This book is designed as a modest contribution to the ongoing deliberations about how to ease the fairly tight constraints on the external payments of many countries of the eastern part of Europe. In the fIrst instance, this inquiry is addressed to those that have embarked on wide-ranging systemwide reforms. External constraints have been markedly hampering the introduction of market­ oriented economic mutations, thereby raising the cost of transition far above levels expected at the outset of the present wave of uniquely restructuring the countries involved. I explore here several angles of this discussion. But three stand out. One is the disintegration of the postwar framework for economic cooperation in that part of the world. Another is the disarray brought about by incisive economic transformations in the area. Finally, various national, regional, and international interest groups are at work there, hoping to mold somehow the drift of the reform, or at least key components thereof, in their own "image. " In the process it is often forgotten, as Ralf Dahrendorf (1990, p. 41) so pointedly remarked that "[ a]ll systems mean serfdom, including the . natural' system of a total . market order' in which no one tries to do anything other than guard certain rules of the game discovered by a mysterious sect of economic advisers.

1. Backdrop to the payments constraint.- 2. Consensual transition policies.- 3. Regional cooperation and economic reform.- 4. Backdrop to the proposal to create a payments union.- 5. Toward convertibility through a payments union.- 6. Organization.- 1. The prevailing socioeconomic situation.- 1. Problems of changing Eastern European societies.- 2. The current socioeconomic situation in Eastern Europe.- 3. The drift of the reform debate.- 4. The nature of the payments problem.- 5. Shocks of mutating trade and payment regimes.- 6. Western assistance to combat liquidity shortage.- 2. The collapse and dissolution of the CMEA.- 1. The CMEA's demise.- 2. CMEA reform discussions.- 3. Salient obstacles to buoyant intragroup interactions.- 4. Reforming the trade and payment regimes.- 5. Balance-of-payments constraints and a payments union.- 3. Economic union in Eastern Europe.- 1. The outlook for economic union at this juncture.- 2. The desirability of economic union.- 3. Theoretical merits of a customs union.- 4. Practical problems and economic union.- 5. Linking a payments facility with an economic union.- 6. Key features of a payments union.- 4. Paths to convertibility.- 1. The global economy at Bretton Woods.- 2. On currency convertibility.- 3. Possible roads to convertibility.- 4. Western Europe's return to convertibility.- 5. Marketization, transition, and convertibility.- 6. Toward a payments union for Eastern Europe?.- 5. Technical aspects of a payments union.- 1. Overall conceptualization of the CEPU.- 2. Payments problems and a regional payments unions.- 3. Technical issues of a payments union.- 4. A hypothetical capital fund.- 5. A payments union with the Soviet Union?.- 6. Macroeconomic surveillance and the transition.- 1. Macroeconomic responses in a paymentsunion.- 2. Adjustment under traditional and modified planning.- 3. Standard adjustment policies and the PETs.- 4. Fund-type adjustment programs and the PETs.- 5. CEPU adjustment, commercial policy, and diplomacy.- 6. Other issues of managing a payments union.- 7. Downside risks of a CEPU.- 1. Backdrop to the debate.- 2. The rump order of priority.- 3. General arguments against payments unions.- 4. Comments on the CEPU and their merits.- 5. An evalution of the criticisms.- 8. Enlarging the European economic space.- 1. The basic preoccupations of European integration.- 2. What needs to be bridged?.- 3. On the transition to ME status.- 4. On the sequencing of reforms.- 5. Economic transition and east-west assistance.- Conclusions.