Coordination of economic policies focuses on the negotiation of lending programs which tie the disbursement of loans to compliance with restrictive program conditionalities. So far, little attention has been given to the interaction between creditor coalitions and debtor countries in negotiating the conditionalities of the lending program and the modification of these during the course of the program. In our research we seek to find the conditions under which the debtor government, facing international and domestic constraints, enjoys a degree of latitude to weaken the program conditionalities in the country’s interest. Studying the cases of Portugal and Cyprus, we apply Putnam’s “two-level game” approach to analyze the international negotiation of loan conditionalities (Level 1) drawing on domestic factors of the debtor state (Level 2).
