Adjusting the Adjustment Programmes

WP-LPF 8/14

In the past few years, the Euro area member countries have embarked on an unprecedented effort aimed at tackling the challenges posed by the international financial crisis. For the first time, developed and open economies have tried to adjust within a monetary union. In May 2010 Greece became the first Eurozone country to receive official financial assistance from European institutions and the International Monetary Fund (IMF). Other three countries have followed suit, receiving extensive financial assistance programmes: Ireland in November 2010, Portugal in April 2011 and Cyprus in March 2013. It is argued that the conditions which the Eurozone’s Economic Adjustment Programmes (EAPs) are enforcing are very similar to the IMF prescriptions, which were attached to the programmes implemented in Latin America in 1980s during the debt crisis and they recalled the policies that John Williamson identified with the “Washington Consensus”. Furthermore, the EAPs imply the same approaches to the state: they are formulated in the middle of a deep economic turmoil for insolvent countries having no alternative than to accept International Financial Institutions (IFIs) assistance. What are the dynamics underpinning this policy choice? Why Eurozone member countries did not oppose this strategy? What relationship exists between national governments and the Troika? This paper addresses these questions by focusing on the case of Portugal.