Opinion on Relations between the European Union and Albania (95/C 236/25)

On 19 October 1993 the Economic and Social Committee, acting under the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on relations between the European Union and Albania.

The Section for External Relations, Trade and Development Policy, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 11 April 1995. The Rapporteur was Mr Masucci.

At its 326th Plenary Session (meeting of 31 May 1995), the Economic and Social Committee adopted the following Opinion by a majority vote, with one dissenting vote and two abstentions.

1. The importance of Albania for the EU

1.1. Although Albania is a small country with just over three million inhabitants, there are a number of important reasons for boosting its links with the EU.

1.2. Albania is undergoing a democratization process which in three years has transformed the face of the country.

However, the structural fragility of the economy means that the process is not easy. If economic and social conditions were to become intolerable - for a population which now has other terms of comparison than the dark decades of dictatorship and isolation - Albania's fledgling democracy could be thrown dangerously off course and its very existence might be threatened.

Support for the democratization process is thus grounds enough for an effective EU commitment to Albania. It would also provide an opportunity to show that the Community's main aim - o the east and to the south - is the spread of democracy, and not the pursuit of stability at any cost, even if this stability is secured by an illiberal regime.

1.3. Albania is also important to the EU because of its geographical location.

It borders with two Member States (Greece and, across the Straits of Otranto, Italy), and is the EU's south western gateway to the Balkans.

This location is clearly of interest to the EU in a number of respects: strategic, geopolitical, risks of an extension of the ethnic and religious conflicts in the Balkans, implications of possible political, economic or social destabilization of Albania, the beneficial role which it could play in the region.

1.3.1. As regards the strategic and security aspects, it must be remembered that Albania, rightly or wrongly, feels threatened.

This has spurred it to forge alliances on all fronts, or at least on ones which have proved receptive. Hence, having joined the CSCE at the start of the democratization process, Albania concluded a military agreement with Turkey in summer 1992. The agreement gives Turkey the role of implicit intermediary of the United States. The Albanian Government, especially after Albania's failure to join NATO (it was the first eastern European nation to seek membership), has come to consider the United States as its main military ally. In the months following the American military presence in the Former Yugoslav Republic of Macedonia (Fyrom), US use of Albanian military bases was again mooted. Technical assistance projects were discussed with US delegations and there was talk of an agreement with the CIA on the stationing of two spy-planes at Albanian bases. Above all, President Clinton sent a memorandum confirming US military aid, including arms exports, to Albania. Relations were also boosted by the Albanian Defence Minister's visit to the Pentagon in June 1994. A military cooperation agreement has even been drawn up with Malaysia.

1.3.1.1. The EU is signally absent from this framework of strategic alliances, apart from a memorandum of military understanding with the UK, signed in June 1994. This is worrying, as absences of this type are often paid for at other levels, given the interdependence between strategic decisions and economic and political arrangements. For the immediate future, the abovementioned framework has two adverse effects. Firstly, Albania is now a full member of one of the two strategic axes confronting each other in the Balkans. This is clearly at odds with the idea of an Albania which, while certainly not unarmed, is not involved with either party and is able to play an important role in the peace process in ex-Yugoslavia. Such a role would only be feasible with the material backing of an analogous and more general strategic role on the part of the EU.

The second adverse effect of the present strategic framework is that the entry onto the scene of Turkey (the aspirant regional power) not only impinges on a role which could have fallen to Greece (as the only EU member in the region, and in view of its economic development level), but is also likely to nudge it towards the opposing strategic axis.

An EU presence, with its own strategy, would enable Greece to play the active role which is its due, as authorized for Bulgaria and Romania.

1.3.2. In the imploding situation in the Balkans, Albania could be a further, geopolitical complicating element.

It must be remembered that around three million Albanians live in neighbouring countries, in a situation of ethnic and linguistic continuity. The largest community is in Kosovo (where Albanians form 92 % of the total population), followed by Fyrom (25 % according to Skopje, 40 % according to the Albanians). There are also Albanian communities in Montenegro and Serbia. The self-determination movements in these communities are matched by calls from political groupings in Albania for the reunification of Albanians in a single State. A coordinating committee for all Albanians in the Balkans was established in December 1992 to consolidate these aspirations.

The Albanian Government and President Berisha have so far shown considerable prudence and moderation in this area, first and foremost over the risk of the Yugoslav conflict spreading into Kosovo, which could draw Albania itself into the conflict. The Albanian Government has encouraged direct talks between the leaders in Kosovo and the Belgrade authorities. In this way, Albanian diplomacy has done much to further the Kosovan cause (resolutions and declarations by the UN, CSCE and United States).

Even more worthy of note is the prudent and moderate response to the measures recently adopted by the Fyrom Government against the Albanian minority (closure at the beginning of December 1994 of the Albanian language university of Tetovo) and against Kosovan autonomist representatives. However, one cannot discount the possibility that any deterioration in Albania's domestic situation (in the form of political instability and/or a serious economic crisis) could - as happens all too often - lead the regime to woo back lost popular support at home by latching onto an external objective, in this case the dream of an ethnic greater Albania. Aside from other considerations, this has the handicap of only having been achieved during the second world war, and by the Axis powers. Its implications for the destabilization of the region would be enormous, not only northwards to Serbia, but also to the south and east. Loss of the Albanian region would jeopardize the very survival of the Fyrom, producing chain reactions into Bulgaria and Greece.

1.3.2.1. Again in the geopolitical field, it should be noted that in June 1992 Albania's quest for the widest possible range of alliances led it to sign a Black Sea economic cooperation pact (CEN), spearheaded by Turkey. The medium-term objective of establishing a common market of 200 million people is to be welcomed, particularly if it forms part of the Euro-Mediterranean strategic area which the ESC has long advocated, and, with a view to polycentric development, it complements European integration and Mediterranean joint development.

At all events, Albania's membership of the CEN (which is economically justified from the viewpoint of east-west integration of the southern Balkans) must be offset by appropriate strengthening of its and Turkey's political and economic links with the EU.

1.3.3. As regards ethnic conflicts, a weakening of Albanian democracy would heighten existing tensions with the Greek minorities in southern Albania, and hence with Greece, which actively supports them. These tensions are not just fuelled by the legitimate aspirations of these minorities for recognition of their linguistic and cultural rights, and by the 'Omonia' political movement, which makes significantly more extreme claims - not backed by the Greek Government - about the 'Greekness' of southern Albania. Tensions worsened with the escalation of diplomatic incidents between Greece and Albania beginning in 1993 and culminating in the summer and autumn of 1994. Following the trial of five 'Omonia' members who were sentenced to prison terms for spying, incitement of separatism and illegal possession of arms, the Greek Government closed its borders with Albania and expelled 70,000 clandestine Albanian immigrants (having expelled 30,000 in the diplomatic crisis of 1993). In both countries, anti-Greek and anti-Albanian propaganda reached unprecedented levels and tones, and unwonted threats and accusations were exchanged. Troops were posted on both sides of the border, ambassadors recalled, and various diplomatic and economic sanctions introduced. Within the EU Council of Ministers, Greece continued to block the balance-of-payments aid which is so important for the Albanian economy. The blockage has now partly been lifted.

Recently, relations have fortunately improved, particularly since the reduction in the sentences faced by the 'Omonia' members who are likely to be released shortly. A clear sign of the upturn, alongside the resumption of diplomatic relations, was the assistance provided by Greece during Albania's recent energy emergency.

After a period of strained relations over recent years, high-level contacts between the two countries seem to have opened the way for closer cooperation. The climate is now conducive to moves towards the conclusion of a bilateral agreement on illegal immigration. The climate is also conducive to an increase in Greek and general EU investment in Albania, which however requires concerted joint action and support.

1.3.3.1. The course of the Greek-Albanian crisis prompts the following considerations. On the one hand, the nationalist card played by the Albanian President was not appreciated by the population as a whole, who were much more concerned about the practical adverse effects of the crisis (it is calculated that in 1993, remittances from emigrants in Greece totalled USD 900 million). Given that total international aid to Albania in 1991-1993 did not exceed ECU 1,227 million, it becomes clear that good Greek-Albanian relations are of decisive importance for economic, and hence social and political development in Albania. On the other hand, however, there is no doubt that the positions of the nationalist groups in both countries and their respective territorial claims to Northern Epirus and 'Tsameria' (the Albanian nationalist name for Greek Epirus) should become less entrenched as political relations between the two countries become more settled.

Under no circumstances can the EU allow itself the risk (less acute for the moment, but no-one knows for how long) of a new ethnic conflict in the Balkans which would directly involve an EU Member State.

1.3.4. At present there are no major religious conflicts in Albania, but the geopolitical and ethnic developments described above, and their links with religious issues, add up to a potentially explosive situation not only for the religious coexistence of its inhabitants (70 % Muslim, 20 % Eastern Orthodox, 10 % Roman Catholic, plus a small Jewish minority), but also for the Balkan region as a whole.

1.3.4.1. Various factors are at play here, first and foremost the fact that the Vatican and the Orthodox churches support opposing strategic axes in the Balkans. For instance, the pro-Serb stance of the Orthodox church sets its Albanian members against their country's decision to take the opposing side. Furthermore, there is a misconception (also found among Greeks) that the orthodox population (of 3-400,000) is a Greek minority, when according to the 1989 census, Greek speakers in fact numbered less than 59,000.

1.3.4.2. Still more worrying are the tensions which could break out among the Muslim majority in Albania. One must not underestimate the effects of the campaign by promoters of the ethnic wars in ex-Yugoslavia (Serbs, Croats and, above all, Bosnian Serbs) to attribute the conflict to irreconcilable cultural and religious differences rather than to ethnic, nationalistic and economic motives. In this way Albania is presented, not as an essentially secular state but as a Muslim nation, which as such is unable to guarantee the coexistence of religious minorities. The EU must take steps to prevent a repetition of what happened in Bosnia, where a genuinely secular population has become fertile ground for Islamic fundamentalism.

The close strategic, political and economic links which Albania has forged with Muslim countries and organizations are a further consideration. As well as the abovementioned links with Turkey, there is Albania's accession in 1992 to the Islamic Conference Organization, and the opening in Tirana of an imposing office of the Islamic Development Bank which is extremely active in channelling economic aid from Muslim countries. A major Saudi Arabian holding company (IAIDC) was also set up recently for investment in Albania.

These developments do not in themselves further the cause of those who, particularly in ex-Yugoslavia, stir up campaigns against the 'Muslim threat' in the Balkans (to suggest that the conflict is one between Christians and Muslims merely worsens instability in the region).

However, there are legitimate grounds for concern that decentralized economic cooperation targeted at Albania's Islamic communities and handled by religious bodies - the Iranians being particularly active here - could provide a conduit for the spread of Islamic fundamentalism. This could become a real risk if the Muslim community begin to feel that Europe has abandoned them. What the EU must avoid at all costs is a repeat of events in Bosnia, where an essentially secular Muslim population has provided fertile ground for the Islamicists.

1.3.4.3. The European Union must do everything in its power to strengthen the lines of dialogue and communication between the various ethnic, religious and cultural groups in Albania. It must use the case of Albania as a prime opportunity to develop interdenominational, interfaith and cultural dialogue.

Religious conflicts can be avoided if the forces and agents for peace and progress in the region are given prompt, effective and decisive support.

The European Union has an obligation to support all political and social forces in Albania who are not seeking to lead Europe and the Balkans into a period and climate of religious wars. It is essential to encourage forms of cooperation and joint action between Orthodox, Catholic and Jewish Albanians at all levels, particularly in youth programmes and in the creation of a spirit of cooperation, acceptance and shared experience between these communities and the Muslim religious establishment, society and young people.

1.3.5. Further risks to the stability of the young Albanian democracy are posed by the spread of mafia and organized crime, which is aided by the clan-structure of Albanian society. Research carried out by the major European police forces, and published by the Paris-based Observatoire Géopolitique des Drogues has revealed that drug-trafficking in the Balkans - which is closely linked to arms-dealing - has in the last few years been the domain of the Kosovo mafia organization. This was later joined by the Croatian mafia, which in turn, has links with the Sicilian Mafia. It is only more recently that Albanian mafia organizations have appeared on the scene, with the development of the 'new Balkan routes'. Heroin is unloaded from Turkish ships at Albanian ports and routed through the Kosovo region and Belgrade into Hungary. The drug is then distributed throughout Europe, particularly in Switzerland, where Albanian networks now have a near-monopoly of the heroin market. Most of the arms also come from Switzerland, and the same organizations smuggle them into the former Yugoslavia. Investigations by Italian magistrates have identified a new trafficking route - again involving the Albanian mafia - which runs from Albania direct to Italy (principally Rome), with drugs being landed along the Apulian coast.

Equally worrying is the latest activity of the Albanian mafia which, with the help of the Apulian mafia and the Neapolitan camorra, is bringing illegal workers (held in conditions bordering on slavery) and prostitutes into Italy (the latter for highly profitable networks that are almost invariably run by Albanian criminal organizations). It would also appear that close links exist between the Albanian mafia and the Islamic movements, which are organizing networks of influence in Europe from Germany.

The most likely danger for Albania is that the mafia organizations will further increase in strength and manage to infiltrate the corridors of political power (there are numerous examples of this in both Europe and America), thus endangering the future of democracy itself. At the moment it is impossible to envisage the consequences this might have, not only for Albania, but also for the EU. It is therefore in our interest to help the emerging Albanian democracy to weed out the mafia organizations, and thus avoid the danger of Albania becoming a kind of no-man's-land, prey to large-scale international trafficking, and to drugs and arms dealing.

1.3.6. It is also in the EU's interest to ensure that the Albanian economy and Albanian society are not destabilized by failure to take off or by distorted development. The most immediate consequence would be an increase in emigration, which, given the recent resolution of the Council of the European Union, can only continue to be clandestine. This would further complicate relations between Albania and Greece, where there are already between 250,000 and 350,000 Albanian illegal immigrants. It would also affect other EU Member States, notably Italy. A worrying indication of this appeared in October 1994 when there was a further mass exodus to Italy, reminiscent of events in 1991, which was only partly stemmed by Albanian police at the port of Durrësi. The sudden upsurge of emigrants is explained by the restrictions and expulsions imposed by the Greek Government. However, the flow of illegal emigrants to Italy has never really stopped during the last three years.

1.4. The long list of problems and risks which the development of the situation in Albania might involve for the EU brings us back to the premise of this analysis: the need to strengthen democracy in Albania by aiding the democratic process and economic and social development. The only antidote against geopolitical, ethnic and religious disarray, and against any risk of instability in Albania, is to place democracy at the very heart of politics, the economy and society.

This is also essential if Albania is to play a positive, 'European' role in the Balkans, by becoming, in the medium term, an EU outpost which will promote peace in the region and new forms of cooperation based on a new concept of integration for the whole area.

2. Transition problems

2.1. The closer relations between Albania and the EU, which we have argued for above, must in the first instance provide concrete solutions to the problems facing Albania today. These can be separated into three categories: problems regarding transition; those deriving from measures regarding macro-economic stabilization and adjustment; and those concerning development.

The problems involved in the transition to democracy and the market economy are not unlike those experienced by other central and eastern European countries. They do differ, however, in magnitude and scope, due to the ideological crudity of the dictatorship which ruled supreme for 50 years, and condemned the country to autarkical isolation.

The problems are, firstly, those relating to political change and the process of democratization; secondly, those regarding the transition towards the market economy and economic democracy; and thirdly, those involved in the transition towards a more socially cohesive society.

2.2. The political transition and the democratization process

2.2.1. In only three years, Albania has made enormous strides towards political democracy. All citizens are guaranteed basic political rights, there are free national and local elections, and a multi-party parliamentary system has been established. The centralized administration of the old regime has given way to administrative decentralization, with 37 administrative regions and 310 districts being created, even though, more recently, this decentralization has been offset by the establishment of 12 prefectures, with government-appointed prefects. Officials in certain key posts in the public administration and the security services have been replaced. More important still, the role of the military has been reduced and there have been cuts in the armed forces and police.

A number of foreign observers have identified a risk of political backsliding, notably within the last year. Representatives of the Democratic Party (the majority party, with 60 % of the vote at the 1992 elections) are tending to 'take over' the public administration. Decisions are increasingly not taken at the appropriate levels as orders are awaited from above. In short, political power is being recentralized, notably in the hands of the President.

The gap between formal and real democracy - a phenomenon which is also well known within the EU, and which in some Member States is in danger of worsening - is a matter of some concern in Albania because democracy is too recent to have become firmly rooted in political life and society. Political life degenerated in 1993 and 1994 with factional struggles in the Democratic Party, parties splitting and new parties being set up, alarming cases of political violence and, above all, authoritarian and arbitrary handling of political events on the part of the authorities (the opposition Socialist Party has frequently been stopped from holding demonstrations).

These regressive trends in Albania's political life seem to have been sparked by the declining popularity of the Prime Minister and President prompted by the difficulties in launching economic and social development. And it is in this light - in other words, as an attempt to set public opinion against convenient scapegoats - that many observers interpret the trials of the political leaders of the transitional stage.

It should also be noted that worsening political conflict between majority and opposition is very widespread because it is fuelled by the traditional conflicts between clans, as well as between the winners and losers in the perhaps overhasty economic reforms.

2.2.2. A number of legal reforms have been brought in since 1990, with a view to guaranteeing the fundamental freedoms and civil rights of Albanian citizens. October 1991 saw the enshrinement of the human rights laid down by the UN, and in May 1992 the Constitutional Court was set up. In March 1993 the Albanian Parliament approved a major constitutional law on human rights which guarantees religious freedom and allows members of all religious faiths to form organizations and to receive foreign assistance. In three years, freedom of association, which is regulated by provisions on registration and public authorization, has led to the formation of 27 political parties (others have been authorized in recent months), 80 political and non-political associations, and 25 trade union organizations. There is a legal guarantee of freedom of the press, and 330 newspapers and periodicals have been authorized. However, there are serious economic and political obstacles to the development of an independent press (most of the Albanian press is dependant on foreign aid, mainly from the United States, and radio and television are in the hands of the Democratic Party).

The worsening political climate in 1994 led Amnesty International to denounce human rights violations, such as police violence at political demonstrations, the holding 'in camera' of the trials of political leaders, and the arrest of four journalists for their views (later released following pressure from the EU).

These obstacles to the full exercise of fundamental freedoms and human rights has been possible because the huge task of building a democratic legal framework has yet to be completed by the approval of two key legal instruments: the new Constitution and the penal code. The new penal code has now been finally approved after a lengthy parliamentary procedure. Albania's Helsinki Committee broadly endorsed the code, although it made some significant comments on the need to limit the use of capital punishment and to decriminalize homosexuality.

The approval of the new Constitution has been put on hold following rejection of the proposed draft by the referendum of 6 November 1994. The draft drawn up by a cross-party commission chaired by the Head of Government, had not been put to parliament (where a two-thirds majority is required under the constitutional law adopted in 1992). The use of a referendum, rather than a parliamentary procedure, was the main reason for the lack of support from the opposition. Other criticisms focused on the excessive powers which the constitution would have bestowed on the President.

Albanian politicians have called for a rapid settlement of the constitutional question, and a cross-party commission has been instructed to draw up a new draft. However, the problem of the approval procedure - parliamentary, referendum or both - remains unresolved.

2.2.3. The March 1993 law on human rights also guarantees respect for minority rights. The thorniest question concerns the Greek minority in southern Albania, because it is at the root of disputes with Greece.

The Deputy Minister for Foreign Affairs assured the ESC delegation which visited Albania in May 1994 that in the preceding two years the rights of this minority had generally been respected. This was also publicly recognized by the CSCE High Commissioner for national minorities (Albania being a member of the CSCE) and, more recently, by Council of Europe representatives. The Greek minority in southern Albania has its own schools with their own regulations and curricula which are established jointly by the Ministry of Education and the Greek community. At Gjizokaster there is a training institute for Greek-speaking teachers.

The Greek Government's demands for new schools for the minority are at variance with the actual pattern of human settlements in the region, which have been seriously depleted by emigration. Depopulation has meant that many villages in southern Albania now have classes of just four or five children (compared with 50 in the northern regions), so it would make more sense to amalgamate them. The Albanians thus do not understand why in May 1994 the Greek Government used this issue at the EU Council of Ministers as a pretext for blocking balance-of-payments aid. At all events, the Deputy Minister for Foreign Affairs emphasized the political will of the Albanian Government to take further steps to guarantee maximum respect for the rights of the Greek minority. In particular, a law was being drafted which would provide extra funding for the Greek-language schools and also make it possible to set up private schools. This law should finally rectify the fragmentation of primary education and make it possible to continue to receive teaching in Greek after the first eight years of schooling.

2.2.4. What can the EU do to help Albania to complete the final stages of its democratization process and, more important, overcome its present difficulties?

What the EU should not do is threaten to discontinue aid because of the shortcomings still evident in the democratization process. Such negative mechanistic conditions often fail to achieve the expected benefits. Instead they provoke the country into a haughty withdrawal and encourage it to turn its attentions elsewhere. The EU should adopt a new and more positive approach to aid conditions, make the most of the fact that the democratization process is well under way, and channel cooperation in such a way as to help the Albanian Government overcome the shortcomings.

Similarly, one might ask whether the rigorous 'democracy tests' to which the Council of Europe has subjected Albania (thereby delaying its admission and treating it differently from other eastern European countries) are a more effective spur to full democracy than Albanian participation, as a member, in action by the Council of Europe to reinforce democracy and rights in Europe. At all events, the Committee welcomes the fact that authoritative representatives of the Council of Europe have stated that the absence of a constitution must not close the door definitively on Albanian membership.

2.2.5. The EU's positive actions to further democracy in Albania should be conducted on several fronts. In particular: Steps must be taken to prevent economic conditions destabilizing political life and slowing down the democratization process. Hence, even if Albania no longer needs emergency aid, economic aid will continue to play an important role in safeguarding and consolidating democracy.

2.2.6. However, direct and indirect measures to strengthen political democracy and respect for fundamental rights and freedoms are not enough. If the EU wishes to help Albania to achieve real democracy, it cannot content itself with a democratic process which is theoretically flawless but in practice has no real substance. A guarantee is needed that the will of the people will not be thwarted by a possible resurgence of bureaucracy and political and economic oligarchies. The latest moves by President Berisha (notably the recent Government reshuffle designed to 'clear the decks' and improve efficiency) seem to be a step in the right direction. A campaign has been declared against corruption, which is one of the worst ills plaguing Albanian state administration and political life. More importantly, it is a cause of particular public disquiet. The elimination of corruption is vital for the building of a fledgling democracy such as Albania. However, it cannot suffice on its own. Experience elsewhere in Europe has shown that populist hijacking of the judiciary can spawn new forms of authoritarianism.

2.2.7. To counter this risk, the objective must be social and economic democracy.

In western democracies, progress towards social and economic democracy and the legitimation of the democratic state have centred on four key objectives: a more pluralist society; expansion of citizens' rights (beginning with social rights); economic democracy; and the development of a culture based on participation.

The universal resonance of these objectives suggests that they would be desirable for a country such as Albania. However, it must not be forgotten that until just a couple of years ago not only was Albania not a democracy; it had no civil society as such. The four abovementioned objectives must therefore be addressed jointly with the problems of the economic and social transition.

2.2.8. As regards moves towards a more pluralist society, it has already been noted that Albania has made significant strides in terms of fundamental rights, separation of powers, and decentralization of power. The legal basis has also been laid for freedom of the press, a market economy, autonomy and freedom of organization for interest groups, and the use of negotiation as a means of resolving conflicts of interests. These are the key features of a pluralist civil society. However, their practical implementation (which is closely tied to the measures which have been adopted and which are still to be adopted in the transition) has proved somewhat problematic and inconsistent. By helping the Albanian Government and people to find the right answers to these problems, we will enable Albania to make an essential step towards social and economic democracy.

2.3. The transition to a market economy and economic democracy

2.3.1. Following IMF guidelines, the Government embarked on a radical liberalization of wholesale and retail prices. Their alignment on world prices is now almost complete. The abruptness of these measures led to a surge in inflation, with an average price rise in 1993 of 85 %. While this was cut to 24 % in 1994, the social impact was enormous. Wage rises were far lower, and around a quarter of the workforce is now unemployed. There has been a widespread drop in living standards, as well as a significant and inequitable redistribution of incomes. The trade unions believe that some 40 % of the population is worse off now than under the former regime.

A recent survey by the Albanian statistical office reveals the widening gap between rich and poor. For this purpose, 'poor' households are defined as having a monthly income of USD 14 or less per person - a sum which frequently almost all goes on food. 'Rich' households are those with an income of over USD 60 (of which 70 % goes on food).

2.3.2. The liberalization of foreign trade has undoubtedly allowed the population (or at least part of the population) to acquire a range of consumer goods that would have been unthinkable under the former regime. Only since June 1994 has the Government begun to introduce a system of customs duties and taxation designed to restore order to the haphazard deregulation process. This had led to the development of a widespread underground economy with easy profits and the emergence of new centres of power.

The introduction of these measures is also helping to dampen demand for certain consumer goods such as cars (some 150,000, most of them secondhand, were imported in just two years).

However, the most damaging effect of this liberalization process has undoubtedly been to squeeze out domestic manufacturing industry. Obsolete technology and organization - some plants date back to the end of the last century - mean that Albanian industry is unable to compete with foreign imports in quality or price terms. So, paradoxically, with a paralysed industrial base and growing demand for foreign consumer goods, Albania manufactures far less than it did in the past. 2.3.3. In its move towards a market economy, Albania has resolutely embraced privatization, but this is a road that has been riddled with problems.

2.3.3.1. The privatization of agriculture which began in 1991 is now almost complete. All the land which belonged to the 'cooperatives' has been handed over to their individual members. Some State undertakings, mainly food businesses, have still to be privatized.

The Albanian Government has laid particular emphasis on the role of land privatization in the relaunch of Albanian agriculture. In 1991 and 1992 agricultural output plummeted, following the collapse of State organization. In 1992 it was 30 % down on its 1990 level. However, despite a 15 % increase in 1993 and a 10 % increase in 1994, farm output in 1994 was still around 10 % below the 1990 figure - i.e. the last figure for collectivized agriculture, which was hardly known as a model of efficiency or productivity.

There are a number of reasons why recovery has been so difficult. Firstly, although land ownership has been redistributed, there has been no real reform of the agricultural production and marketing system. Indeed, over-hasty privatization has simply destroyed the previous system. For example, individual appropriation of publicly owned infrastructure such as irrigation facilities has in many cases led to their withdrawal from use.

However, the chief obstacle to an efficient agriculture system is the size of the new family-run farms, which average just 1.4 ha. This means that Albanian farming is to a large extent subsistence farming. Many country people prefer to seek alternative work in towns and cities, fuelling the rural exodus and putting an intolerable strain on cities such as Tirana. Further proof that these small farms are not economically viable is provided by the high rate of under-cultivated land, especially in the fertile lowlands. This has led the Government to introduce a tax of USD 30 per ha, in the hope that it will persuade the owners to use the land productively.

This land privatization process has two objectives. Firstly, to woo the 60 % of the population who live in rural areas - the slogan of 'land for the people' never fails. And secondly, to keep these people living and working on the land, even if only in a state of disguised unemployment, so as not to aggravate the country's social problems.

One might ask whether these two objectives could not have been pursued by a different privatization and agrarian reform process that would not have jeopardized the future productivity and efficiency of Albanian agriculture. Now that the damage has been done, all that remains is the mammoth task - which the Government has already embarked on - of slotting farms into a cooperative-based service network.

2.3.3.2. The privatization of small and medium-sized companies is also almost complete. There are some 2,500 private sector businesses, concentrated mainly in the distribution, services, transport and construction sectors.

The main problems are know-how and infrastructure. The national privatization agency, set up in 1992 under a Phare project, cannot meet the private sector's enormous need for technical assistance and training.

2.3.3.3. The privatization of the big state-owned companies (those with over 300 employees) is even more problematic. Most of these companies are relics of the former regime and are technically obsolete. In order to be privatized, they therefore need major restructuring aid. To this end, the Government has set up a business reconstruction fund in conjunction with the World Bank. The chief cause for concern here is that the chosen approach is aimed solely at making individual companies economically viable, without setting up new companies to improve the vertical and horizontal integration of the various sectors. As well as being sound economic strategy, this would help mop up the 60-70 % of the workforce made redundant by the restructuring.

The public sector has already shed 50 % of its workforce, and the majority of its former workers are still unemployed. Hence the outlook is certainly not rosy.

Further concern is raised by the over-hasty nature of certain privatizations, which is indicative of a lack of economic strategy and a rather doctrinaire approach. For instance, the sale to foreign investors of public utilities such as water, electricity and telecommunications may swell the State coffers in the short term, but it would not appear to further the public interest.

2.3.3.4. Albania's route to a market economy is failing to secure a parallel transition to economic democracy, and hence to the possibility of involving all the socio-economic partners in the various tiers of economic decision-making.

The Albanian trade unions roundly condemn the lack of economic democracy, first and foremost in the privatizations, which they maintain should enable workers to become shareowners. Instead, only just over half of privatized small and medium-sized firms have been transferred to their workers. The trade unions also complain that they have been denied a say in the framing and implementation of the privatization policies and have been excluded from the privatization commissions. The government has not even agreed to consult management and labour on economic policy issues.

2.3.3.5. It is clear from the above that in Albania, as in other central and eastern European countries, the transition from a centralized to a market economy is being made too abruptly and without proper concern for the economic and social effects. During this transitional stage, the EU should help to bridle exaggerated moves towards free trade and inject a dose of realism to temper the over-dogmatic approach of the IMF.

To give a single example: a more incremental, selective approach to trade liberalization should enable Albania both to restructure established firms and to protect its embryonic industry.

2.4. The social transition

2.4.1. The transition from a centralized, 'nanny' State which accords the individual no social responsibilities, to social citizenship - in other words, the exercise of social rights - has to take account of the attitudes both of the citizen and of the State. In Albania there is virtually no work ethic, and absenteeism is extremely high. Management and labour are mutually distrustful. The concept of hierarchy is an intrinsic part of culture and mentality. Clan interests often take precedence over the general interest. There is still a general expectation that everything will be provided from above. Sometimes, when it becomes clear that not even minimum necessities are provided by that path, people feel authorized to 'get by' by whatever means they can, bypassing the rules of civil society. All this is the result of 45 years of dictatorship. To overcome it, mammoth efforts are needed on three fronts: training, collective bargaining, and social policy.

2.4.2. Albania needs help to adapt its education and training system, in order to fashion a new and different culture based on such values as personal responsibility, personal respect and development, social justice, and participation. Albania also needs help to implement a major programme of investment in its human resources, designed to develop a culture of work and enterprise.

2.4.3. The best way of tackling the domination of the clans is to foster the development within civil society of broadly based, mutual support networks providing pluralist organizations to represent the main social interest groups, starting with employers and trade unions.

2.4.3.1. The emergence of private enterprise is too recent and too disorganized, and the businesses too small, to have allowed the development of influential business associations. Moreover, problems of autonomy (from political parties and from the government) and of representativeness and internal democracy have so far prevented the trade unions from acquiring sufficient influence and full social legitimacy.

2.4.4. However, the main social interest organizations can develop if dispute settlement ceases to be the preserve of the State and becomes a matter for tripartite negotiations and collective bargaining. Above all people, workers must understand that many social rights can only be won through trade union campaigns and collective bargaining. But this collective bargaining must be formally backed by social legislation.

Much remains to be done, although social legislation and labour law have made huge strides in Albania. Above all, the government must overcome its qualms about bargaining and about guaranteeing workers' rights, notably the right to strike.

3. The problems of stabilization and macro-economic adjustment

3.1. At the beginning of 1992, the Albanian economy had virtually collapsed: GNP was 40 % down on 1989, inflation stood at 10-15 % per month, the lek was heavily devalued, exports non-existent, and agricultural output was plummeting.

Since then, incontrovertible progress has been made towards stabilization. Annual inflation in 1994 was around 25 %. GNP grew by 11 % in 1993 and around 8 % in 1994. The currency is stable.

3.2. Inversion of the inflation trend is mainly due to the measures prescribed by the IMF, which imposed drastic cuts in public spending (41 % of GNP in 1992 and 12 % in 1993).

However, these measures have caused industrial production to collapse. Agriculture has played a modest part in the return to growth, but the recovery would not have been possible without financial transfers from abroad, principally in the form of aid and remittances from emigrants.

3.3. The trade balance remains in deficit. The Government does not expect the current account deficit for the two year period 1994-1996 to fall below 20 % of GNP.

Furthermore, as emigrants tend to settle in the host country, their remittances - currently Albania's main source of revenue - will not be able to fulfil this role indefinitely. Relations between Albania and Greece, the closest EU country to it, are clearly conditioned by the fact that about 350,000 Albanians are currently working illegally in Greece and that their remittances to Albania amounted to USD 900 million in 1993.

Albania is thus set to incur foreign debts, and indeed already has on a large scale. In addition to the USD 480.3 million inherited from the former regime, foreign debt rose by a further USD 638 million over the two year period 1992-1993.

3.4. Despite stabilization, the Albanian economy is thus extremely fragile. The fact that imports take the form of consumer goods rather than capital goods shows that the stage is not yet being set for a reversal of the trend.

3.5. As well as failing to resolve Albania's economic problems, the stabilization and macro-economic adjustment measures have aggravated its social problems.

Unemployment has rocketed. Many of the 400,000 people who have lost their jobs have emigrated. The World Bank puts the unemployment rate for the first half of 1994 at around 25 %. The problem is particularly acute in cities. According to the Albanian Statistics Institute, 60 % of people of working age in Tirana are unemployed.

The freezing of the pay of those still in work has further worsened general living conditions.

3.6. In such conditions, foreign aid remains vital, and the EU should take early steps to pay the remainder of the ECU 35 million of balance of payments aid already decided by the Council.

4. Development problems

4.1. Albania does not just need help in the transition from a dictatorship to a democracy, and from a centrally-planned to a market economy. It is also a seriously underdeveloped country.

The effectiveness of foreign aid depends to a large extent on appropriate economic development decisions being taken by the Government.

These decisions currently focus on the key sectors of mining, energy, agriculture, the food industry and tourism. Taken individually, such decisions are unexceptionable. However, the ensuing economic model, geared mainly to exports, is more questionable. Some of these sectors cannot be developed over the short term (suffice it to mention the infrastructure needed for tourism). The development of others will run up against structural limitations such as the fragmented nature of agriculture, or will be stymied by the massive financial resources needed, for instance, for restructuring the mining industry or for infrastructure. In the meantime, Albania will still have to rely on imports for all its day-to-day consumption needs (with the exception of some foodstuffs). Accordingly, rather than the abstract 'export led' system imposed by the IMF, a better solution would be integrated development using local resources not just for export, but above all for the production of domestic consumer goods (without, however, going to the opposite extreme of import substitution).

Clearly, an embryonic industry of this nature will need a period of selective external protection in order to get properly established.

4.2. The skewed nature of an 'export led' trade system would lead Albania into a relationship of dependence on the EU, and in particular on its main supplier country, Italy. Conversely, a more balanced integrated development model could generate mutually beneficial relations with the EU, forging links within sectors (the EU mainly providing knowhow and R& D) rather than between them (raw materials in exchange for consumer goods).

4.3. A further aspect to keep in mind when charting a course for Albanian development is the possibility of economic integration in the Balkans. The serious conflicts besetting the region clearly rule out major progress on this front. However, a far-sighted attitude would suggest that Albania should not only look to the EU with an eye to individual integration, but should also consider the potential for Balkan regional integration and mutually beneficial economic relations with both the EU and the south east Mediterranean countries.

5. Towards a new EU-Albania cooperation policy

5.1. From technical assistance to development aid

5.1.1. Over the period 1991-1993, Albania received international aid to the tune of ECU 1,227 million. Of this, 44 % took the form of emergency (mainly food) aid, 42 % was for economic restructuring, 10 % for balance-of-payments aid, and 6 % for export credits.

The main donor was the EU, which provided ECU 326 million (27 % of the total). The other principal donors were Italy (24 %), Turkey (7 %), Germany (7 %), USA (7 %) and Greece (5 %). Aid is coordinated by the G24.

Now that the emergency aid period is over, EU support comes mainly from the Phare programme. This covers four assistance areas: sectoral restructuring (agriculture, health, small businesses, tourism), and development of infrastructure (transport, energy, environmental), human resources (Tempus programme), and institutions (public authorities and support for the coordination of aid).

5.1.2. While the Phare assistance is undoubtedly both significant and necessary, Albania's structural backwardness is such that cooperation based principally on technical assistance falls far short of the country's needs.

Albania needs to plough massive resources into investments, and Phare in its present form is unable to provide these, despite the Copenhagen European Council's decision to increase to 15 % the percentage of resources allotted to investment projects.

Albania is not like the other central or eastern European countries. The EU should introduce a fully fledged development aid policy for it.

However, such a policy should not reproduce the ad hoc project-based approach of the World Bank. It must fit into a wider, more coherent framework.

5.1.3. As Albania has facets both of a central/eastern European and a Mediterranean country, the Committee thinks that it should also be included in Mediterranean policy. Cooperation with Albania could thus be inserted into a wider policy of Euro-Mediterranean partnership and joint development. The technical assistance already being provided under Phare could then be supplemented by other cooperation instruments - such as those used in Mediterranean policy - which are more suited to Albania's development needs.

5.2. Financial assistance

5.2.1. Financial assistance, set within the wider context described above and also embracing investment, could therefore be targeted at the following:

- Economic restructuring and sectoral development: in addition to the sectors covered by Phare (agriculture, smaller businesses, tourism and health), investment aid should also go to the restructuring of the mining and energy sectors.

- Infrastructure: transport, energy, environmental.

- EU private investment in Albania: creation of a favourable economic environment, joint ventures and aid for risk capital, support for EU investment (for instance by extending the ECIP programme to Albania).

- Job creation: trying out schemes already tested in Europe and the Mediterranean, regional integrated development agencies, SME assistance and promotion centres, extension of SME programmes and networks to Albania.

- Development of human resources: focusing on managerial training for companies and public authorities, and vocational and trade-union training.

- Decentralized cooperation: between decentralized bodies (local communities, universities, research institutes), between economic and social partners, and between the organizations of civil society. A first, immediate step could be to extend the MED programmes to Albania.

- Inter-regional cooperation: building on the possibilities offered by Interreg II and the budget line for cooperation between the EU and the central/eastern European countries, in order to establish interregional cooperation programmes geared to development and spatial planning axes. The aim should be to link the whole Balkan area with the EU, and above all with the EU's Mediterranean regions. As well as infrastructure (such as the Apulia-Durrësi-Fyrom-Bulgaria-Romania corridor, which has already been earmarked ECU 20 million, a boost should be given to projects which promote complementary economic links between EU regions, Albania and other Balkan countries and regions. It is also important to give greater incentive to the Adriatic sea route (Dalmatian Coast - Albania - Igoumenitsa - Corfu) as this is an important corridor for tourist and goods traffic.

- Balkan regional cooperation: above all in environmental matters, but also with a view to economic and market integration. When political conditions permit, regional cooperation projects centred on Albania could form the basis for more extensive multilateral (rather than bilateral) EU-Balkan cooperation.

5.3. Cooperation and dialogue

5.3.1. Trade cooperation with Albania will clearly have to develop far beyond the present trade and economic cooperation agreement. The long-term aim of a free trade area and customs union will not be feasible without a predetermined time-schedule, selection of the relevant commodity areas and pinpointing of imbalances so as to safeguard the development of Albanian production for the domestic and regional market.

5.3.2. Technical assistance to smooth the transition is already being provided under Phare. It must be consolidated and stepped up. More generally, cooperation should be stepped up in the following areas:

- Industrial cooperation: technology transfer, joint ventures, etc.

- Environmental cooperation: protection of the Mediterranean, clean-up of pollution, integrated management of coastal areas. Formulation and implementation of specific research and development programmes installing European scientific and research teams in Albania.

- Scientific cooperation: extension of EU R& D programmes to Albania.

- Social cooperation: social policies, establishment of a modern industrial relations system, involvement of the socio-economic partners in the implementation of cooperation programmes; EU-Albania social protocol on the establishment of minimum social standards.

- Cooperation on migration: to provide tangible expression of the assistance which the EU can offer Albania by accepting an agreed number of Albanian workers; agreements to regulate and control migrant flows; EU-Albania agreement on social security for migrant workers.

- Cultural cooperation: cultural cooperation, particularly aimed at young people, must be reinforced with specific programmes for young people in Albania on a cross-cultural, interfaith basis, on a Balkan and European basis.

- Cooperation to strengthen democracy and rights: bolstering the Phare-democracy projects to build a programme promoting citizens' rights; consideration of 'democracy and rights' in cooperation programmes in general.

5.3.3. The reinforcement of political dialogue between the EU and Albania should foster convergence on shared values, membership of a common strategic framework, and the definition of common guidelines for peace and cooperation.

The European Union must step up its links with Albania, and promote the development of political, social and cultural dialogue among young people in Albania in particular and Albanian society at large. More especially, the EU should:

- take steps to reduce the external influences which often undermine internal political stability;

- encourage Albania's full integration into international bodies, so that it can play a full part in all international cooperation programmes covering rights, culture, drugs and organized crime.

5.3.4. The establishment of a social dialogue between the EU and Albania is long overdue. A forum could be set up for regular cooperation between Albanian and EU socio-economic interest groups.

To the same end, the Committee proposes the setting-up of a joint advisory committee of EU and Albanian socio-economic interest groups, with a remit to promote dialogue and cooperation.

6. Towards a new formal framework for EU-Albania relations

6.1. It is clear from the above assessment of the Albanian situation and proposals to develop EU-Albania relations that the present trade and economic cooperation agreement is no longer appropriate.

The time has come to begin preparations for a Europe agreement similar to those concluded with other central and eastern European countries.

The strengthening of the political, economic and cultural links between the EU and Albania must take place at the pace imposed by the situation in Albania, by the crisis in the region and by the importance of the Adriatic as one of the main gateways to the Mediterranean for northern Europe.

The procedures for association with Albania must be speeded up. All possible means must be used to help Albania satisfy the conditions for its association. To this end, the EU must examine the possibility of drawing up and applying a special programme for economic and social reconstruction in Albania.

Albania's geographical situation, its history and its culture all place it firmly in Europe. A Europe agreement could both reinforce the European identity of the Albanian people (a not insignificant objective when we consider the present cultural and political drift in the Mediterranean), and develop Albania's potential 'European' role in the strife-torn Balkan region.

Done at Brussels, 31 May 1995.

The President

of the Economic and Social Committee

Carlos FERRER

APPENDIX to the Opinion of the Economic and Social Committee

The following amendments, which received at least one quarter of the votes cast, were defeated during the discussion.

Point 1.3.4.1

The text should be deleted and replaced with the following sentence:

'The European Union must step up its links with Albania, and promote the development of political, social and cultural dialogue among young people in Albania in particular and Albanian society at large.'

Reasons

The deletion is necessary for the following reasons:

1. In the interests of truth. There is no opposition between the Catholic and Orthodox churches in Albania (cf. the recent Vatican letter 'Orientale Lumen/The Light from the East', and official declarations of the Orthodox Church).

2. The Autocephalous Orthodox Church of Albania does not belong to the Greek church, but comes under the Patriarchate of Constantinople.

3. There is no opposition between Muslims and Christians (Orthodox and Catholic) in Albania.

4. There have been no manifestations of support from Orthodox Albanians for the Orthodox Christians of the former Yugoslavia.

Result of the vote

For: 21, against: 26, abstentions: 9.

Point 2.2.3

Delete all but the first sentence.

Reasons

a) The phrase 'thorniest question' applied to the existence of minorities in a text by an EU body is inappropriate, to say the least.

b) The remainder of the point does not add anything substantial to the Opinion, since it ends up with a general vague reference to a law which is being annulled, and later to a law which is being drafted to solve finally the problem of primary education; however, it fails to define the problem of primary education, or the lines along which it is to be solved.

c) After the most recent positive developments in Greek-Albanian relations, it was decided that education questions would be dealt with by a special sub-committee.

Result of the vote

For: 17, against: 27, abstentions: 10.