1. ^aDepartment of Economics, Indiana University, Wylie Hall, Rm 105, Bloomington, IN 47405, U.S.A. E-mail: vonfurst@indiana.edu
2. ^†Executive Vice President, Allianz. The views reported are not to be attributed to Allianz.

^*J.H. Rudy Professor of Economics, Indiana University, Bloomington, IN 47405, U.S.A. Contact: vonfurst@indiana.edu. This paper, based on a March 2004 interview, was started while the author was a visiting research economist at the Deutsche Bundesbank, working on issues related to financial-market development in EU-accession countries, but responsibility for the project and its execution is his alone. All major issues addressed in this paper were first raised by or with Dr. Junker, and any additional sources and data used are clearly identified. A referee's comments proved very helpful in the revision process.

Abstract

The newest EU member countries in Central and Eastern Europe went through a rapid transition from state to market direction of economic and financial affairs as well as of enterprises and social arrangements, including insurance. As incentive structures, property rights, rules of competition, and the assignment of liabilities changed, so did the risks associated with private operations and investments. This essay looks at some of the unexpected risk exposures and the means of coping with rapid change in incomplete financial markets largely through the eyes of a leading participant in the process.