East Germany
    a unique and fortunate position
    gets to rejoin Europe's strongest economy
    government commits to parity in currency exchange
    wage parity (not exactly in reality)

    yet, germany poured tens of billions of dollars into east

    1991 est. $86 bln; 1992 $100 bln!!
    for unemployment compensation, subsidies (to households)

    infrastructure
    roads, bridges

    communications network updated to fiber optics, digital

Despite this seeming generousity tensions between "ossies" and "wessies" grew

Why?  What are the perceptions of each other?
Results?
    unevenness
   

     PHARE (Asst for Restructuring Poland and Hungary originally
    – but expanded to include all former Satellites, former Yugoslavia,
    Albania and the Baltics)

    Budget for PHARE about $1 bln per yr at end of 90s
 
    TACIS (Technical Assistantce to the CIS)
    TACIS also about $1 bln in mid-late 90s

Grants not loans!!

     EU provided 70% of W. aid to CE Eur and 60% of W. aid to the FSU

Provided roughly $20 bln to CE countries

Aims of PHARE/TACIS:
    technical assistance in privatization, management,
    developing financial institutions and expertise;

    improving communications and physical infrastructure. 

    “Social Dialogue” component of PHARE to help build civil society
    through grants to NGOs.  

US

FREEDOM (for FSU)
 2001 budget $830 mln
 

Economic Reform:  Gradualism vs. Shock Therapy
    end of CMEA
    Soviet economy shrinks, stops paying for goods produced in CE
    Demand dries up

Shock Therapy
Harvard economist Jeffrey Sachs

New Yorker Review of Sachs/The End of Poverty

Leszek Balcerowicz

Polish economist/Finance Minister in first Solidarity-led govts (Mazowiecki and Suchocka)
 

Shock therapy
1. free prices
2.  freeze wages (to curb inflation)
3. tight monetary policy (again to curb inflation)

Do it all very quickly

Czechoslovak Finance Minister Vaclav Klaus

"We want to create an ideological turnpike (highway), not travel the winding roads of one system to another.  We want to enter an ideological turnpike and proceed as fast as possible toward a market economy," (Stokes, 191).

Why do everything at once, move so quickly?
    pros, cons

Who does shock therapy? 

Whoe does gradualist route?

Privatization
     problematic - why?
    Janusz Lewandowksi quote,
   "Privatization is when someone
    who really doesn't know who the real owner is
    and doesn't know what's really worth
    sells something to someone
    who doesn't have any money,"  (Stokes, 196)

    "Nomenklatura Privatization"
    who were the nomenklatura?
    what does this mean?

 Official Privatization Plans
    Poland
       universal
       for all Poles
       distributive justice principal
 
       to be invested/managed by third party, holding firms
       to protect uniformed investors

       and for workers in specific firms being privatized
       strong labor movement, councils
       push for role in management
       voice in negotiating with new owners, investors

       people suspect, scoffed at it

      Czech Republic
      universal right but had to register, owners had some risk

      given vouchers (equal to about half month's wages)
      to invest in stock (could manage yourself or through investment
      firm)

      to teach citizens by exposing them to risks
      learning from experience
      added benefit of creating/boosting new stock exchange

       Hungary
       advantages of "goulash communism"
       centralized process

       had more time, no elections til 1994

       larger bloc
       FDI successes

    
Privatization barriers:
valuing assets, sorting out profitable from unprofitable aspects of each enterprise inefficiency, swollen workforces with wrong work ethic

Other problems:
 organized crime, Russia esp. protection rackets, money laudering, decline faith/availablity of credit from Western banks, IMF

"kleptocracy"