External influence on structural reform: Did policy conditionality strengthen reform capacity in Greece?

The experience of Greece under the macro-economic adjustment programmes represents an intriguing case of the impact of external conditionality on the process of implementing domestic structural reform. After discussing the concept of reform capacity, the article looks into the specifics of its interaction with policy conditionality, in order to elaborate to what extent external constraint unleashes or hinders reform potential. In doing so, the article shows that it is necessary to take into account the nature of the reform agenda and the impact of strong external leverage on the capacity of the domestic political system to translate requirements into reforms. It concludes that external pressure through policy conditionality has moved things forward. However, its in-built side-effects hardly allowed to change the pattern of political operation, while they inversely affected political and therefore reform sustainability. The wider implications of this case study point to the need for going beyond assumptions regarding reform incentives to look into the reality of domestic reform dynamics.