The year 1989 was christened ‘annus mirabilis’. Policymakers and their advisers were not trained anywhere to deal with miracles. In order to gain insights into the problems of transition, economists turned to related, but not strictly identical, experiences. Western Europe's post-war reconstruction; the problems of development and the success of certain emerging countries; China's drifting away from a centralised command economy; and Latin America's problems with institution building and inflation control. Now, over ten years later, we have much more experience and this is the topic of the next chapter. But it is still important to understand the mindset of the early 1990s to interpret what has happened.

From the start, transition countries fell into three categories. The first included only East Germany. With generous West German financial support and extension of West Germany's institutional framework to the east, the policy dialogue was closed. In the second class were all the other socialist economies outside the FSU. These were mostly small economies that could expect a lot of support from the European Union and to gain substantially from reorienting their trade from former Comecon countries to Western Europe. And the third class was composed of the successor states of the FSU. They first had to cope with the political job of creating a state and an administration and then look around for a place in this new world. Clearly, their job was the hardest.