Greece is on the path to fiscal order, but accusations of…

Ten years ago Greece was teetering on the edge of financial oblivion. In a referendum on 5 July 2015, the Greek people voted, overwhelmingly and in defiance of Europe, to reject the terms of a new bailout to stop their country defaulting on an IMF debt repayment of €1.6bn (£ 1.4bn).

Yanis Varoufakis, finance minister for the left-wing Syriza government, quit the next day. Bank closures and capital controls were extended. Analysts put the chance of “Grexit” at 50:50 and German ministers began openly discussing contingency measures if the country left the eurozone. Leaks to the press suggested they thought Greece was no longer “systemically relevant” to the euro.

What chaos “Grexit” could have wrought we will never know. The game of chicken ended a week later, after an all-night summit at which a third bailout was agreed. A decade of hardship, austerity and social upheaval followed.

And now? “It’s interesting that four of the six countries that have a primary surplus in the EU are countries that implemented bailout packages in that decade,” says Kyriakos Pierrakakis, who now holds Varoufrakis’s former post as minister for the national economy and finance. “These are countries that metabolised their collective trauma into sound policies.”

At a time when fiscal challenges plague the US and UK, southern European countries, including Greece, Spain and Italy, are winning plaudits for managing down their debt, having narrowed the gap with Germany’s benchmark borrowing costs to their lowest in a decade.

Pierrakakis is a picture of this Mediterranean calm, reclining in the bar of a Leicester Square hotel sipping on a negroni. His British and American counterparts, Rachel Reeves and Scott Bessent, are both currently dealing with hospital pass policies from their bosses that could spike bond yields and cause fresh debt crises. Pierrakakis, meanwhile, reels off numbers that tell a tale of Greece’s recent fiscal prudence.

“By 2029 we will no longer be the most indebted country in Europe in terms of debt to GDP,” he says. “We are repaying our first bailout package 10 years early in 2031. We have a primary budget surplus of 4.8%, a headline surplus of 1.3% and a growth rate of 2.3% – which is much higher than the EU average right now.”

Even so, being Greece, crisis is never far away. In the week since our meeting, its government has been rocked by a €290m scandal around false subsidy claims by “fake farmers”. So far five ministers have quit and the prime minister, Kyriakos Mitsotakis, has expressed concern about the “state’s inadequacy”.

Responding to The Observer several days after the scandal broke, Pierrakakis said, “The government has recognised this situation demands decisive corrective measures. That is why we are moving towards transferring payments for farm subsidies to the independent authority for public revenues, supervised by the Greek ministry of finance.”

Unresolved, the scandal threatens to overshadow areas where the state has been making some improvement, such as tax collection.

Through digitising the tax authority and connecting point of sale machines with cash registers, the government claims that in 2024 it netted an additional €1.2bn in tax that would have been evaded previously. In 2017, the gap in missed VAT was 30% – six times the European average. It’s now at 10%. Greece’s shadow economy is still a challenge, admits Pierrakakis, but a shrinking one.

More pressing are Greece’s demographic problems. Through a combination of high emigration post-crisis and a decline in fertility rates, the working-age population (15-64) has shrunk by 8.3% since 2015, leading to labour shortages in key sectors and threatening Pierrakakis’ mantra of better economic growth.

Part of the solution to reversing the brain drain of young Greeks choosing to study abroad has been to reform higher education. Before a bill in March, Greece was one of the few countries in the world, with Cuba and North Korea, to ban private universities. A study by Deloitte predicted that these institutions – the first of which will be built this year – could generate €6.8bn in revenue over five years, including €1.2bn in state revenue, and create 45,000 jobs.

In addition, Pierrakakis has been watching the impact of reforms to the non-dom regime in the UK, and is taking further steps to attract wealthy individuals to Greece.

The battle to transform Greece’s finances is far from won, especially with the serious new accusations of clientelism and corruption. National debt as a percentage of GDP was north of 150% in 2024 – the highest in Europe. Scars of austerity linger as the cost of essentials outpaces wage growth for many Greeks. Athens is in the midst of a rental crisis, partly stoked by rich foreigners buying up properties in order to qualify for golden visas and then turning them into short-term rentals on platforms like Airbnb.

Kyriakos Pierrakakis

“The rent issue is probably the biggest challenge we have in front of us,” says Pierrakakis. Hoping to capture more of the informal economy, he’s introduced an innovative policy that subsidises rents on the basis of how much tax an individual declares, but concedes Athens “needs a demand shock as well”.

So what does the future look like? The irony of its close shave with “Grexit” is that Greece has become one of the foremost campaigners for deepening ties within Europe. Its commitment to defence spending – 3.1% of GDP last year – has strengthened the country’s voice among the coalition’s 32 members and within Nato.

“We believe in further integration,” says Pierrakakis. The EU needs to “get its act together” when it comes to implementing the savings and investment union, which he says could unlock €11.6tn of investment.

Pierrakakis says that Greece welcomes cross-border mergers and acquisitions and cites Unicredit, an Italian lender, investing in one of Greece’s main banks. Greece’s efforts on debt management have made the possibility of shared borrowing more palatable to Germany, part of an overall warming of relations with the country that many Greeks viewed as their captor during the crisis.

Pierrakakis says of his predecessor that he “found [Varoufakis’s] books to be interesting and his policies destructive”, and following through with the no vote, per his wishes, would have been the wrong choice: “The economic and social shock for the country would have put us back not only 10 or 15 years. It would have been a national catastrophe.”

Today the outlook is sunnier, he says: “It’s been difficult, socially very difficult for Greeks. But now we’re back.”

Photograph by Sophia Evans for The Observer