The European Union's eastward enlargement was undoubtedly the most important political and economic event of last year. It was also an important element of the new political order in Europe, according to the authors of the fourth edition of New Europe: Report on Transformation, presented at the Economic Forum in Krynica in early September.

The report is a joint initiative of the Program Council of the Economic Forum and the Institute of Eastern Studies Foundation. It analyzes the political and economic situation of 27 postcommunist countries. The document was prepared by independent authors representing institutions such as the Warsaw School of Economics (SGH), the Polish Academy of Sciences, the R. Łazarski School of Commerce and Law and the Foreign Trade Research Institute (IKiCHZ), under the supervision of Prof. Dariusz Rosati.

In Central and Eastern European Countries (CEECs) and the Commonwealth of Independent States, 2004 and 2005 were full of important political and economic events. Five Central European countries and three Baltic states successfully closed their first year of EU presence, effectively using their newfound membership to accelerate economic growth. In CIS countries, good economic trends were accompanied by political tension, and in some of them (Ukraine and Kyrgyzstan) a major turnaround took place in domestic and foreign policies.

The report's authors say that, in political and symbolic terms, the EU accession of the eight Central European countries means a successful conclusion of the process of transformation in these countries. Pro-European tendencies in Balkan countries were strengthened. Over the past two years, some CIS countries-specifically Ukraine, Georgia and Moldova-have made a fundamental reorientation in their foreign policies, undertaking a number of important initiatives for the development of cooperation with the EU and limiting their involvement in cooperation as part of CIS. This testifies to the increasing attractiveness of European integration for post-Soviet states.

The division of the region under system transformation that has developed over the past few years-with two clearly different groups of countries: those subject to integration within and around the EU and CIS states-remained the basic factor that determined system solutions and the policies of individual countries. CEECs adopted system solutions characteristic of the liberal-democratic model of the state followed in Western Europe. The main features of this model are respect for democracy, the rule of law and law observance as well as protection of civic liberties and freedoms. In countries in this group, a parliamentary-Cabinet system has developed, with a strong role of the government responsible before parliament, along with an independent court system and a wide range of local government.

CIS states are building a different model of the state based on a strong presidency, with a limited role of parliament, a weak court system and a small scope of local government. Law observance in this second group of countries is lower, and a much greater role is played by informal power arrangements based on influential interest groups (oligarchization).

The authors of the report note that new EU member states have noted a series of successes in their first year of EU membership. The removal of whatever barriers still remained in mutual trade has led to a substantial acceleration in exports to EU markets after May 1, 2004, and greater access to structural funds has made it possible to accelerate investment and increase farmer incomes-thanks to covering farmers within the EU direct payment system. However, this generally positive economic situation was accompanied by an unstable political situation expressed by the loss of public support for governments and the political parties behind them.

Still, last year was undoubtedly a year of accelerated growth in most countries in the area under transformation. The average rate of gross domestic product growth in the new EU member states exceeded 5 percent in 2004, more than in 2003 and far above the averages noted in the previous few years. Balkan economies grew at a similar rate. The CIS region recorded an even faster growth rate, at 7-8 percent on average. However, this high economic growth was largely a one-off trend brought about by external factors: a temporary increase in domestic demand and an increase in exports in connection with EU accession and high demand for fuels and raw materials. The effect of these factors will peter out in the coming years, and economic growth will consequently slow down under the slow advancement or even absence of necessary structural reforms.

Inflation remained at a low level in most countries. After a temporary acceleration in price growth in 2004, brought about by EU accession and increased fuel, energy and raw material prices in the world, the growth of internal prices clearly subsided in 2005. Low inflation was promoted by relatively restrictive monetary policies in most countries, along with an appreciation of national currencies vis-a-vis the euro and dollar. Only in some CIS countries (Belarus, Russia, Moldova, Turkmenistan and Uzbekistan) and in some Balkan states (Romania and Serbia and Montenegro) did inflation exceed 10 percent in annual terms.

At the same time, the labor market improved slowly but steadily. Registered unemployment dropped slightly in most new member states, though in some it continued at a high level of 15-20 percent (Poland, Slovakia). The worst situation in this respect was in Western Balkan states, where unemployment reached 30-40 percent (Bosnia and Hercegovina, Macedonia and Serbia and Montenegro).

Rosati says the assessment of the effects of economic transformation leads to a few general conclusions. First, success depends on the scope and consistency of reform and a country's ties with the EU. Second, market changes must be accompanied by democratization in political life. Finally, the costs of transformation have been the highest in those countries where the fragmentary reforms carried out have not included institutional change.