3 Forecasts for 2012 hover around the same figures, which are not encouraging for a country that needs to get up to the previous rates of at least 6 percent a year if it hopes to catch up with EU levels of development.

Beyond the economic factors, Albanians also worry about their EU bid, which in the past two years has stalled mostly due to internal Albanian political factors. Now there are also worries that a European Union facing a fiscal crisis inside its borders will be more reluctant to accept new members. That would spell trouble for the entire Western Balkans, where the hope of joining the European Union is a main factor in keeping a lid on ethnic and political tensions.

However, the EU summit in December sent a clear message that enlargement in the Balkans would continue. It went beyond words of reassurance. Croatia signed the accession treaty, and Albania's neighbor, Montenegro, moved a step forward as the EU scheduled starting accession negotiations in the middle of this year. Other countries of the region are still behind, but internal problems or relations with neighbors make up their key obstacles, not the Eurozone crisis, the summit showed.

European Commission President José Manuel Barroso, speaking on Dec. 9, said making Croatia the latest bloc member shows the EU door for the Balkans will remain open. "Our European offer is on the table," said Barroso. "Hard work pays off ... [and] the benefits of European integration are within reach if our partners stay the course."

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1 - Tirana Times, Jan. 27, 2012 (subscription required, http://tiranatimes.com/)

2 - Gazeta Shqip, Dec. 6, 2011 (in Albanian, http://gazeta-shqip.com/)

3 - Top Channel, Jan. 22, 2012 (Newscast in Albanian, http://www.youtube.com/watch?v=N53F8hQjEaI)