Europe since 1989

A History

Philipp Ther, Charlotte Hughes-Kreutzmüller

• Publisher: Princeton University Press
• Year: 2016
• ISBN:
  9781400882892
• Topic: Historia
• Subtopic: Historia europea

An award-winning history of the transformation of Europe between 1989 and today The year 1989 brought the fall of the Berlin Wall and the collapse of communism in Eastern Europe. It was also the year that the economic theories of Reagan, Thatcher, and the Chicago School achieved global dominance. And it was these neoliberal ideas that largely determined the course of the political, economic, and social changes that transformed Europe—both east and west—over the next quarter century. This award-winning book provides the first comprehensive history of post-1989 Europe.Philipp Ther—a firsthand witness to many of the transformations, from Czechoslovakia during the Velvet Revolution to postcommunist Poland and Ukraine—offers a sweeping narrative filled with vivid details and memorable stories. He describes how liberalization, deregulation, and privatization had catastrophic effects on former Soviet Bloc countries. He refutes the idea that this economic "shock therapy" was the basis of later growth, arguing that human capital and the "transformation from below" determined economic success or failure. Most important, he shows how the capitalist West's effort to reshape Eastern Europe in its own likeness ended up reshaping Western Europe as well, in part by accelerating the pace and scope of neoliberal reforms in the West, particularly in reunified Germany. Finally, bringing the story up to the present, Ther compares events in Eastern and Southern Europe leading up to and following the 2008–9 global financial crisis.A compelling and often-surprising account of how the new order of the New Europe was wrought from the chaotic aftermath of the Cold War, this is essential reading for understanding Europe today.

1

Introduction

On the Road to 1989

The origins of this book lie in the golden summer of 1977. It was a bright time in Europe, both politically and meteorologically. The first oil crisis had passed, and a policy of détente prevailed. The Helsinki Accords of 1975 had built confidence; the West German government propagated “change through rapprochement.” The East-West standoff seemed to have calmed. It was in this political climate that my parents decided to take a summer vacation in the “Eastern Bloc.” The phrase was spoken with a note of apprehension, despite the new optimism. “Eastern” meant communist; “bloc” suggested self-imposed seclusion and military threat. Various members of our family had bad personal memories of the Red Army in 1945, and in 1968, when it had crushed the Prague Spring. The itinerary for our vacation, then, was worked out with due caution. The first stop was to be Hungary, for it was known as the “happiest barracks in the communist camp.” Then we would travel to southern Poland, from there to the beautiful Krkonoše Mountains lining the Polish-Czech border and, lastly, to Prague to visit relatives. Our journey started well. There was no iron curtain across the border; the Hungarian guards greeted us cheerfully. We were not fazed by passport and custom controls, as they were still common at Western European borders. Budapest was quite close and the Danube glittered in the evening light. The goulash we ate at a restaurant, namesake of Hungarian communism, was far spicier than anything at home in bland West Germany.

The first incident that hinted at the events to come in 1989 occurred after nightfall at the campsite in Budapest. At the gate, there were two entry booths and two lines of people—one long, one short. The long line, which did not seem to be moving, was made up of Germans. But they spoke an unfamiliar, eastern dialect, and scowled as they stood empty-handed, waiting. Germans also made up the fast-moving, short line next to them. They were dressed more like us and held valuable West German deutschmarks in their hands. It was embarrassing to me, a teenager at my father’s side, to march past others waiting in line. I was told that we were in the line to pay with West German marks and so would be allotted a space immediately, while those in the other line had to wait until the end of the day and take what was left, because they could pay only in East German marks. If no spaces were left, they would have to sleep in their cars. Outraged, I asked my father why the poor East Germans did not benefit from the special friendship between Eastern Bloc countries that was trumpeted by communist propaganda. My father replied that the Eastern Bloc countries suffered from a shortage of foreign exchange and were eager to get their hands on deutschmarks. This was also the reason why Western tourists were required to exchange a certain amount of money, at that time twenty-five West German marks (around twelve US dollars), for every day of their stay. I suggested giving the East Germans in the long line some deutschmarks; exchanging them as we did schillings in Austria. Another discussion followed, continued later with our campsite neighbors from Karl-Marx-Stadt, about why the Eastern Bloc only permitted changing money in a bank and what an official rate of exchange was.

That night at the campsite in Budapest was like a crash course in international finance and economics: Eastern currencies, Western currencies, foreign exchange, export, import, foreign debt, and—touching on “economics from below”—unofficial rates of exchange and the black market. The obvious injustice of the two lines and the scowls of those cooling their heels for hours preyed on my mind. A week later, after a long wait and extensive checks at the Hungarian-Slovak border, and again at the Czech-Polish border, which did not tally at all with the official image of socialist friendship, I gained the opportunity to put my newly acquired financial knowledge to use in Kraków. The Polish friends we had met the previous summer as they were hitchhiking through Germany on their first trip to the West—another journey made possible by the détente—wanted to buy deutschmarks from us. They told us of the rising prices, empty stores, and falling value of the złoty. Clearly, West German marks and US dollars were worth far more than the national currency in Poland. Thus ordinary Polish citizens were already demonstrating the kind of market savvy that later helped their country’s economy to flourish. But back in 1977, nobody imagined that the Eastern Bloc would ever collapse, or that a neoliberal train was being put on track in the United Kingdom and the United States that was set to cross Europe in 1989.

However, the 1977 slump in the black market price of the złoty presaged the massive economic problems that soon confronted the People’s Republic of Poland. As we now know, it marked the beginning of a five-year downward slide for the Polish economy.¹ The modernization the country had hoped to achieve by importing Western technology had failed, leaving only foreign debts that it struggled to pay off. For me, as a teenage visitor, Poland’s rising inflation (which the planned economy should theoretically have prevented) was not an acute problem. On the contrary, I received three times as many złotys from our host family for my saved-up pocket money than my father got for the same number of deutschmarks at the bank’s official rate of exchange. For the pile of aluminum coins and bills as paper-thin as play money I could send postcards to all my friends and buy unlimited amounts of ice cream for a week. I was not, however, able to buy ballpoint pens or ink cartridges. Nevertheless, I had unconsciously become a privileged Westerner in Poland. But this good fortune under “real existing socialism”—a step on the way to communist paradise, as the ideologues would have it—was not without alloy. I soon noticed that the local youngsters could not afford to buy any ice cream, or jeans, or sneakers for that matter. Furthermore, although there was no standing in line for campsites in Kraków, as there had been in Budapest, there were long queues for meat, sugar, cream, and other goods that we Westerners took utterly for granted.

In Czechoslovakia, the third stop on our journey, scarcity was not a problem. Our relatives in Prague drove a new Škoda, lived in a modern detached house in an idyllic spot overlooking the Vltava River, and had a delightful weekend home, too. The standard of living of our West German family of six was no higher. But behind closed doors, my great-uncle and his son complained about the political situation. They were dismayed by the so-called normalization (normalizace) instituted after the crushing of the Prague Spring (which every specialist in Eastern European studies should bear in mind before using the word “normal”) and the inefficiency of national industries, with which they, both engineers, were acquainted from personal experience. They could see that their country was falling behind on a technological level, and it hurt their professional and national pride. Even we tourists sensed the leaden atmosphere in the Czech capital: the site of Jan Palach’s self-immolation in January 1969 in protest against the Warsaw Pact invasion (which ended the Prague Spring) and other symbolic places were oppressively monitored.

Not everybody was resigned to the status quo. There were courageous dissidents in the East, and in the West, including my high school’s Prague-born headmaster. When the Polish regime cracked down on the Solidarność (Solidarity) movement in fall 1981, our headmaster organized a food parcel campaign to benefit the needy in Poland. When the Czech dissidents involved in Charta 77 were hit by a wave of arrests, the school sent intellectual sustenance to Czechoslovakia: parcels of books containing banned literature, collected and packed by our class. Contrary to Czech author Milan Kundera’s accusation in his 1983 essay “The Tragedy of Central Europe,” then, the countries beyond the bloc boundary had not been completely forgotten.² But more important than this Western aid, in a historical perspective, was the fact that the Eastern Bloc societies were shifting ever closer to the West. An increasing number of Poles, Hungarians, and Czechs traveled to Western Europe under the policy of détente, some as tourists, like our friends from Kraków, and others on business.

Although they saw how much richer the West was, the postwar boom had, in fact, already ended. Some countries in the West were wrestling with currency vagaries (the US dollar came under strong pressure in the 1970s; Great Britain needed to be bailed out by an IMF rescue package in 1976), rising unemployment, and spiraling national deficits, which in turn fueled inflation. Economists in the East closely observed the crisis of the West. As the later reform politicians Václav Klaus and Leszek Balcerowicz noted with interest, it prompted an international paradigm shift in economic policy away from Keynesianism, which was considered to have failed, and toward monetarism—steering the economy by means of money supply, controlled by central banks. Following the election victories of Margaret Thatcher and Ronald Reagan, the UK and US governments set about privatizing state enterprises, liberalizing previously regulated sectors (such as banks and the stock exchange), and generally withdrawing from the economy.³ Their actions serve as a rough definition of neoliberalism, which then became a major factor driving European history, first in the United Kingdom, then in the postcommunist East, reaching Western Europe after a slight delay and eventually the Mediterranean South. In the eighties even Social Democrat–ruled countries such as West Germany started discussing cuts in social spending. After two severe recessions, there was a growing sense of crisis in all Western countries.

But the Eastern Bloc’s problems were more obvious and more fundamental. The constant shortfalls in supply, the conspicuous injustices, and the growing economic gulf between East and West were among the factors that confounded communism (the ideology) and state socialism (the practice). But before 1989, neither the experts on Eastern Europe, who will play an important part in this book, nor the acquaintances I made on further trips behind the Iron Curtain predicted that the end was near. As a student, I advanced from investing in ice cream to selling or bartering packets of nylon pantyhose and music cassettes. This enabled me to finance a number of carefree “East-side” vacations spent in interesting conversation. Even in the summer of 1989, almost all Western Sovietologists were convinced of the permanence of the Cold War constellation and the Soviet Union. It is easy to criticize this misjudgment with the wisdom of hindsight. But it is more rewarding to think back to explore the complexities and contingencies of the period. The challenge is to take from these an explanation for the sudden collapse of the old order in 1989–91 and its consequences for Western Europe.

Underneath the surface, political unrest was brewing throughout the Eastern Bloc. It was perceptible even in oppressively controlled Czechoslovakia. During one of my visits, timed to coincide with the May 1 celebrations in 1989, a counterdemonstration suddenly emerged from the official rally on Prague’s Václavské Náměstí (Wenceslas Square) when protesters started shouting antiregime slogans. But before the security forces could intervene, the renegades had merged back into the ranks behind the red flags and banners of Marx, Engels, and Lenin. That evening there was heavy rioting; the police cracked down with brute force on the demonstrators. Nevertheless, the opposition kept up its strategy of nonviolence, and fortunately did so again in the fall. Although the city centers were full of security forces, militia, and secret police, many of whom were recognizable by their leather jackets and alcohol-puffed faces, there were not enough of them to subdue or arrest several hundred thousand demonstrators. That fall more than a quarter of a century ago, the crowd had an irresistible, magnetic force.

Yet in early November the Wenceslas Square protesters and I, their Western guest, could not be certain that all the men in uniform and leather jackets would continue to simply look on. The intense atmosphere of tension bonded complete strangers. In late November, when a happy end was on the horizon, the collective sense of relief and joy was correspondingly huge. The mood in Prague was like that of a school graduation party: we had passed the test; the old authorities had no more to say; the world was our oyster. It seemed as if anything was possible.⁴

But the exhilaration soon gave way to disillusionment. This was especially noticeable in the winter of 1989–90 in Berlin, which I visited after the revolution in Prague. West Berliners complained about all the newcomers from the East, jamming the streets with their stinking cars and buying up all the supermarket stock. Suddenly the tables were turned—Westerners now had to stand in line themselves. Meanwhile, postcommunist societies faced a different category of problems. In Poland, hyperinflation obliterated the population’s złoty savings and reduced real incomes—the “real” aspect in this case being their value in foreign currencies—to the equivalent of less than fifty dollars a month. With less foreign debt, Czechoslovakia was not immediately compelled to introduce radical reforms. But the cancellation of food subsidies caused 50-percent price rises for dairy products and vegetables, and around 30 percent for bread.⁵ In East Germany (GDR), hundreds of factories stopped production and dismissed their staff. Yet economic collapse did not lead to the “third way” between capitalism and socialism that some former dissidents had hoped for. In 1990, socialism was too unpopular to win any elections or loans from the West.

By the early nineties, a political and economic movement toward neoliberal economic policy had emerged in almost all postcommunist countries. It was supported by the countries west of the now-perforated Iron Curtain, whose societies were not aware of the far-reaching implications of this paradigm shift. Their governments glossed over the potential pitfalls with grand promises of prosperity for all. A good example was German chancellor Helmut Kohl’s promise of “flourishing landscapes” in East Germany. This slogan helped him to win the first federal elections in 1990, but became the butt of jokes in later years in view of all the difficulties besetting the East, and soon the former West of Germany. As far as Western observers were concerned, the countries in transition were still on the other side of the Iron Curtain, which had perhaps thinned but not yet been raised. Social science scholarship reserved the term “transition” and the more encompassing “transformation” for the eastern half of Europe. Thus Western governments, scholars, and commentators implied that Eastern Europe needed to profoundly change, whereas the West could remain more or less as it was. In the light of earlier revolutionary periods, such as those after 1789, 1848, and 1917, they were effectively pursuing a strategy of containment.

This book narrates and analyzes contemporary European history from a different vantage point. Instead of dealing with Eastern Europe as a territorial container and enclosed system, it shows how the changes after the fall of the Berlin Wall affected and “cotransformed” Western and eventually southern Europe. This has also informed the intinerary by which the reader travels through Europe and its most recent history. This is not an occidentalist history of Europe like a great number of older books, which Norman Davies once mocked as “Euro-history.” It is, rather, a European history narrated from an Eastern angle, from the perspective of the peoples who ended communism, tore down the Wall, and then underwent unprecedented political, social, and economic change. Hence the reader will find more information on the history of Poland and Germany than on, for instance, France. But obviously no history of Europe can cover the entire continent equally and exhaustively.

While the West lived under the illusion that it would remain more or less unchanged by the breakdown of state socialism, the effects of the “shock therapy” in Eastern Europe soon became apparent in Poland. On a visit to my Kraków friends in fall 1991, I found the city with its half a million inhabitants shrouded in an acrid brown haze. The cause was the Nowa Huta steelworks. But people were glad the chimneys were puffing away because the factory was at least a source of employment. There were only three restaurants open in the evening in the city center, as few residents could afford to eat out. Stores were empty, no longer because of a lack of supplies, but because of low demand. Hardly anybody had money to spend. The only thriving segment was the farmers’ markets, offering onions, potatoes, and other basic foodstuffs at low prices. Was this the new order that the...