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

AuthorCalliope Spanou
DOI10.1177/0952076718772008
Publication Date01 April 2020
Date01 April 2020
SubjectSpecial Issue Articles
Special Issue: Public Sector Reforms in a Changed EU Governance under Conditions of Fiscal Consolidation
External influence on
structural reform: Did
policy conditionality
strengthen reform
capacity in Greece?
Calliope Spanou
Department of Political Science and Public Administration,
National and Kapodistrian University of Athens, Greece
Abstract
The experience of Greece under the macro-economic adjustment programmes repre-
sents an intriguing case of the impact of external conditionality on the process of
implementing domestic structural reform. After discussing the concept of reform cap-
acity, 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 oper-
ation, 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.
Keywords
Greece, policy conditionality, reform capacity, structural reform
Introduction
In the wake of the sovereign debt crisis, Greece is undergoing an economic adjust-
ment process in return for considerable financial assistance. The twin government
and current account deficits and the high public debt that led to its exclusion from
Public Policy and Administration
2020, Vol. 35(2) 135–157
!The Author(s) 2018
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DOI: 10.1177/0952076718772008
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Corresponding author:
Calliope Spanou, Department of Political Science and Public Administration, National and Kapodistrian
University of Athens, 6 Themistokleous Street, 10678 Athens, Greece.
Email: kspanou@pspa.uoa.gr
the financial markets were attributed to low competitiveness and an inefficient
public sector. Despite many achievements during the pre-crisis decades, the
Greek state appeared as a slow or even reluctant reformer. Indeed its reform
track record was uneven, with outdated structures and heavy state presence in
certain economic sectors resisting deregulation and liberalization. While the
public sector expanded, the modernization of the administration was slow and
uneven, with lasting inefficiencies and red tape (Spanou, 2012).
The sovereign debt crisis appeared as a critical juncture that would liberate
reform potential. Next to the primary objective of macro-economic stabilization,
a broad range of structural reforms was included in the adjustment programmes in
the form of loan conditionalities. These refer to microeconomic and institutional
changes meant to transform the ‘underlying structural distortions’ in the economy
and restore competitiveness. They required a complete overhaul of the domestic
policy system, backed by forceful constraints linked to the risk of sovereign default.
The reform process deployed under external pressure. The European Union
[EU] and the International Monetary Fund [IMF] were involved in the design
and the monitoring of the programmes. Their influence transited mainly through
the in-built policy conditionalities, targeting policy content but also the terms of
the policy process. Among other, the objective was to strengthen domestic reform
capacity.
How does policy conditionality affect reform capacity? Building on the defin-
ition of reform capacity by Peters (1996) and Painter and Pierre (2005), the paper
analyses the process of structural reform in Greece in a context of policy condi-
tionality. The contribution draws on a series of one to one interviews with repre-
sentatives from ministries, creditor institutions and advisory authorities.
1
Drawing
on an 8 years-long experience, it tries to answer the question to what extent policy
conditionality can impel a slow or reluctant reformer to effectively undertake dras-
tic policy changes. In doing so it offers interesting insights in the interaction
between reform capacity and policy conditionality. This specific angle goes
beyond the case study, to enrich the corresponding wider debate on the ‘accelerated
reforms’ in ‘emergency Europe’ (White, 2015).
What follows is organized in two parts. After briefly discussing the concepts of
policy conditionality and reform capacity, the features of the reform agenda and
the type of changes required are presented. Then, an overview of the way the
political system responded in implementing required reforms is approached. This
leads to an assessment of the overall impact of the EU and the IMF on the struc-
tural reform process. It also helps to highlight the conditions under which external
pressure may have a beneficial character.
Policy conditionality as instigator of reform
Policy conditionality generally describes a relation between two parties. In the
context of IMF (and World Bank) programmes, it is defined as the practice of
requiring specific domestic policy changes as a condition for financial support
136 Public Policy and Administration 35(2)

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