What impact does the European Union (EU) and other international donors have on the development of good governance in South Eastern Europe (SEE)? The comparative analysis shows that the externally-driven good governance reforms improve substantive legality (the alignment of domestic legislation with international best standards), state capacity and efficiency but weaken formal legality (the inner morality of law), many aspects of impartiality and the coherence of state structures and policies. As a result, good governance is undermined. To explain the persistence and reproduction of bad (i.e. fragmented) governance, the author offers a “vicious reform cycle” explanation, in which a fragmented governance structure is reproduced by competing and factionalized actors and by fragmented and politicized reform and policy processes. The implication is that externally-induced reforms, instead of allowing to transition towards good governance, are reproducing Balkanization and “bad governance”, i.e. fragmented, unaccountable, personalized and instable state structures, policies and formal rules. The main argument is supported by a mixed method study. A quantitative indicator-based analysis measures the development of good governance across six dimensions between 2003 and 2015. Qualitative interviews (with judicial and political representatives from SEE, the EU and international organizations), relevant data and secondary sources offer revealing insights on processes of hybridization and fragmentation.