Does the Euro Area Financial Crisis Impact the Membership of Western Balkans Countries in the EU?

Does the Euro Area Financial Crisis Impact the Membership of Western Balkans Countries in the EU? PhD Nasir SELIMI Business and Economics Faculty, South East European University, lindenska nn, 1200 Tetovo, Republic of Macedonia Email: n.selimi@seeu.edu.mk Abstract The purpose of this paper is to reflect the impact of global economic crisis on the economies of the Western Balkan countries. Now it is clear and undeniable that the countries in the world are interdependent amongst each other. When the U.S. sneezes, the rest of the world catches a cold. is one of the sentences that symbolically expressed the interdependence of countries in the world. This was confirmed again and recently during the recent financial crisis of 2007 when the financial crisis emerged in the U.S. and quickly spread worldwide, especially in the old continent. This phenomenon of interdependence does not spare small economies such as the Western Balkan countries. These countries attempts are to join the EU, so their economy is open to the global economy and especially to the EU countries. This relationship developed between them during the crisis of the Euro-zone countries has had a significant influence, worsening the economic situation in these countries. Using various economic methods I will focus on different areas of the economy to investigate the impact of the crisis of the euro-zone countries in the economies of these countries. A special study will be done in the exchange of goods and services between these countries, the foreign direct investment between them will be analyzed and their debts as well as broader economic cooperation. Later, our attention will focus on efforts and results achieved in the joining of the Western Balkan countries within the EU Keywords: Debt crisis, the crisis of the euro zone, EU enlargement, economic interdependence, political interdependence Introduction Whenever an economic crisis is present in a society, it reminds us that this society must make partial or radical changes. The economic crisis is not a new phenomenon in human society. In all socio-economic periods crisis has its features and consequences. However the forms and modes of occurrence are different, different is as well its intensity. Human history has recorded a number of economic crises that have appeared so far. One of these estimated economic crisis as the largest is that of the years 1929-33. There are some others well known economic crisis with regional scale or even wider. We remember the crisis of 1974 and 1976, which otherwise were called "the oil crisis". Two decades later, 1994-1995, 105 www.hrmars.com

another recognized financial crisis called "Tequila Crisis. In 1997-1998 some East Asian countries faced crisis called "Asian Tigers Crisis." In the early 21st century appears the next crisis in the U.S. and other countries of the world which is known as the "crisis of the Internet". From 2007 until 2009, the U.S. faced one of the biggest crises similar of the Great World Crises in 1929-33. In the beginning it was the financial crisis, so they say "global financial crisis." Very soon spread to whole world and became the "global economic crisis." The origins and causes of the occurrence of global financial crisis there are different opinions and theories. A number of authors say that this crisis has to do with defects and weaknesses of capitalism; others think that the economic model is not adequate, but wrong. There are those who associate the display of the crisis is globalization. Today, although it is thought that this crisis is behind us, its consequences are still felt in 2012. Furthermore, the economic situation in Europe is still weak, while the forecasts from global institutions are disturbing. This is not just for countries like Greece, Ireland, Italy, Spain or Portugal, but recent global agencies who assess financial prolificacy, don t exclude even the most developed countries of the EU such as France, Luxembourg and even Germany. IMF, World Bank, OECD, predict that the world and especially the European Union will face a crisis and economic recession. American economist, Nouriel Roubin, about the last crisis says: "First of all I wish to emphasize that the crisis is global. Euro area represents only the most critical part of a scenario..."(lajm, 2012). Certainly after these pessimistic predictions many people ask questions that are challenging and very interesting. So they ask and curios do know how accurate are these predictions? Is a European Union in more difficult situation since its inception? Can Greece be saved from financial collapse? What about Spain, Ireland and Italy? Are these countries next? How will Western Balkan countries react in this situation?major partner in economic cooperation of Albania, Macedonia, Kosovo, Serbia and Montenegro are the EU countries. Will the EU crisis affect these countries' membership in the EU? What can we learn from all this confusion? Paul Romer, a known economist says: "It's terrible to bring harm to a crisis (Fridman et al, 2009). Origin and Causes Of Global Financial Crisis Countries with free market economy in the second half of 2o-th century reached greater economic development. U.S., in the previous century, dominated in the world in all spheres, especially in economy. Also in the second part of the same century high level of economic development reached East Asian countries so-called "Asian Tigers". On this part of globe was rivalry and fierce competition between Japan and China. The production and especially export were areas where these two countries do most races. In the Latin American continent political turbulence belonged to the past, while their main preoccupation of the late 20th century was economic growth and prosperity. The Eastern part of Europe, realizing the transition period and main aimwas membership to great European family. 106 www.hrmars.com

The global financial crisis emerged in 2007 in the USA. In 2009, reportedly was overcome, however, consequences and concerns remain today. For the intensity that was, without doubt this crisis represents the greatest after World War II. By right it was comparable to that of the years 1929-33. The global financial crisis from the U.S. quickly spread throughout the world and shook the entire global markets and economy. The economist called Paul Krugman since 80- years warn that "the world expects a recession which is inevitable and highlighting the factors that cause it." The same message also gave another economist N. Roubini who some years later predicted the 2007 crisis. Unfortunately, these predictions were not taken seriously and there were not treated by anyone. Causes of the global financial crisis related with one of the types of mortgages known as "subprime Mortgages". This type of loans were given to people who had no credit settlement skills. In September of 2008 such bad loans in the U.S. had 25 million risky loans that totaled the amount of 4.5 trillion USD. Risky loans were given by banks and then these were sold to large financial firms like Merrill Lynch, Fannie Mae, Freddie Mac and Citibank. These firms in the form of guarantees provided credit (mortgage backed securities) then sold them everywhere in the world. In more favorable terms of lending and the collapse of regulatory restrictions on getting credit, according Th. Friedman, three factors led to the deregulation of the banking system in the U.S.: devaluation risk, the moral decline of business and privatization of profits and distribution of loss. Later crisis had not only the character of liquidity, but it took the character of a financial crisis and in the end the economic character. Joseph Stiglitz, one of the economists on the sound and also winner of Nobel Prize for economics when talking about the causes of international financial crisis among other things, says: "it is a consequence of bad management of the economy and world finance"(civici, 2010). In general, all the causes of the occurrence of crisis can divide them into two groups. The first group includes the theory which is supported by Keynesian economics who say that "the crisis of 2007-2009 was caused by the lack of regulation and state weakness that left the path free financial superspeculation phenomenon." The second group is supported by liberalizing the causes of this crisis that we see the "real estate speculation in the U.S. and consider that these loans were the starting point of the crisis who were encouraged by the state and the U.S. government. These are convinced that mortgage risk public support enjoyed by the banks." (Civici, 2010). Starting from the above we can freely say that the essence lies in the banks and financial markets, because the roots of crisis are financial and monetary. The consequences of the global financial crisis are large and not just remain in the U.S., but extend into the wider world. Depreciation of securities in financial markets and loss of value of assets of banks have not been remembered in these dimensions. Just for illustration of this situation is the fact that the financial crisis financial markets lost between 40-50 thousand billion dollars or loss is equal to the entire world GDP a year. 107 www.hrmars.com

The financial crisis hit not only financial and banking markets. Consequences of it were in more sectors. Real economic sector was one that was most severely affected, especially the banking system, economic growth, consumption, employment, energy and environment. Obviously the damage from this crisis will extend into Europe, countries BIRK Regulation, the countries of Asia, Latin America and Australia. Crisis in The Euro Area U.S. financial crisis began to be felt in Europe, often in the first quarter of 2008. She first began to be felt in the UK, Switzerland, France and Germany. The spread of the crisis in Europe was something that was not expected, rather it well known but not known what kind of intensity would be. Even as in the past the old maxims still applies: When the U.S. sneezes, Europe catches a cold. One of the most important gauges of economic activity, i.e. GDP, during the crisis in EU member countries and the euro area decreased or slowed significantly, whereas in 2009 it recorded a negative result. Table 1. GDP at market prices 2007 2008 2009 2010 2011 European Union 2.7 0.2-1.6 2.3 1.5 (27) Euro area 2.3 1.9 0.9 0.8 1.2 Recourse: Eurostat, Statistics, Search Database, 2012 Although in late 2009 seemed to the world economy, especially that of the United States slowly improved and overcome the crisis, in Europe, it deepened even more compare with the 2008. The financial crisis hit nearly all EU member states, but the euro area countries were those who felt most of this crisis. Serious problem was the huge debt that had Greece which exceeded over 350 billion USD. The budget deficit had spent 13% of GDP, which had passed the limits of the Maastricht Convergence. Despite best efforts of the member states of the euro area to help Greece out of economic collapse, it was given assistance in the form of packages, yet it also this year, probably the next few years will be faced with a recession from which they could hardly emerge from the crisis. Spain also has economic difficulties recently. It is the fourth economy in the EU ranks. Allowances that were given to Spain, will hopefully help the economy recover, otherwise deepening crisis in this country will not only rattled the euro area, but also beyond. International Monetary Fund warned Spain that can score even deeper recession than previously expected, from minus 1.7 percent this year and minus 1.2 percent next year. IMF also published evaluation of the Spanish budget deficit this year and next year will exceed the 108 www.hrmars.com

expectations of the Spanish government. Spanish deficit this year will probably be seven percent, while next year 5.9 percent of GDP. Ireland also found in non-enviable situation. That, immediately after Greece, sought financial assistance from the ECB and other international financial institutions. In France forecasting for 2012 year is that it ends with a minimal growth of 0.3%. Economic difficulties are apparent in the UK where prices increased steadily. Since 2007 the ratio of the EUR =USD rate so continually became too severe. If this year had a record and 1EUR = 1.60 USD, in 2009 this ratio was 1EUR = 1.35 USD. This report in July 2012 is 1EUR = 1.21 USD. In July 2012 the European Central Bank in order to stimulate the economy lowered to 0.75% interest, which is 10-year record in the history of the euro. The question which is now current and interested for world is: will Germany also enter in crisis? The answer which is given by the German business is not so good. German companies reduced production, orders are not like before, while export champion Germany until recently, rank now in third place. This is expected because over 40% of German exports go to countries in the euro area. Director of the Institute, Hans-Werner Sinn, recently summed up the present study with these words: "The euro crisis exerts more and more negative impact on economic conjecture in Germany" (Shqip, 2012). Indeed Europe is facing a financial crisis that `s never been before. Unemployment in the euro zone reaches the highest average rate at 11%, while Spain in July, 2012 reached a record number of 25.1%. Thoughts like that of Greece's exit from the euro area and the abandonment of the use of the euro as national currency are frequent. But there are other opinions such as that of economist Robert Mandel, described as "the father of the euro", the emergence of Athens from the common currency area would take place 20 years beyond. In an interview for Greek newspaper "To Vima", Canadian Nobel laureate said that "If Greece back to drachma and devalues national currency by 50%, will not solve the problem of colossal debt. Besides, would have more time to arrive at today's level of living (Koci, 2012). Table 2: Share of EU exports in the world exports ( % ) 2006 2007 2008 2009 2010 European Union (27) 17.3 17.4 16.7 17.2 16.0 Canada 4.6 4.3 3.9 3.5 3.4 USA 12.3 11.9 11.2 11.8 11.4 Japan 7.7 7.3 6.7 6.5 6.9 Resource: Eurostat, Statistics, Search Database, 2012 The table 2 clearly shows that the export share of EU countries in world exports in the years of crisis diminishes, so that by 17.4% in 2007 as in 2010 it totaled. New York Institute of Economic Thought for the dire economic situation, inter alia, says: "We believe that at the moment Europe is heading blindly into a disaster of incalculable proportions, 16.0%." (Lajm, 2012). 109 www.hrmars.com

However this year the EU has undertaken a number of activities aimed at exceeding the difficult financial situation. So the euro-zone members signed a supplemental agreement, as was the case with fiscal agreement or the establishment of funds as was the case with the European Fund for Financial Stability (European Financial Stability Facility). Fiscal agreement provides constitutional limitation of the amount of budget deficit and public debt for each member country and those aspiring to join the Monetary Union. European Financial Stability Fund represents the fund which provides unlimited power for liquidation of the securities markets of the state. "For Europe, says N. Roubini, there is only one way: to create a banking union which allows the separate debts and protect the common currency. But to do this need to have a strong political union, precisely what was never made." (Lajm, 2012). From The Euro Area In Western Balkans (Wb) Western Balkan countries, Albania, Macedonia, Kosovo, Bosnia and Herzegovina, Serbia and Montenegro, since the beginning of the transition period and thereafter, showed their interest to join the European Union. Membership process today is a top priority of governments of all Western Balkan countries. Also all the countries of WB more than half of their economic cooperation realize with member countries of the EU. WB economies are mostly small and open to the global economy. Economic activities of WB countries are diverse ranging from exchange of goods and services and to the fluctuation of foreign direct investment and financial markets. Since the economic cooperation among member countries of EU and Western Balkan countries is quite intense, it is normal and logical to expect that the crisis which is present in the euro area countries appear and have a negative impact on economic development of these countries. This mostly reflected in the following activities: credit market slowdown, rising prices of products and services, business bankruptcy, increasing unemployment, reducing the value of assets, bad loans increased, reduce the capacity of banks to grant new loans, etc. Impact of financial crisis the euro area countries in the Western Balkan countries is also significantly observed: reduction of remittances, devaluation of national currency, worsening the conditions for granting loans, export difficulties, the fall in imports of industry problems ordered material, the reduction of GDP, the lack of financial resources of business, etc. Some of these macroeconomic indicators will be the object of our study following the study. 110 www.hrmars.com

Table 3: GDP Growth, (Annual %), West Balkan Countries, 2007-2011 Country name 2007 2008 2009 2010 2011 Albania 5.9 7.7 3.3 3.5 3.0 Bosnia&Herzegovina 6.8 5.4-2.9 0.8 1.7 Kosovo 6.3 6.9 2.9 3.9 8.2 Macedonia 6.1 5.0-0.9 1.8 3.0 Montenegro 10.7 6.9-5.7 2.5 2.5 Serbia 5.4 3.8-3.5 1.0 1.8 Resource: World Bank, 2012 As you can see from the table top mark GDP of all the Western Balkan countries has decreased on the period of 2007-2011. Thus, in 2008, Albania has a GDP growth of 7.7% as of this year and by 2011 its GDP has been declining ever, even in 2011, it is only 3.0%. Referring to INSTAT report in the first quarter of 2012, noted that the Albanian economy recorded a growth level of 0.2% only, and compared with the same period last year, when this indicator was at 1.2%. (Koci, 2012). The slowdown of the Albanian economy in 2012 is associated with negative performance of major trading partners such as Italy and Greece. The same trend occurred with macroeconomic indicators Bosnia and Herzegovina in 2007 which has a GDP growth of 6.8, while all subsequent years that GDP growth slows, as in 2011 barely manages to be 1.7 %. Kosovo also notes similar results as its neighbors with distinction since 2009, it marks a positive result. In Kosovo in 2012 has fallen to export, remittances decreasing markedly while economic growth is not projected to exceed 3.8%. In 2012 according to the results in the first quarter of other countries have slower GDP growth or even they have recession. Macedonia, Montenegro and Serbia also the culmination of years of global economic crisis faced with numerous economic difficulties. If we compare the growth of GDP of these countries with average growth of GDP in the euro area and EU will see that almost all countries have the greatest increase in all analysis years. Even in 2009 when the euro area and EU have decreased record -4.4% declines in GDP in the Western Balkan countries is small. However, the above-mentioned table can clearly see the impact of global financial crisis and the decline of GDP of member countries of the EU significantly affects the GDP decline in the WB countries. A very important indicator of economic performance of a country, obviously it is public debt. This indicator in the Maastricht Treaty was the subject of discussion and the decision was taken that the economies of member countries of the EU and those countries aspiring to join the EU, public debt should not exceed more than 60% of GDP own. 111 www.hrmars.com

Table4: Central government debt, total (% of GDP ) Country name 2007 2008 2009 2010 2011 Albania 53.9 55.2 61.6 61.0 60.0 Bosnia & Herzegovina - 30.7 35.3 38.0 39.0 Kosovo - - - - - Macedonia 33.3 28.7 32 34 35.0 Montenegro - 29.0 38.2 40.9 44.0 Serbia 29.8 27.9 32.6 38.7 45.0 Euro area 52.0 61.0 64.7 74.1 - EU 42.0 49.5 56.4 58.8 - Source: World Bank, 2012 Recent economic analysts and researchers pay more attention the public debt, because you know that one of the causes and roots of the financial crisis is precisely that debt obligation to lenders internal states and external. The table top mark we can see that public debt in the euro area, the EU and the Western Balkan countries in the growing crisis in comparison with previous years. Thus the average public debt in the euro area and the EU in 2010 and thereafter exceeded specified by the Maastricht economic convergence. The biggest concern is that countries that borrow primarily to cover needs for the functioning of the state and not for capital investment. If these borrowed funds were used for capitalization, to support economic activity which increased employment and stimulated economic growth, the public debt does not pose any greater risk, but if these are used for administrative salaries, payment of pensions or for projects not productive, as is the case in Macedonia, project "Skopje 2014", then the negative consequences are not avoided. According to recent data from the ECB indicate that the overall financial crisis and recession that has begun to grow in the budgets of most European governments, makes them face huge debts. Greek government debt is now equal to 165 percent of GDP, in Italy the figure marks the 120 percent, 108 percent in Ireland. In the following we study the table of countries' foreign debt of WB given in absolute numbers. Table 5: External debt stocks, total (DOD, current USD ) 112 www.hrmars.com

Country name 2007 2008 2009 2010 Albania 2,854,187,000 3,903,573,000 4,692,747,000 4,735,744,000 Bosnia&Herzegovina 8,822,674,000 8,303,155,000 9,624,825,000 8,457,291,000 Kosovo - - 358,529,000 342,233,000 Macedonia 4,160,820,000 4,681,119,000 5,593,176,000 5,804,145,000 Montenegro 1,262,814,000 1,466,375,000 2,314,902,000 1,554,484,000 Serbia 26,122,095,000 30,406,064,000 33,111,492,000 32,221,765,000 Resource: World Bank, 2012 Macroeconomic indicator called Total external debt clearly informs us that the external debt of the Western Balkan countries in the period 2007-2010 increases in size. Country which is mostly in charge of this kind is Serbia with a total loan 32 billion USD, while less debt is Kosovo in 2010 with a total 300 million USD. Table 6: Bank nonperforming loans to total gross loans (%) Country name 2007 2008 2009 2010 2011 Albania 3.4 6.6 10.5 13.9 14.4 Bosnia&Herzegovina 3.0 3.1 5.9 11.4 11.7 Kosovo - 3.7 4.4 - - Macedonia 7.5 6.7 8.9 9.0 9.1 Montenegro 3.2 7.2 13.5 21.0 - Serbia - 11.3 15.5 16.9 18.6 Euro area 1.8 2.5 3.6 4.4 5.2 EU 1.8 2.6 4.5 5.6 6.1 Resource: World Bank, 2012 The global financial crisis as we have said before the roots are bad loans. This is reflected in the growing of bad loans in the euro area countries, EU and Western Balkan countries. In the Western Balkan countries the most increase of bad loans were after 2008 years, when the crisis culminates. In the first half of 2012 according to Bank of Albania, the banks did not change their attitude when it comes to lending to large businesses, but not so for small businesses. Within the group of favorite businesses have been large enterprises, while those of small and medium enterprises are "imposed" restrictive conditions. However recent indicators provided by INSTAT for these categories of loans which in the first quarter of 2012 in Albania have reached 20% of total loans. Figures 20 per cent of loans in the country poses a serious concern for the country's banking system and reflects the situation where the economy is. The same thing happened in the EU and euro area countries, with the difference that the percentage of these loans with bad performances moved up to a maximum 6.1% of total loans, while the same in the Western Balkan countries amounts to 18.6% in Serbia at the end the year 2011. 113 www.hrmars.com

One of the key indicators of globalization is foreign direct investment. This indicator helps quite a country's economic growth. The trend of FDI in the Western Balkans countries is: Table 7: FDI, net inflows, (BoP), West Balkan Countries, 2007-2011, million USD Country name 2007 2008 2009 2010 2011 Albania 662 958 964 1.109 742 Bosnia&Herzegovina 2.071 982 240 231 432 Kosovo 603 537 408 457 546 Macedonia 699 587 197 207 409 Montenegro 934 960 1.527 760 401 Serbia 3.432 2.996 1.935 1.340 2.700 Resource: World Bank, 2012 As you can see from the table of the number 7, foreign direct investment from 2007 to 2011 indicate an increase in speed. In all Western Balkan countries, except Albania from 2007 to 2011 the volume of FDI has declined. Even in these countries the volume of FDI in 2011 has not achieved the volume of FDI-s of 2007, the year before the onset of the global economic crisis. This once again confirms us continuity and impact of the global economic crisis the European Union countries to the Western Balkan countries. Greater slowing in Macedonia have that same time the country with less foreign direct investment, while in this country who stood better view is Albania, which in these times of turbulence in terms of FDI had a stable trend. An important indicator which reflects the economic situation in these countries is the change in inflation. Table 8: Inflation, Consumer prices (annual %) Country name 2007 2008 2009 2010 2011 Albania 2.9 3.4 2.3 3.6 3.5 Bosnia&Herzegovina 1.5 7.4-0.4 2.2 3.7 Kosovo 4.4 9.4-2.4 3.5 - Macedonia 2.2 8.3-0.7 1.6 3.9 Montenegro 4.3 8.8 3.5 0.7 3.1 Serbia 6.4 12.4 8.1 6.1 11.0 Resource: World Bank, 2012 Inflation, a phenomenon not preferred in the economy of a country, in all Western Balkan countries in 2008 compared to the prior year was grown. In some countries this increase was more pronounced, while in others the increase of inflation was lower. Place in which the inflation rate amounted to the largest was Serbia (12.4%), Kosovo (9.4%) and Montenegro (8.8%), while the lowest rate of inflation was Albania (3.4%). 114 www.hrmars.com

Table 9: Unemployment, total (% of total labor force) Country name 2007 2008 2009 2010 2011 Albania 13.5 13.0 13.8 13.7 14.0 Bosnia&Herzegovina 29.7 23.9 24.1 27.2 27.6 Kosovo 46.3 47.5 45.4 - - Macedonia 34.9 33.8 32.2 32.0 31.4 Montenegro 17.2 19.3 19.6 19.7 Serbia 18.1 13.6 16.6 19.2 23.0 Euro area 7.5 7.5 9.4 10 10.7 EU 7.1 6.9 8.9 9.6 10.2 Resource: World Bank, 2012 The increase in the unemployment rate is also an indicator that reflects us the plight of the economy of the Western Balkan countries, the euro area countries and the European Union. This macroeconomic indicator several decades in the past is the highest in Kosovo (about 50%) and Macedonia (30%). The large number of unemployed is not only huge economical burden for a country, but also social and political. Even in the EU countries the years 2009, 2010 and 2011 indicate a steady rise in the unemployment rate, while in the first half of 2012 the unemployment rate reaches record of 11.2% or above the 17-million unemployed. Unemployment rate in the same period in Spain marks the highest figure of 24.8%, while in Greece it is 18%. A remittance represents a key indicator for the economy of Western Balkan countries. It is an incentive for many years and many stimulating the economy of the Western Balkan countries. Table 10: Workers` remittances and compensation of employees, received (% of GDP) Country name 2007 2008 2009 2010 2011 Albania 13.7 11.5 10.9 9.7 - Bosnia&Herzegovina 17.7 14.7 12.5 11.4 - Kosovo 19.7 18.5 17.9 16.7 - Macedonia 4.2 4.1 4.1 4.2 Montenegro 5.3 6.6 7.3 7.3 - Serbia 7.9 5.7 9.8 8.7 - Resource: World Bank, 2012 Decades ago a large number of citizens of Western Balkan countries have emigrated to European Union countries. With wages and compensation that they earn in EU countries, migrants keep other members of their family homeland. The remittances are a major 115 www.hrmars.com

contribution to the economies of these countries. However, as we can see from the table top mark in the years when the financial crisis is present in these countries, immigrants are the first who hit out of doing the job and return to their homeland. From this data we can see that the financial crisis in the EU decreases remittances which were sent to WB countries. Financial Crisis and Membership Of The Western Balkans Countries In The Eu Countries who want to join the EU, besides other criteria in the sphere of political and legal system, have to meet the criteria in the economic system. These criteria are clearly defined in the Treaty (Agreement) of Maastricht, and the same can be said that total includes five criteria by which three are in the area of monetary and fiscal two spheres. Maastricht criteria, otherwise known as the convergence criteria are: price stability, government finances, exchange rate stability, interest rates and central bank independence. Price Stability - all member states and candidate countries for EU membership must have stable prices on their products and SERVICES. Inflation of these states must be moved no more than about 1.5% of the average best carried out by three EU member states. Usually this rate of inflation moves up to 3% maximum. Government finances - also represents one of the convergence criteria and it includes two Subcriteria which are: government budget deficit and public debt or government. Both criteria are limited. The budget deficit should not be higher than 3% of GDP of the country, while the "golden roof" for the public debt is 60% of the country's GDP. Exchange rate stability - all member countries and those who want to join should be part of the European Monetary System (SMEs). Advance them to a period of two years are not allowed to devalue or revalue their national currencies more than ± 15%. Interest Rate - represents the fourth criterion and sets forth the nominal interest rate in the long run (usually 10-years) which cannot be higher than 2% from the average of three states with better performance under EU. Central Bank Independence - is the ultimate criterion of convergence and those with him that makes Central Bank member country of the EU or those who claim to become members should have complete independence in their politics and government should not to affect its decision making. From what was said right above the hypothetical question which often we ask: are all Western Balkan countries fulfill the conditions to be a member of and join the EU? Even more important is what happens when member states exceed these limits of the convergence criteria? The answer to the first question as well as in the second is relative. There are certain times when a country meets the convergence criteria, but there are periods when the various countries overcome these criteria. Not fulfilling these conditions are the most frequent source of crises that occur within this community. 116 www.hrmars.com

Regarding the Western Balkan countries, which all tend to measure and manage them meet the economic convergence criteria. Yet time after time economic difficulties arise, they even exceed the given limits. The last case of appear of the financial crisis of the euro area countries made difficult to meet these standards. This is clearly seen from the statistical data presented above. Conclusion We are witnessing major turmoil in the financial markets and public debt occurring recently in the world and especially in the euro area. The global financial crisis originally appeared in the U.S. and quickly spread throughout the world and especially in the continent of Europe. In Europe most countries that were hit were the countries of the euro area. Given that the Western Balkan countries are more connected and interdependent with these countries, the crisis soon passed on these sites and had negative impact on the development of their economy. Greek deep financial crisis and the no favorable situation of Spanish economy, Italian and Irish cannot be overlooked and are indifferent, because these have a direct impact or indirect with Western Balkan countries. Major economies indeed have larger losses than small countries, but is also true that those with measures that take more easily and quickly overcome this difficult situation than small economies and unstable. This was confirmed during this financial crisis. U.S.A. arrange thousands billions of dollars to overcome the crisis and managed to stabilize their economy, while smaller countries such as those of the Western Balkans with all efforts and measures which were taken consequences on the economy are large. Europe continues to face the global financial crisis yet. Measures taken so far have not yielded the desired effects. Germany stands in the best situation which is as engines of economic development of the EU countries. International agencies that assess the guarantees of bank lending to reduce the ranking of EU countries more and more. This had an impact on weakening the economies of the Western Balkan countries. In Europe are circulating numerous ideas and proposals how to overcome this crisis which is the largest since the founding of the European Union. Measures taken in fiscal policy, the space where the EU had greater weakness, it seems insufficient. Projections for future years for these countries by international institutions are pessimistic. Economic crisis is going worse, while economic growth in this sregion continually slow down. Fiscal consolidation and public debt reduction within the limits of normal will be the priority activities of members of the European Union. Western Balkan countries also have their own individual efforts on how to manage this crisis so that the consequences are less harmful. Until now lacks organization and agreement between 117 www.hrmars.com

these countries to mitigate the negative consequences that come from EU countries and to overcome this situation easier and faster. Since the Western Balkan countries are realizing the process of joining the European Union should accelerate the pace of growth and stability in the region, paying particular attention to fiscal and monetary policies. They should intensify the implementation of this process and also to enhance cooperation with the EU. Following the experiences of other countries in the region, who recently was membership within the EU is the right way of moving into the future of these countries. References Lajm, (2012), Gazeta ne gjuhen shqipe, http://www.lajmonline.com/? (Accessed: October, 14, 2012). Friedman, T. L., (2009), Hot, Flat and Crowded, New York: Penguin Books Limited. Civici, A., (2010), Global financial Crisis or financial crisis, Tirana: Pegi. Eurostat, (2012), Statistics, Bruxcelles: Search Database. Shqip, (2012), Gazeta shqiptare, http://gazeta-shqip.com/lajme/ (Accessed: October, 19, 2012). Koci, E., (2012), News Sot, http://www.sot.com.al/.http://www.sot.com.al/ (Accessed: October, 05, 2012). World Bank, (2012), Data World Bank, Washington: World Bank Publishing. 118 www.hrmars.com