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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
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    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.

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    File URL: http://www.lse.ac.uk/europeanInstitute/LEQS/LEQSPaper22.pdf
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    Bibliographic Info

    Paper provided by London School of Economics / European Institute in its series Europe in Question Discussion Paper Series of the London School of Economics (LEQs) with number 2.

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    Date of creation: 01 May 2010
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    Handle: RePEc:erp:leqsxx:p0022

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    Web page: http://www2.lse.ac.uk/europeanInstitute

    Related research

    Keywords: IMF; policy learning; East-Central Europe; Latvia;

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    1. Marchesi, Silvia & Thomas, Jonathan P, 1999. "IMF Conditionality as a Screening Device," Economic Journal, Royal Economic Society, vol. 109(454), pages C111-25, March.
    2. Frieden, Jeffry A., 1991. "Invested interests: the politics of national economic policies in a world of global finance," International Organization, Cambridge University Press, vol. 45(04), pages 425-451, September.
    3. Bird, Graham, 2002. "The credibility and signalling effect of IMF programmes," Journal of Policy Modeling, Elsevier, vol. 24(9), pages 799-811, December.
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