The European rescue of the Washington Consensus? EU and IMF lending to Central and Eastern European countries

Susanne Lütz and Matthias Kranke

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The latest global financial crisis has allowed the International Monetary Fund (IMF) a spectacular comeback. But despite its notorious reputation as a staunch advocate of restrictive economic policies, the Fund has displayed less preference for austerity in recent crisis lending. Though widely welcomed as overdue, the IMF’s shift away from what John Williamson coined the ‘Washington Consensus’ was met with resistance from the European Union (EU) where it concerned Central and Eastern European (CEE) countries. The situation of hard-hit Hungary, Latvia, and Romania propelled unprecedented cooperation between the IMF and the EU, in which the EU has very actively promoted orthodox measures in return for loans. We argue that this represents a European rescue of the Washington Consensus. The case of Latvia is paradigmatic for the profound disagreements between an austerity-demanding EU and a less austere IMF. The IMF’s stance contradicts conventional wisdom about the organization as the guardian of economic orthodoxy. To solve this puzzle, we shed light on three complementary factors of (non)learning that have shaped the EU’s relations vis-à-vis CEE borrowing countries in comparison to the IMF’s: (1) a disadvantageous institutional setting; (2) vociferous creditor coalitions; (3) the precarious eurozone project.

Keywords: IMF; European Union; Washington consensus; lending; learning; Central and Eastern Europe; Latvia (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2010-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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