Funding Hungary: competing crisis management priorities of troika institutions

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Abstract

This paper investigates the crisis management approaches of the troika institutions during the liquidity trap episode experienced by Hungary in October 2008. I demonstrate stark differences in the three institutions’ interpretation of the crisis’ origin that influenced the recommended policy responses: the IMF team was concerned with financial markets; the EU Commission emphasised the fiscal component of the crisis and recommended austerity measures, and, finally, the ECB focused primarily on the monetary stability of the Eurozone and overlooked the consequences of its decisions for EU member states outside the Eurozone. The paper argues that for Hungarian policy-makers the greatest challenge in crisis management was not the harshness of the austerity measures, but overcoming difficulties generated by the competing crisis management priorities of the troika institutions. The paper concludes with a note on policy coordination as a recurring obstacle to the troika’s effective crisis management.