In 1968, the Central Committee of the Hungarian Socialist Workers Party launched the NEM to alleviate Hungary's economic issues and introduced decentralization and fixed prices to offset the flaws of a centrally-planned economy.

It sought to accomplish reforms in many sectors of its economy, attempting autonomous self-management of collective farms, the break-up of monopoly industries, and curtailing subsidies other than those used for exports.

[3] This created a complex and extremely trade-dependent national economy, which was thus vulnerable to general fluctuations in the world market, but also to changes in prices of Soviet-imported raw materials and energy resources.

This made it clear that the huge industrial combines, which had more ideological than economic value, would continue to receive the same state protection as in the past, underlining a basic weakness in the system.

Kádár had proven his ability to "manage" the Kremlin, and had even stayed in power during the transition from Khrushchev to Brezhnev, remaining one of the only stable political figures in Eastern Europe.

Thus, he could explain the higher prices as a down payment to the NEM, and promise good times to come without losing public approval and social order.

[5] This reflected Hungary's general attitude towards the Soviet satellite setup: popular opinion was against communism, and Hungarians wanted independence.

With Gorbachev's new policy of not using military action in the satellite states, and of permitting general sovereignty within the confines of each individual country, obeying popular public opinion was necessary.

[citation needed] Since real wages continued to drop in the following years, there is little reason to believe that the attitudes towards the economic situation became more positive in 1989.

[8] Nevertheless, after 1968 formed an illegal group of thinkers and activists, the so-called Democratic Opposition [hu]) which loosely connected to the Budapest School.

In December 1988, Prime Minister Miklós Németh expressed the attitude of many reformers by stating publicly that "the market economy is the only way to avoid a social catastrophe or a long, slow death."

That same year, the Parliament adopted a "democracy package", which included trade union pluralism; freedom of association, assembly, and the press; a new electoral law; and a radical revision of the constitution, among others.

The Pan-European Picnic was a peace demonstration held on the Austrian-Hungarian border near the town of Sopron on 19 August 1989, an important event in political developments which led to the fall of the Iron Curtain and the reunification of Germany.

On 23 October 1989 at Kossuth tér, Budapest, the Republic of Hungary was proclaimed for Mátyás Szűrös, provisional President, from balcony of Hungarian Parliament Building.