Economic Transformation and Political Stability in East Central Europe

1 `From the jaws of victory: America's foreign policy', The Economist, 27 May-2 June 1995, p. 22.

2 See Barry Buzan, People, States and Fear: The National Security Problem in International Relations, (Brighton: Wheatsheaf Books Ltd., 1983).

3 In Hungary, for example, economic and political transformation has caused serious social distress, but the level of this does not significantly exceede that of a free market system in a lasting depression. Since the four-year war next door has not spilled over into a general threat or military insecurity, most Hungarian citizens are not yet convinced about the need for extraordinary security measures, one form of which would be to give up neutrality and join NATO. The conclusion of the political and security community is not to accept actual public opinion, but to try to change it.

4 Ethan Barnaby Kapstein, The Political Economy of National Security: A Global Perspective, (New York: McGraw-Hill, 1992).

5 A new emphasis on international peace systems would let us conclude that if NATO finds it important to integrate the Visegrád countries into the military organization, we can expect it to cover much of the costs of admission too. This would hedge one of the major arguments of the NATO-sceptics in ECE, namely that NATO integration would require at least a doubling of military expenditures. Whether such expectations are justified or not remains a subject of separate analysis.

6 Judit Balázs, `Economics At Risk: Security Options Towards The End Of The Century' in Development and Socio-Economic Progress No. 58, 1993, p. 167.

7 The distinction between extensive and intensive phases of socialist economic development is based on the works of Hungarian economist Ferenc Jánossy.

8 An attempt to explain the link between political and economic reforms in Eastern Europe is provided by Lawrence L. Whetten, Interaction of Political and Economic Reforms within the East Bloc, (New York: Crane Russak 1989).

9 Amidst acute financial crisis, Hungary carried out a major military expenditure reduction in 1989 (17%). Figures show a decline of the share of defence expenditures in GDP from 3.3% in 1987 to 2.7% in 1989, and a further decline to 2% in 1992. This means a reduction in both operation costs and investments, with longer-term technological impacts because of the latter. Since procurement expenditures fell even in nominal terms - as opposed to operational costs - military infrastructure has suffered a general decline in this period.

10 Reflecting on the loss of the `one-border enemy', Defence Minister of Hungary Lajos Für (later leader of his party, the Hungarian Democratic Forum) invented the doctrine of `circular defence', with the implication that the country could be attacked from any direction. Mr. Für, however, was not the only disoriented member of the Cabinet. Prime Minister József Antall himself made an infamous statement at the beginning of the Balkan War in summer 1991, that Vojvodina had actually been given to Yugoslavia, and not to Serbia. This implied that in case of a break-up of the Yugoslav state, Hungary could declare a territorial claim on Vojvodina. This rhetoric disappeared shortly afterwards, probably due not to increased self-discipline, but to the emergence of a `new leadership' elsewhere.

11 We are speaking about the circle of economic advisors in and around the International Monetary Fund and the World Bank, whose knowledge is based on neo-classical economics, and who mostly split their time between academia and practical policy-making. The prime example is Jeffrey D. Sachs of Harvard University, who has been an advisor to governments in Bolivia, Poland and Russia, but he is far from being the only one in this business.

12 According to Deger and Sen, `the single most important factor in exacerbating world debt has been governmental budgetary policy in the USA. The financing of defence spending under the Reagan Administration, through excessive reliance on borrowing, has made the USA the largest debtor country in the world.' See Saadet Deger & Somnath Sen, Military Expenditure: The Political Economy of International Security, (New York: Oxford University Press, 1990), p. 134.

13 Hungarian security experts listed a number of economic problems directly linked to the security of the country. These problems were: the reversal of the increase in foreign and domestic indebtedness, the reversal of the decline in production, curbing inflation, resolving problems caused by the collapse of the CMEA and - later on - of the Soviet Union, privatization of state property under capital shortage, a reorganization of economic administration and jurisdiction according to the demands of a market economy, and ensuring a continuous energy supply. See Dunay Pál, Hungary: defining the boundaries of security, in. Cowen Karp, ed. Central and Eastern Europe: The Challenge of Transition (New York: Oxford University Press, 1993), p. 126.

14 Christopher Davis of Oxford University explained in a London conference in May 1995, that those advising the Russian government under Yegor Gaidar had not done any considerable research into the defense industry, a dominant sector of the Russian economy. Surely, if those advisors did not have a well-based knowledge about the defense sector, they could not have any realistic ideas about the entire Russian economy.

15 A most clear example of continuing separation of economic policy from democratic institutions is the March 1995 austerity programme of the Socialist-Liberal government of Hungary, consulted only by the Prime Minister, the newly appointed Minister of Finance and the Governor of the National Bank.

16 Western civilization in this context is defined as free market economy plus liberal/representative democracy (see Fukuyama, Francis, The End of History and the Last Man, London: Hamish Hamilton, 1992). More often, we refer to this mix as the `capitalist system'.

17 Strobe Talbott, `The new geopolitics: defending democracy in the post-Cold War era', in The World Today, January 1995.

18 Jonathan W. Moses, `The Eighteenth Brumaire of Boris Yeltsin', Security Dialogue, vol. 25. no. 3, 1994.

19 Stephen Haggard and Robert Kaufman, eds, The Politics of Economic Adjustment, (Princeton: Princeton University Press, 1992).

20 We can speak about re-integration of East Central Europe into the Euro-Atlantic system in as much we could speak about re-unification of Germany in 1990. Germany in its present form never existed before; nevertheless, the democratic acceptance of incorporating the GDR into the FRG legitimized the use of the term `re-unification' instead of `unification', although the latter would have been slightly more correct.

21 Peter Gowan, `East Central Europe's Headless Hegemon, Labour Focus on Eastern Europe no. 50, 1995.

22 Michael Barratt Brown in his article `Debt and war in Yugoslavia' (European Labour Forum 1992/93 Winter) explains how the debt crisis proved to be the single most important source of first economic, then military warfare between the federal republics of the Yugoslav state.

23 With the foreign policy credentials of Prime Minister Gyula Horn, the Hungarian government wanted to use the time when Germany functioned as chair of the EU to gain a significant advantage in the integration process, by aquiring a ECU 2 billion loan for structural adjustment, and by forcing the EU to propose a schedule for integration. By linking Hungary to the EU, Horn and his Foreign Minister László Kovács were pursuing not only long-term visions, but also some very definite shortterm refuge to escape the mounting pressure from the IMF and the World Bank to implement austerity and adjustment. However, the special relationship between Horn and Kohl did not function, and the enormous efforts invested by the Hungarian diplomacy were lost.

24 László Csaba, `Time for a wider Union', Financial Times, 9 May 1995, p. 18.

25 Attila Ágh, `From Competition to Co-operation: the Europeanization and Regionalization of Central Europe', Budapest Papers on Democratic Transition no. 98, 1994. (Budapest: Hungarian Centre for Democracy Studies Foundation).

26 From political circles in Hungary, critical voices about the role of the West had very seldom been heard before 1995. István Csurka, then vice-president of the major government party, was excommunicated from his party in 1993 for a study in which he compared the IMF to the post-war supervisory commissions of the allied forces. Two years later, it was Prime Minister Gyula Horn who came out with a forceful critique of the EU, two month after he was forced into the most serious budget reform of the entire transition process. He accused the EU countries of being too wrapped up in their own problems and not paying sufficient attention to central and eastern Europe. Mr Horn said that after euphoria following the collapse of communism he saw little evidence that the EU was seriously tackling the problems of eastern Europe. `See “EU countries are too introverted”, says Horn', in Financial Times, 1 May 1995, p. 2.

27 György Bolgár, `Döntsd a tôkét, és siránkozz!' Népszabadság, 15 April 1995.

28 Andrei Schleifer `Korrupció elleni harc a kommunista világban' Népszabadság 2 May 1995, p. 8.

29 Jim Leitzel, Clifford Gaddy and Michael Alexeev, `Mafiosi and Matrioshki: Organised Crime and Russian Reform' The Brookings Review, Winter 1995, vol. 13. no. 1.

30 In one of the most interesting books of recent years, Mestrovic argues that the disaster of Yugoslavia is an expression of the conflict between the Enlightenment traditions of rationality, modernity and individualism represented by the major Western powers and the anti-Enlightenment forces of tradition, fundamentalism and nationalism. The latter are once again gaining ground not only in the Balkans but also around much of the world, including Western democracies. However, Mestrovic's single-minded anti-Serb attitude, along with attempts to whitewash the Croatian leadership, seriously damage the power of his arguments about the responsibility of the West, and more concretely the responsibility of the postmodernist tendency that has cleared the way for various forms of irrationalism. See Stjepan G. Mestrovic, The Balkanization of the West: the confluence of postmodernism and postcommunism, (London: Routledge, 1994).

31 Gerard Delanty, `The revolutions in eastern Europe and the redefinition of Europe: a new social contract?' Contemporary Politics vol. 1. no. 1. Spring 1995, p. 85.

32 Several students of the Yugoslav drama have already gone far beyond the the `ethnonationality' discourse. Gagnon, for example, argues that it is `purposeful and strategic policies rather than irrational acts of masses' that has driven the events on the Balkans. See V.P. Gagnon, `Ethnic Nationalism and International Conflict: The Case of Serbia' International Security vol. 19. no. 3. Winter 1994/95, p. 164.

33 Perhaps the only positive instance of BWIs recognising the role of economic assistance in creating political stability in Eastern Europe occurred when an attempted mass exodus of Albanians was averted, and further dislocation prevented by a coherent strategy outlined by World Bank experts in cooperation with the national government.

34 The question is not only theoretical but practical as well. In 1995, for example, the Hungarian Institute of International Affairs has supplemented its research agenda by a new focus on economic security, and first of all energy supply.