In the tumultuous Balkans, even monetary issues are transformed into instruments of political dispute. Which side will emerge victorious from the current standoff between the euro and the Serbian dinar in Kosovo?
When the news of the introduction of the euro as legal tender throughout Kosovo broke in Pristina at the end of January, many were left perplexed. It is obvious that the problem is not exclusively financial. This is part of a broader context.
Following a NATO intervention against Belgrade in 1999 and years of international presence, Kosovo unilaterally adopted the euro as its official currency in 2002.
However, due to the ongoing conflict with Serbia over its sovereignty, Kosovo was unable to achieve this in areas with an ethnic Serbian majority, whose residents continued to use the Serbian dinar.
The report of the Central Bank of Kosovo indicates that Kosovo first adopted the German mark, then the euro, in order to support its nascent financial sector, to move from a monetary economy to a banking economy, to achieve monetary stability and reduce transaction costs.
These conclusions are corroborated by a report on the same subject carried out by the International Monetary Fund (IMF) which states that, above all, the use of the euro in Kosovo has strengthened the macroeconomic stability of the country.
A larger part of the problem is the conflict between the two currencies, in which Serbian and Kosovar leaders have little confidence in the ongoing dialogue in Brussels, under the auspices of the EU, intended to finally resolve the impasse between the two. Political clashes most often have repercussions on economic ties between the two countries.
The annual import of goods to Kosovo from Serbia reaches around 490 million euros, which is not a small sum for Kosovo’s modest economy. Goods from Bulgaria, North Macedonia and Albania compete with Serbian products and increase their share of the Kosovo market every year. Some Kosovar economic experts, like Agim Shahini, president of the Kosovo Business Alliance, hope that Kosovo will soon end its trade dependence on Serbia, but the numbers still don’t add up.
Serbia’s economy dwarfs Kosovo’s (nearly 7:1), according to World Bank data, and it is one of Kosovo’s largest trading partners, behind Germany but on par with Neighboring Albania. The reality is that Kosovo and Serbia both benefit from each other’s trade and suffer the consequences during political standoffs.
In 2024, both camps are trying to gain new positions, as they prepare for the year of decisive elections in Europe and the United States. The Kosovo government, led by the charismatic but relentless Albin Kurti, is attempting to integrate northern Kosovo, populated by Serbs, and made up of four municipalities and an estimated population of around 50,000.
In previous years, Kosovo introduced its own police force and established local government, after the Serbian government advised Serbs living in northern Kosovo to boycott local elections. Northern Serbian political organizations, closely linked to Belgrade, organized a series of protest rallies, some of which were violent, bringing the situation to a stalemate.
This impasse was broken when Kosovo security forces disrupted an armed paramilitary operation led by Milan Radoičić, a controversial local politician and businessman from northern Kosovo who is a political ally of Serbian President Aleksandar Vučić.
The introduction of the euro throughout Kosovo is the result of this failed operation, which some believe was orchestrated from Belgrade in order to separate northern Kosovo from the rest of the country. The authorities in Pristina seized this opportunity, with Serbia being put on the back foot and the Central Bank of Kosovo having banned the use of the dinar as legal tender.
From Kosovo’s point of view, nothing has changed since its constitution does not allow the use of any currency other than that authorized by the Central Bank. In practice, however, banning the dinar would effectively control financial flows originating from Serbia and distributed to Serbian municipal, social, educational and health institutions still remaining under the control of the Kosovo government in parts of Kosovo.
As Djordje Djukic, a professor at the Faculty of Economics in Belgrade, said in early February: “The political connotation here is that the complete abolition of the dinar means that the Republic of Serbia loses its monetary sovereignty over this part of the territory.”
This fact aroused the indignation of the Serbian population, which once again protested against the measures decided in Pristina and obtained the support of Brussels and Washington, which prompted Pristina to postpone, but not abandon, the implementation of the decision. At the end of January, representatives of the Quint, composed of the United States and the Big Four of Western Europe (Germany, France, Italy and the United Kingdom), issued a joint statement in favor of postponing the Pristina decision in order to “ allow a sufficient transition period and for clear and effective public communication.
For this process, one of the most important topics of negotiations between the governments of Belgrade and Pristina will be the establishment of means of direct payment transactions between Kosovo and Serbia.
This would make it easier to meet the needs for economic cooperation and the realization of the four freedoms (movement of goods, people, services and capital) and improve the quality of life of all residents of Kosovo.
Financial flows between Serbia and Kosovo would certainly help limit the space for corruption and organized crime, which takes root especially in the north, as it has existed in a gray area, legally speaking, for decades.
Kosovo’s First Deputy Prime Minister, Besnik Bislimi, also cited monitoring monetary flows as one of the Kosovo government’s main goals in moving forward with its plan to ban the use of the dinar. He said: “Money (from Serbia) continues to cross borders in travel bags and then be distributed through unregistered and unlicensed offices. »
The Serbian Central Bank has refused any direct communication with its Kosovo counterparts, demanding that all issues within its financial jurisdiction be resolved in the ongoing intergovernmental negotiation process in Brussels. Serbia’s main financial institution called Kosovo’s measures “discriminatory, illegal and scandalous.” In practice, this means that Pristina’s decision regarding the Euro-dinar has been suspended for the moment.
Initially, these financial relations between Pristina and Belgrade could be established through intermediaries. This would involve not only establishing neutral clearing accounts through Western capital banks, but also creating a support fund for Kosovo and Serbia to settle their mutual claims over past debt.
This would require clear political will from European governments involved in the negotiating process, in addition to Washington’s determination to become more involved.
Currently, the United States appears less inclined to take a more proactive approach, trying to maintain its balance between two governments at odds. As it stands, the monetary issue in Kosovo is not strictly a financial issue, although it must be resolved for Kosovo to grow economically. If this is an objective economic necessity for Kosovo, the timing is most certainly political.
Ultimately, the manner and method of introducing the euro throughout Kosovo will depend on the level of involvement, including financial assistance, of Western interested parties.