Euro-Phoenix’s CEO Les Nemethy/ EU Still a Work in Progress

“It looked very bad in the spring when China responded faster with protective equipment (for Albania), the US and Europe came across as flat-footed.   Now that American technology has shown its prowess with vaccines, it would be a shame for America not to reap some political benefit from this.  I understand that PM Edi Rama has traveled to the US-he should twist the arm of the Americans!” said Les Nemethy

By Genc Mlloja

Senior Diplomatic Editor

As 2020 is heading to its end leaving almost the entire world with tragic losses of life and catastrophic blows on all countries on different levels and aspects due to the COVID-19 pandemic, Les Nemethy, CEO of Euro-Phoenix Financial Advisers Ltd., spoke to Albanian Daily News on what happened and where mankind is heading to next year and beyond.  “No country is safe while a virus is raging in other parts of the world. This is a typical example of the need for countries to cooperate and develop an international response,” said Nemethy, a former World Banker and author of Business Exit Planning ( and a former president of the American Chamber of Commerce in Hungary.

In his comments, Mr. Nemethy touched upon the change in the White House and the future Washington-Brussels relations under Biden’s presidency, the EU developments known of its ‘messiness’, and the split among US, Russia and China with the latter, as he said, having progress without precedent in economic history over the past decades.

Answering a question on Albania’s likelihood to receive the anti-COVID vaccine soon Mr. Nemethy, who is familiar with this Balkan country as he dealt with its privatizations process while working for the World Bank in Washington in 1993-1997, had the following comment: “I understand that PM Edi Rama has traveled to the US - he should twist the arm of the Americans!”

- As 2020 is coming to an end I take this opportunity, Mr. Nemethy, to extend ADN’s gratitude for sharing with its readers and us your valuable opinions on key issues concerning world affairs and Albania in particular given the fact that you are very familiar with this Balkan country. But the coronavirus pandemic and its repercussions have been a major topic of discussions even in our previous talks. January-December 2020, an overview, please, where the world was and where it is heading in 2021 would be much appreciated.

- In the years prior to 2020, on the surface the world seemed to be doing well, at least in economic terms. Global GDP growth was reasonable (2.48% in 2019), unemployment was relatively low in most developed countries.  We seem to have left the 2008 Lehman crisis behind. Below the surface, the most worrying development is that debt levels and money supply in 2017-19 were already growing out of control. Then in February-March, 2020 Covid-19 came to much of Europe and North America, followed by lockdowns, which threw millions out of work.  Further debt was added to the already massive levels, and Central Banks printed money like there was no tomorrow.  Markets saw a mini-collapse in late March 2020, which authorities salvaged with even more stimulus and debt.  Global debt levels have surpassed 360% of GDP, higher than any time since World War II, and will continue to rise rapidly until Covid-19 is behind us. Debt will become the defining feature of the 2020’s economy.  The combination of stimulus and loosening money supply could cause inflation to reignite.

-‘Light at the end of the COVID-19 Tunnel’ was the headline of an analysis penned by you for the Budapest Business Journal. In a way you warn that the vaccines do not constitute an immediate magic bullet. Why?

- First, there are medical reasons:  a substantial proportion of the global population will refuse to be vaccinated. Mutations are occurring; it is only a matter of time before a mutation emerges that is vaccine resistant.   In the months that it takes to develop, approve and distribute a new vaccine, a resistant virus has the potential to do great damage and put us into lockdown again.  The virus is unlikely to be totally suppressed in 2021.  Overall cases and deaths I believe will be substantially reduced, but we will be playing a “cat and mouse” game with the virus for at least a few years to come.

Second, there are economic reasons.  Before Q2-Q3 2021, when vaccines should begin to have their effect on infection rates, the virus will have unleashed a chain reaction—unemployment, bankruptcies, etc.—which in turn have the potential of leading to bank defaults, sovereign defaults, etc.  The economic and financial dominoes will fall, long after the virus has been suppressed.

Perhaps the most harmful economic effects of the virus will be the vast increases in debt (already high before the pandemic) and money supply.   High debt leads to instability in future, possibly even collapse. Repayment or inflating away of that debt could cause great economic hardship.

To finish this question on a positive note, by Q3 2021 vaccines should dramatically reduce Covid cases and deaths.  People who have taken a vaccine should return to a more normal life, perhaps even travel for tourism. Unless there is a mutation resistant to vaccines, lockdowns should become a thing of the past.  So, in my opinion, there is something resembling a light at the end of the tunnel around Q3. (But be careful:  it might be a locomotive coming our way!)

-Let me touch upon the cardinal issue of the economic and financial and social perspective within EU countries, aspirants to the Union like Albania and on a world level. Given your valuable expertise, please Mr. Nemethy, which is your forecast and how much the world should be worried about the uncertainties in stock for the people, particularly in poor countries?

-Of course, the worst scenario would be one or more very rapidly spreading and deadly mutations of the virus- which could create further lockdowns, unemployment, bankruptcies, etc.  (The mutation of the Spanish Flu in late 1918 was far deadlier than the original virus). I sincerely hope this does not happen, but it does create uncertainty!  Unfortunately, the more widespread the virus, the more chances it has to mutate…

In 2020, the rate at which the rich get richer and the poor get poorer has accelerated: First:  because the rich can typically work at home, use private vehicles instead of public transport, and are able to afford healthier lifestyles and diets, which makes their immune systems more resistant. Hence the rich have a better chance of surviving a pandemic. Second, on the economic level, money supply expansion has been shown to lead to asset inflation-which benefits only those who own assets-that is to say the rich. It is becoming increasingly hard for the poor or young adults to own a home. Third, a possible reigniting of inflation over a 3-5 year horizon could greatly prejudice certain disadvantaged groups such as retirees, whose pensions are fixed, and newly formed families, who will find it even more difficult to buy a new home.

-And as the concern is high on this group of countries which is large in number let me come to their deprivation of having rapid access to the vaccines. Is this a case to reconfirm that the world is not on the same boat in health disasters like this, and the ‘right to life’ has taken a hard blow? Could this be a warning that the UN, other international organizations and the world order in general should be reshaped?

-There is much that needs to be done to reshape international organizations-but I see relatively little motivation to do so.  While I expect an improvement over the coming years, with the Biden administration more willing to play along with international rules than the Trump administration, that falls short of fundamentally reforming institutions. No country is safe while a virus is raging in other parts of the world. This is a typical example of the need for countries to cooperate and develop an international response. US leadership of a global response to the pandemic was sorely lacking this year; the new administration may give higher priority to working with the international community.

One can to some extent understand why Governments want to cater to their home voters by assuring priority of domestic vaccine supply.  If an airline cabin is depressurized, we are instructed to place the oxygen mask on our face before we try to help a neighbor. Nevertheless, I expect most Balkan countries to have access to vaccines relatively soon, for at least front line health workers, and the aged.

- There have been hard times in the EU as the most important event of the year-the adoption of the budget met with the strong opposition of some countries with Hungary and Poland being in the forefront threatening to veto it. Might the last-minute breakthrough in Brussels, however, be a warning that ‘house affairs’ in the Union are not in order and the ‘veteran’ countries and should rethink their position towards the rest of the members in the sense that ‘Primus inter pares’ is outdated?

-The European Union has always been an institution known for the ‘messiness” of its decision-making processes.  Any single Government can veto any decision of the Union, yet the EU constitution makes it virtually impossible to seriously sanction any EU Government if it has the support of at least one other Government.  De Gaulle made a joke about how you can govern a country with 246 types of cheese!  The EU has the equivalent of a thousand cheeses, and the need for consensus on everything, as opposed to some kind of majority/supermajority structure for decision-making, in my view, is a fundamental flaw of the EU.  If the EU fails as an institution, it will probably be because of governance.  Yet as the EU moves from crisis to crisis, its leaders tend to find a solution-usually involving greater integration -most recently, the EU agreed to a joint bond financing issue to provide an EUR 800 million pandemic relief fund.  This not only breaks a barrier previously experienced by wealthier members of the Union like Germany and Holland in taking on liabilities on behalf of poorer members.  It also helps to create a bond market for the euro, a necessary step in the evolution of the euro as a global currency. In my opinion, the EU is still a work in progress.  It evolves in response to crisis.  Let’s just hope it can evolve faster than the crises unfold.

 -You say that the virus will be outlived by its economic and financial effects. Which are some of the main worrisome uncertainties ahead on a world level, and how much could power change in the US impact the course of world affairs, especially the relationship between Washington and Brussels?

-I do believe the tone of the relationship between Washington and Brussels will change dramatically for the better after Biden’s inauguration on January 20th. One of the most symbolic acts of Trump was to refuse to shake hands with Merkel, (while seeming to enjoy shaking hands with dictators).   The United States and Europe are natural allies in so many respects.  Biden’s nomination of Antony Blinken as Secretary of State, who has close links to Europe and speaks French, presages a return to better US-European relations.  In my view, cooperation between the US and Europe is fundamental to the world moving in a positive direction—on questions ranging from global warming to regulating artificial intelligence.

On an economic level, the greatest source of financial instability, as mentioned, is global debt continuing to spiral out of control.  Until Covid-19 is behind us, there is no chance of reversing this debt spiral.  However, even if the virus stops tomorrow, dominoes will continue to fall (bankruptcies, defaults, possibly leading to bank or sovereign defaults in developing countries).  And we will be dealing with the debt for years to come. It makes the world increasingly unstable, less able to deal with subsequent crises.

-As a follow up, Sir, in the past the world scene was dominated by the rivalry between the two superpowers, the US and the former Soviet Union. Now, there is in progress the US-Sino conflict which has taken serious proportions this year. Why has China been chosen as the main opponent and ‘threat’ to the West, a shift from the US-Russian rivalry?

-To put things in perspective, Russia has a GDP smaller than Canada (10th and 9th places respectively worldwide).   China’s GDP is in second place, but has surpassed the US on a Purchasing Power Parity Basis (probably a better measure of military potential). China’s GDP growth is also much faster than Russia’s or the US.

China is also challenging US dominance in technology in so many areas, ranging from artificial intelligence to biotechnology, and from quantum computing to space exploration. While Russia has a larger nuclear arsenal today than China, the Americans project China’s growth in GDP and technology into the future.

Yet Russia also maintains an amazing ability to project power, in part due to its nuclear arsenal, in part thanks to the boldness of its actions from Ukraine to Syria, and create mischief with hacking and influencing elections from the EUto the US. Romney had a point when he accused Trump of having a blind spot towards Russia, given that Trump had refused to ascribe responsibility to the Russians for the recent security hacks on US institutions, including the US Nuclear Agency, preferring to name the Chinese (even while his own Secretary of State continued to point toward the Russians!)

You may remember that George Orwell, in his seminal novel, 1984, talked of the world split into three power blocs, focused around US, China and Russia.  His foresight and powers of prediction were amazing!   Back at the time Orwell wrote this, China was at best a regional player, militarily and economically.  Progress over the past decades has been without precedent in economic history…

-I will conclude with a worry predominant currently in Albania- the vaccine. In all odds, Albania does not have any solid ground to get the vaccine soon although PM Edi Rama promises it will be acquired in the first three months of next year. Albania goes to the most controversial polls in April 2021. Given the sensibility of the issue that vaccines cannot be taken in a bag and all countries are looking after themselves, what will happen in this country and in the Western Balkans in general? Turning to pragmatism in face of this plague, shouldn’t other alternatives be checked for vaccines as time counts more than ever? 

-I understand that Serbia will receive a small number of vaccines already this year, whereas Albania more likely in Q2.  Fortunately for the Balkans, there is a jockeying for geopolitical influence between the US, EU, Russia, and the Islamic powers. This will probably catalyze the US and Europe to act faster.

It looked very bad in the spring when China responded faster with protective equipment, the US and Europe came across as flat-footed.   Now that American technology has showed its prowess with vaccines, it would be a shame for America not to reap some political benefit from this.  I understand that PM Edi Rama has traveled to the US-he should twist the arm of the Americans!

-And as an old friend of the Albanian people, which is your message for 2021?

-2021 is a year of hope, with potential for return of normalcy and economic recovery. When Covid-19 subsides, it will not be a return to the pre-Covid world, but to a “new normal”—with both positives and negatives. On the negative side, there will be historically high debt levels, which will continue to expand rapidly and lead to instability; in 2021, we will see the dominoes playing out, perhaps even a market crash.

Covid has accelerated the rate of innovation. This creates opportunities for innovators and those able to adopt innovations.  (Those unable to move with the times will be left behind). It still needs to play out what that new normal will be, but some of the trends are already visible—from telehealth to online shopping.  Home office and zoom calling will probably remain to some degree even post-Covid.    This may tend to make certain types of real estate more valuable (e.g. warehouses, rural homes, etc.) and other types less valuable (e.g. downtown office and commercial space).

To summarize:  when 50-60% of the world is vaccinated (e.g. herd immunity is reached), we will have the worst of the medical crisis behind us, and we may begin to focus on putting our economic house in order again, within the context of the new normal. On a personal level, I would like to suggest to your readers that in the absence of a vaccine, strengthening your immune system is the next best thing you can do.  Consult with your doctor or check the research about taking vitamins (D, C, B2) along with supplements (zinc, selenium, magnesium).  Get natural sunlight, plenty of sleep, lots of exercise.  Strengthening your immune system is worth at least a partial vaccine. Best wishes for a safe and successful 2021!