Managing the Crisis in Greece: The Missing Link between External Conditionality and Domestic Political Economy

The handling of the Greek crisis was not successful. Despite the sacrifices that the Greek people had to endure, the country’s structural problems both in the public sector and the economy have not been resolutely resolved. This chapter offers an explanation for this failure. The main idea is to connect the externally imposed policy conditionality, with the particular characteristics of Greece’s domestic political economy, seeking to integrate an analysis of impediments and opportunities for structural reform. While the literature on external institutional constraints emphasizes the possibility for achieving convergence, the institutionalist literature points towards divergence among national political economies, as institutional change and policy performance are conditioned by crucial intervening variables, namely, aspects of the domestic institutional infrastructure. In this context, Greece is a paradigmatic case of long-delayed or stalled reforms despite external pressures that promoted them. While most attention has been paid to the weaknesses of the EMU, this analysis’ emphasis is on the role of crucial domestic factors. The analysis takes place in three steps: (a) the outline of Greece’s institutional profile and growth trajectory based on an analysis of formal and informal domestic institutions; (b) the description and analysis of the design, implementation and impact of the adjustment programs; and (c) in view of (a) and (b) an assessment of whether the adjustment programs implemented in Greece took into consideration the characteristics of the country’s political economy, and how and to what degree the failure to do so accounts for their results.