Without a solid legal and institutional framework to organise market interactions, however, the country experienced a series of crises, while resources ended up being concentrated in the hands of a few powerful individuals. These experiences led the assumptions of the Washington Consensus to be progressively revised. Even the IMF acknowledged the flaws in the original list of suggestions, in particular regarding the importance of institutions.4 Reviewing the available evidence, the economist Dani Rodrik wrote that the strength of institutions is the most important element of development economics. The mantra of the so-called “revised” Washington Consensus, he wrote, should be to “get the institutions right.”5  2  Vanberg, Viktor J. “The Freiburg School: Walter Eucken and Ordoliberalism.” Walter Eucken Institut, April 2004. 3  The Chicago Boys were a group of young, liberal economists from Chile educated at the University of Chicago. 4  “Report on the Evaluation of the Role of the IMF in Argentina, 1991–2001.” Independent Evaluation Office of the IMF, July 2004. 5  Rodrik, Dani, et al. “Institutions Rule: The Primacy of Institutions over Integration and Geography in Economic Development.” IMF Working Paper Series, November 2002. 2  BIS central bankers’ speeches  2. The principles of effective economic policy  The aim of this brief review is to underscore that all well-functioning market economies are based on a consistent accord of rules, instruments and institutions. And what I would like to turn to now is the state of that accord in the euro area.

This implied an economic framework built around price stability, competition regulation and budgetary discipline – in Eucken’s words, the perfect “economic constitution”.2 This thinking had a strong influence on the design of the post-war social market economy in Germany, and is seen by some as the foundation for German economic success in that period. Interestingly, as many developing countries transitioned from planned to market economies in the 1980s and 1990s, there was something of a large-scale social experiment of the ordoliberals’ views outside of Germany. Several transition economies followed the macroeconomic policy recommendations of the so-called Washington Consensus, which emphasised the laissez-faire side of liberalism – decentralization, deregulation and privatization – while downplaying the legal and institutional underpinnings of a wellfunctioning market economy. The “poster boy” for this approach was Chile in the 1980s under the influence Augusto Pinochet and German immigrants connected to his regime, together with the so-called “Chicago Boys.”3 While quite striking results were achieved initially, leading Milton Friedman to refer to “the miracle of Chile”, financial speculation and foreign debt quickly built up behind the scenes. Moreover, privatisation allowed formerly public monopolies to become private monopolies – precisely what market-oriented reforms were supposed to avoid. The speculation bubble then burst in 1982, after which economic policy changed track. A similar pattern was observable in other transition economies. Russia, for example, privatised and liberalised extensively following the collapse of the U.S.S.R.