ATHENS — A little-noticed semi-miracle has occurred in Greece.

After a devastating decade of depression and three wrenching austerity programs, the ancestral home of European democracy has emerged with its democratic institutions intact, social cohesion improbably resilient, its budget in surplus and extremists of both the far left and far right in retreat.

The new center-right government of Prime Minister Kyriakos Mitsotakis hit the ground running after winning a July election, bringing a younger generation of internationally minded, business-friendly technocrats into office rather than the clientelist, nationalist old guard of his New Democracy party.

Mitsotakis has kickstarted long stalled privatizations and is racing around Europe trying to build confidence so Athens can loosen its fiscal straitjacket and attract desperately needed investment.

The Kentrikon shopping arcade near Athens’ central Syntagma Square is a barometer of Greece’s economic fall and revival. At the peak of the sovereign debt crisis, all but a couple of shops were closed and many were boarded up. The historic Kentrikon café where Socialist patriarch Andreas Papandreou used to eat has shut down, but all but one of the stores are now back in business, ranging from a cigar bar to cafés, a barber’s shop, fast food outlets and a travel agent.

It’s too soon to declare the Greek miracle complete because the economy is growing too slowly to raise most living standards.

The rebirth of the arcade — and of the rest of the Greek economy — was by no means a foregone conclusion. From peak to trough, the economy shrank by 27 percent between 2010 and 2016. Unemployment at its worst rose to over 27 percent, and more than 50 percent among the young.

Pensions were slashed, public health care gutted and spending on education sacrificed. Greece only fully lifted capital controls on September 1, ending four years of limits on withdrawing cash and transferring money abroad.

Grexit denied

It’s hard to recall now, but Greece veered dangerously close to a Grexit (the phantom precursor to the British exit scheduled to occur on October 31). At the height of the crisis in July 2015 after then Prime Minister Alexis Tsipras won a referendum rejecting the bailout terms set by the European Union and the International Monetary Fund, Greece was on the brink of being kicked out of the eurozone at the behest of German Finance Minister Wolfgang Schäuble.

Syriza Finance Minister Yanis Varoufakis had secretly developed plans for a parallel currency, only to be fired when Tsipras decided to perform a kolotumba (somersault) and knuckle down to the bailout program. The European Commission had also worked in secrecy on a Plan B to minimize the damage of a Greek exit to the single currency area.

Much of the credit for Greece’s half-miracle goes to Tsipras and his Syriza party, which morphed in office from a hard-left anti-establishment populist movement into a more mainstream social democratic party and implemented a harsh bailout program that it had vehemently opposed and in which it never believed.

The charismatic leftist firebrand deserves two cheers for his conversion to political realism, for clinching a deal with neighbor North Macedonia to end a 25-year standoff over that country’s name, and for holding Greece together through the economic earthquake.

Social stability

But the Greek people themselves deserve the real applause. The county’s multigeneration family system acted as a remarkable shock absorber in softening the economic crash. Grandchildren went to college thanks to their grandparents’ pensions. A single income fed many mouths. Society pulled together rather than falling apart in adversity.

At the peak of economic distress, the country also coped with an influx of hundreds of thousands of Syrian refugees and other migrants across the Aegean Sea in 2015-16. While most were waved through northward toward Germany, many Greeks took refugees into their homes and their hearts, private and municipal solidarity making up for the deficiencies of a shattered state.

Perhaps the biggest achievement has been the way the Greek political system and social fabric have withstood the economic shock. Not only did the colonels not step in as they had in 1967-74 to rule by brutal military junta, but the country has maintained a stable two-party system.

Half a million mostly young, educated Greeks out of a population of just over 11 million emigrated during the crisis in search of work and opportunity.

The extreme-right Golden Dawn movement that used violent tactics against migrants has shrunk back into insignificance, failing to win seats in this year’s European or national elections. The hard leftists who quit Syriza lost all or most of their public support. Varoufakis scraped into parliament in July but he cuts a larger figure in the U.K. and U.S. media than in Greek politics.

It’s too soon to declare the Greek miracle complete because the economy is growing too slowly to raise most living standards. Poverty and unemployment are still visibly widespread. Some 20 percent of people live in poverty and another 14 percent are on the borderline, according to EU statistics. Half a million mostly young, educated Greeks out of a population of just over 11 million emigrated during the crisis in search of work and opportunity. Few have returned so far.

Road ahead

Banks are still too weighed down with bad loans (43 percent of all lending) to take risks funding new businesses. EU creditors have obliged the government to maintain a primary budget surplus before interest payments equivalent to 3.5 percent of gross domestic product, leaving Athens with no fiscal space to invest and little room to cut taxes.

And the country’s continued exclusion from the European Central Bank’s bond-buying program — because its bonds are not rated as investment grade — denies it a safety net that underpins investor confidence in other booming post-program EU countries such as Ireland and Portugal. Yet Greece’s borrowing costs are now improbably lower than those of the United States.

Tsipras never really “got it” about attracting investment. But Mitsotakis insists that Greece can take its fate in its own hands. His first budget, presented last week, contains a raft of pro-business measures designed to fuel growth by lowering corporate taxation and dividend tax.

He is trying to help consumption with modest tax cuts for the middle class, notably reducing a hated housing tax collected through electricity bills. More than 300,000 households and businesses have signed up for a scheme initiated by Tsipras to repay tax arrears in 120 installments.

While hot money is pouring into the country in search of short-term financial return, the levers to accelerate economic recovery lie mostly beyond Athens’ control — in Brussels, Berlin, Frankfurt and, to a degree, in geopolitics. This feeds a persistent Greek narrative of being the victim of malign outside forces and powers.

“We are politically dependent on decisions over which we’re not master,” says Nick Malkoutzis, editor and founder of MacroPolis, an economic analysis website.

Outside assistance

There’s a good deal of the truth to Malkoutsis’ complaint. For instance, geopolitical tensions between Turkey and the West may be behind a potentially destabilizing recent increase in migrants crossing the Aegean in boats. And Turkish President Tayyip Erdogan has threatened to send millions of Syrian refugees into Europe if the EU brands his military incursion into northern Syria an invasion.

That’s one more reason why European creditor nations should cut Athens some slack now to underpin its economic recovery.

In one encouraging step, the European Commission’s state aid police last week finally approved the government’s “Hercules” asset protection scheme to take bad loans off banks’ books. Now, eurozone governments should hand over the profits that the ECB made from buying Greek bonds early in the crisis, as previously promised, and let Mitsotakis use the money to fund growth-enhancing structural reforms, including targeted tax cuts, rather than insisting he use it to repay debt.

Greece may yet surprise us all with an economic miracle.

Above all, the EU can afford to lower the primary budget surplus requirement by at least 1 percentage point of GDP on condition the money is invested in public infrastructure projects. In return, Greece should speed up its privatization program and improve its capacity to spend dormant EU structural funds earmarked for the country.

In the 2014-2021 budget period, Athens has only managed to tap 25 percent of this money, leaving billions untouched because of its inability to generate shovel-ready projects. The EU should let Greece access this cash a while longer if Mitsotakis can break the bureaucratic logjam.

Put all these measures together and, with a bit of luck from the international environment, Greece may yet surprise us all with an economic miracle.

Paul Taylor, contributing editor at POLITICO, writes the Europe At Large column.