No. 61, András Köves (2000): Some aspects of medium-term development in Central and Eastern Europe

Ten years have passed since the beginning of the big political, economic and social changes in the countries of Central and Eastern Europe conveniently called “transition”. Employment declined, large-scale unemployment that had been practically unknown before the political changes, became a fact of life, social differences aggravated. A significant share of the population has much bigger incomes in real terms and much more opportunities (for education, info-communication, employment and travel) than before the political changes, however living conditions of the majority of population deteriorated. External and domestic liberalisation, privatisation of the former state-owned enterprises and development of a new privately owned sector of the economy is an established fact, or is, at least, well under way. “Structural reforms” are well on the economic policy agenda. Re-orientation of external economic and other relations (from East to West, or from the CMEA to European Union and to the global economy) was both an early necessity (because of the Soviet collapse) and a significant achievement of those countries. Now, the most of the formerly socialist countries are part of the international processes of integration and globalisation. Has transition come to an end? Is it completed? Yes and no. The initial clear division line between „market” economies on the one hand, and „transition” economies, on the other, does not exist anymore. The increasingly frequent insistence of some economists or political leaders in the East that transition is over, clearly indicates the perceived need for recognition of their achievements as well as for equal treatment with the other countries. The changes as compared to the pre-1989 situation in all walks of life have really been fundamental. To be sure, the EU Commission regards some Central and Eastern European countries as already functioning market economies while others are seen as being on the way to become a functioning market economy. It is true that the market economies of Central and South-Eastern Europe have some characteristics different from the West of the continent, yet. The differences in institutional and legal systems, regulations, or those concerning the way of functioning of the economy, however, are mostly due to the lower level of economic and technological development, obsolete industrial structures, lacking financial and physical infrastructure. In the most of the countries policies are directed at putting an end to those differences, first of all, in the framework of the accession to the European Union. However, the drive to comply as soon as possible with the requirements of a “full-fledged” market economy produced some contradictory results. Nevertheless, the word “transition” and the notion of the “end of transition” can be interpreted more simply. One possibility is to use the words in the context of what is the place of those economies in the world. According to this kind of interpretation, transition is the way from the CMEA (the Soviet-dominated international economic organisation of the socialist countries) to the European Union. Joining the Union would be the final step in the transition. This is an acceptable interpretation having in mind that EU membership is the strategic (not only economic) policy aim of the former socialist countries west of Russia. Accession to the European Union would mean that the aim is reached and the joining countries should be regarded as “normal” market economies for good.Another possibility is to look at some important indicators of economic growth. That is the obvious point of reference of the recent (and, in some cases, much earlier) declarations concerning the end of the transition. While in some cases mention is made of the end of the economic fall and disarray, in other ones the statements refer to the recovery of the highest pre-transition level of GDP and the start of a new phase of growth. This paper intends to outline some of the factors (both international and domestic) that could influence the economic development of the Central and Eastern European countries in the coming 3-4 years. In the first section we present a brief summary of economic performance of (some groups of) Central and Eastern European countries during the decade of transition. Next, some recent developments (in 1999-2000) will be presented. The third section will deal with the factors, which could help or impede economic growth in those countries in the future. The most important differences among groups of countries or regions – such as Russia, Central Europe, South-Eastern Europe and the Baltic states1 – will be indicated. The last section concentrates on the prospects of the EU membership of the candidate countries – one of the most important factors that will shape the economic and political fates of Central and Eastern Europe.

Project leader:
András Köves