Argentinian soccer star Diego Maradona has probably never heard of Lushnja. And yet, at the turn of the year 1996/97, there were rumors in the small town with its 30,000 inhabitants that the former star would leave his home club Boca Juniors once again and lace up his boots for the local club KS Lushnja. And why not, after all, the club's main sponsor, the financial firm Xhafferi, had already hired Maradona's compatriot, former world champion Mario Kempes, as coach. He was reportedly paid the equivalent of 350,000 euros a year, a lot of money for a soccer coach in the 1990s.

The club wanted to make it big. But the dream of KS Lushnja as a European soccer power was probably just too good to be true. Xhafferi collapsed at the beginning of 1997 when it emerged that the company had been operating a Ponzi scheme. Around 1.5 million people had parked their money there, lured by the promise that the money invested would be tripled within three months.

In November 1996, Albanians had invested the equivalent of 1.2 billion US dollars in these pyramid schemes, more than a third of the gross domestic product.

However, it was not only Xhafferi that advertised this, but also two dozen similar companies. They lured Albanian investors with absurdly high returns - and they bought into it like there was no tomorrow. In November 1996, Albanians had invested the equivalent of 1.2 billion US dollars in these pyramid schemes, more than a third of the gross domestic product. A short time later, the system collapsed and with it almost an entire state.

The small Balkan state plunged into chaos, bruised investors protested, went on hunger strike, looted army weapons depots and temporarily wrested control of parts of the country from the government. In the end, United Nations blue helmets had to move in to calm the situation. When the dust settled, 2,000 people were dead.

A paradise for fraudsters

The reasons for such an escalation can only be pieced together in retrospect. But one of the most important: Few in Albania probably had a sense of how an open financial market should function. The country had only freed itself from the grip of communism at the beginning of the 1990s, by which time dictator Enver Hoxha had already turned Albania into the poorhouse of Europe. In 1992, for example, there was not a single traffic light in the country. However, this was hardly noticeable, as there were only around 5,500 cars in the whole of Albania.

Despite these poor starting conditions, the nation quickly achieved a certain degree of prosperity in the 1990s. Albanians traveled to Western Europe - especially Italy - as cheap labor and the country acted as a stopover for oil shipments to the Federal Republic of Yugoslavia, which was actually suffering from UN sanctions due to a civil war. However, there was still a lack of reliable opportunities to invest the money earned.

Because the state banks were considered largely incompetent, private providers were able to fill this gap in the market, initially as a kind of bank without a license. Gradually, however, companies also emerged in the informal financial sector that did not simply manage the money but actively invested it, sometimes with a high public profile, as in the case of Xhafferi.

Foreign observers such as the International Monetary Fund suspected early on that the companies were involved in smuggling oil to Yugoslavia and laundering money for organized crime. However, this was never proven.

When the sanctions against Yugoslavia were lifted at the end of 1995, snowball companies such as VEFA, Gjallica and Kamberi gradually increased their interest rates. All payouts to old investors were made with the help of deposits from new investors. The companies did not generate any actual profits.

New companies entered the market and offered even higher interest rates, which were then outbid by new companies with even higher interest rates.

The wheel turned faster and faster: new companies entered the market and offered even higher interest rates, which were then outbid by new companies with even higher interest rates. By mid-1996, almost every Albanian had invested money in such a Ponzi scheme, some sold their houses, farmers sold their livestock just to invest money. Warnings from the World Bank and IMF went unheeded.

Then, in 1996, came the bang: the Sude company collapsed and with it the Ponzi scheme that had formed the basis of the business. Albanian investors now became more cautious and the steady inflow of new funds dried up. As a result, other Ponzi schemes were suddenly no longer sustainable. At the beginning of 1997, almost all relevant market participants gradually followed Sude into bankruptcy. Almost immediately, bruised investors protested across the country and students at Tirana University went on hunger strike. In March, the government had to resign because many citizens held it partly responsible for the success of the fraudsters.

Gangs and blue helmets

Between January and August 1997, civil war-like conditions prevailed in Albania. Particularly in the south, the government lost all control. Some cities were de facto ruled by gangs that equipped their members by looting army weapons depots. In Vlora, the third largest city in the country, there was reportedly a curfew from 1 p.m. every day so that the various gangs could fight each other in peace. In April, the United Nations finally sent 7,000 soldiers to Albania as part of Operation Alba to restore order.

The deployment of the blue helmets and a quickly scheduled new election in June 1997 gradually calmed the situation over the course of the late summer. The new government decided to have the Ponzi schemes wound up by foreign administrators. However, due to various delays, these were not able to start work until the beginning of 1998. In the meantime, the operators of the companies had liquidated many assets or put them to one side. Only two of the operations - Xhafferi and Popullli - were able to recover some of their money, as they had stashed their liquid assets in the state banks, where the government had them frozen at the beginning of 1997.

However, the majority of investors ended up sitting on their losses. Star coach Mario Kempes also left Albania after receiving only a fraction of his luxury salary. Maradona, meanwhile, never came to the Balkan state and in Lushnja they are still waiting for their first European Cup.