This paper, prepared for a conference on The Horn of Africa--Its Political and Economic Future, held at the University of London, November 1991, deals with problems and possibilities in Ethiopia and Eritrea. It also touches briefly on the situations in Sudan and Somalia. According to the author, Ethiopia has successfully overthrown Marxist rule, and both the Transitional Government of Ethiopia and the Provisional Government of Eritrea are experimenting with free market policies that facilitate economic recovery. They must, however, find a basis for political and economic cooperation. The outlook for Sudan and Somalia remains bleak.