Economic integration in Eastern Europe

Abstract

The Council for Mutual Economic Assistance (CMEA) was established by Bulgaria, Czechoslovakia, Hungary, Poland, Romania and the Soviet Union in 1948 as a response to the Marshall Plan. But unlike the Marshall Plan it provided no financial assistance to its member countries and its activities were limited to trade in the framework of bilateral and multilateral negotiations. Because of centralized decisionmaking, the lack of price signals and the bilateral balancing of trade flows, the CMEA countries failed to exploit their trade potential. And although the smaller CMEA countries benefited from receiving Soviet energy and raw materials at low prices in exchange for often poor quality manufactured goods, these gains were more than offset by the losses suffered because of insufficient technical change and the straightjacket of the socialist planning system. For the future of the CMEA, four alternatives present themselves: maintaining the present arrangements, marketizing the CMEA, reforming the CMEA and dissolving the CMEA. In view of differences in the extent and the speed of the reform efforts in Eastern European countries, the last alternative appears most appropriate.At the same time, the more developed CMEA countries should seek association with the EC, followed by membership.Environmental Economics&Policies,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade Policy,Common Carriers Industry