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The European Rescue of the Washington Consensus? EU and IMF Lending to Central and Eastern European Countries

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  • Susanne Lütz
  • Matthias Kranke

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.

Suggested Citation

  • Susanne Lütz & Matthias Kranke, 2010. "The European Rescue of the Washington Consensus? EU and IMF Lending to Central and Eastern European Countries," LEQS – LSE 'Europe in Question' Discussion Paper Series 22, European Institute, LSE.
    • Handle: RePEc:eiq:eileqs:22
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    2. Kevin Featherstone, 2016. "Conditionality, Democracy and Institutional Weakness: the Euro-crisis Trilemma," Journal of Common Market Studies, Wiley Blackwell, vol. 54, pages 48-64, September.
    3. Featherstone, Kevin, 2016. "Conditionality, democracy and institutional weakness: the Euro-crisis trilemma," LSE Research Online Documents on Economics 66310, London School of Economics and Political Science, LSE Library.
    4. Carlo Panico, Francesco Purificato, Elvira Sapienza, 2015. "Benefici, problemi e prospettive dell’integrazione monetaria in Europa (Benefits, issues and future of monetary integration in Europe)," Moneta e Credito, Economia civile, vol. 68(271), pages 305-339.
    5. Yilmaz Akyüz, 2014. "Internationalization of Finance and Changing Vulnerabilities in Emerging and Developing Economies," UNCTAD Discussion Papers 217, United Nations Conference on Trade and Development.
    6. Vinod Vyasulu, 2015. "‘Good’ Governance in India: How Good or Bad?," Millennial Asia, , vol. 6(2), pages 111-127, October.

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    Keywords

    International Monetary Fund (IMF); European Union (EU); Washington Consensus; lending; learning; Central and Eastern Europe (CEE); Latvia;
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