Following the revolutionary political changes of 1989 in Eastern Europe, which have introduced multiparty democracies after decades of communist rule, all former socialist countries are currently in the process of implementing stabilization programmes and radical economic reforms as part of the transition from socialist to mixed market economies. As a result of these developments, these countries are today frequently referred to as the ‘transitional economies’ of Central and Eastern Europe. In some countries, such as Hungary and Poland, earlier reforms had already led to important institutional changes; in others, such as Czechoslovakia, Bulgaria and Romania, fundamental reforms started only in 1990–91.

The current aims of these formerly centrally planned economies are manifold (see Nuti 1991). The first objective is stabilization, i.e. the achievement of uniform market-clearing prices in nonhyperinflationary or excessively inflationary conditions, without distortionary subsidies and taxes, for a degree of domestic absorption consistent with the eventual service of external debt. The second, equally important, task is restructuring, i.e. the redeployment and development of productive capacity in order to adjust to domestic and international demand, which requires deindustrialization, demonopolization, extensive scrapping of inappropriate capacity, labour redundancies and the redeployment of labour, and the financial restructuring of enterprises. Finally, the most complex objective is that of implementing economic reforms required for the transition from a socialist to a mixed market economy. In contrast to political reforms, which can be implemented fairly quickly once a political consensus has been reached, and with stabilization, which can be achieved almost overnight, economic reforms (such as privatization) will require considerably more time and effort.