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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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  • Lütz, Susanne
  • Kranke, Matthias

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

  • Lütz, Susanne & Kranke, Matthias, 2010. "The European rescue of the Washington Consensus? EU and IMF lending to Central and Eastern European countries," LSE Research Online Documents on Economics 53450, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:53450
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    References listed on IDEAS

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    3. International Monetary Fund, 2009. "Republic of Latvia: First Review and Financing Assurances Review Under the Stand By Arrangement, Requests for Waivers of Nonobservance of Performance Criteria, and Rephasing of Purchases Under the Arr," IMF Staff Country Reports 2009/297, International Monetary Fund.
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    Cited by:

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    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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    More about this item

    Keywords

    IMF; European Union; Washington consensus; lending; learning; Central and Eastern Europe; Latvia;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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