Finally, the crisis of the Soviet economy was precipitated by the
liberalization of foreign trade. The Soviet bloc used to have its
own privileged trade zone of countries united in the Council of
Mutual Economic Assistance, or Comecon. It was set up in 1949, when
the onslaught of the cold war led to the emergence of economic
barriers between Eastern Europe and the West. Up to 80 percent of
Soviet foreign trade was with the Comecon member states.
the 1970s the socialist countries had established effective economic
co-operation, based on their specialization in the production of
different types of machinery, equipment, and agricultural produce.
In its drive toward greater economic integration, Comecon appeared
to be even more successful than the European Economic Community.
Starting in 1973 the USSR shielded its Eastern European partners
from the shock of the many-fold increase in the price of oil: it
supplied it to the Comecon member states at greatly reduced prices.
There were few reasons to doubt the beneficial nature of the Comecon
cooperation: the Soviet Union provided socialist countries with raw
materials well below world prices in return for more technologically
the advent of Gorbachev, when it became clear that the new Soviet
government was reluctant to enforce Moscow’s political domination
over the socialist bloc countries, the internal cohesion of the
socialist bloc began to crack. The Comecon member states blamed some
of their economic difficulties on the poor quality of products
supplied by their neighbors. They believed they could resolve their
economic problems by expanding trade with the capitalist West. This,
however, was hindered by the lack of hard currency, as transactions
within Comecon were conducted in roubles, which could not be used
outside the socialist bloc. To put an end to mutual recriminations
that soured relations within Comecon, the member states agreed to
put trade within Comecon to the test of a convertible currency.
switch to hard currency was also advocated by some of Gorbachev’s
advisers. They argued that the Soviet Union would only benefit from
selling more oil to capitalist countries at world prices and buying
better-quality Western equipment and goods. The Soviet bloc
countries would be quickly brought to their senses when they would
face the prospect of paying world prices for Soviet oil and would
appreciate more the USSR’s role of a major donor within Comecon.
Persuaded by these arguments, Gorbachev authorized the switch to
hard currency accounting within Comecon. The problem, however, was
that none of the Comecon countries—from poor Romania to relatively
prosperous East Germany, and even to the powerful Soviet Union—had
sufficient hard currency reserves. The switch caused the collapse of
trade links within the socialist bloc. It deprived the USSR of
access to Eastern European markets, compounding its economic