##economic 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. 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 vanberg, viktor j. “ the freiburg school : walter eucken and ordoliberalism. ” walter eucken institut, april 2004. the chicago boys were a group of young, liberal economists from chile educated at the university of chicago. “ report on the evaluation of the role of the imf in argentina, 1991 – 2001. ” independent evaluation office of the imf, july 2004. rodrik, dani, et al. “ institutions rule : the primacy of institutions over integration and geography in economic development. ” imf working paper series, november 2002. 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

to further trade and financial integration, to intra - industrial specialisation or to fiscal consolidation - is of paramount importance, especially to policy - makers. 2. economic and monetary integration the second session tomorrow morning is devoted to international linkages and the macroeconomic performance of the new member states, by looking at the interrelation between the processes of integration into the eu - 25 and into the global economy. this may seem as a rather specific angle from which to analyse the enlargement process. but it is one that i find particularly important, not least since it counteracts the assertion on the part of some international observers that the eu is “ obsessed with its own internal dynamics ”. over the past two decades, the world economy has become increasingly integrated. the new eu member countries are particularly striking examples of this process. those of them which were part of the former soviet economic sphere used to form a largely isolated trade bloc, with few interactions with the world economy. today, these countries export and import more than two - thirds of their goods and services to and from the rest of the world. they also attract significant amounts of foreign investment. openness and international integration can lead to a dramatic improvement in economic performance through the introduction of new technologies and access to larger markets. the paper by douglas laxton and his co - authors provides interesting insights and helps to estimate some of the dynamics that are at work. at the same time, international integration places significant demands on a country ’ s economic, political and social institutions. in this context, three principal subjects would deserve, in my view, particular attention : trade, capital flows and labour mobility. i would expect that the conceptual approaches in understanding the phenomena that we are observing, as well as the concrete policy challenges related to these subjects will take centre - stage in the discussions tomorrow. 3. macroeconomic adjustment, convergence and the role of policy the third session tomorrow morning as well as the policy panel in the afternoon will address the questions which are probably closest to home for central bankers : what is the role of national policies, both at the micro and macro levels, in the process of economic adjustment? what are the key policy challenges for the new member states on the road to euro adoption? and, looking ahead, what is required to ensure a successful participation in monetary union of any future new entrants into the euro area? the paper by jurgen von hagen provides a comprehensive treatment of the issues at stake and will serve as a good basis for discussion.