The Fund’s Fiscal Policy Views and the Politics of Austerity

Abstract

This chapter drills down into IMF/advanced economy government interactions and Fund efforts to influence the international economic policy debate during the Great Recession. It situates Fund thinking within the wider politics of austerity, charting how the Fund’s post-crash views on fiscal policy efficacy and economic stabilization were increasingly at odds with other key European players. The IMF mobilized its knowledge bank and scientific reputation to correct what key Fund figures saw as mistaken premises of austerity policies. Notably, the IMF counselled against precipitate exit from stimulus, debunked the notion that fiscal consolidation is in itself ‘growth friendly’, underlined that fiscal consolidation can be self-defeating, and, as the recession drew on, advised further counter-cyclical fiscal policy interventions to support the recovery. The Fund’s empirically backed policy advice advocated a ‘less now, more later’ approach to consolidation by countries with fiscal space.