Mykonos Building Boom Reveals ‘Wretched’ Side of Greece’s Recovery

Well-heeled vacationers descended from luxury hotels into the gleaming labyrinth of Mykonos’s historic old town on a recent evening, ogling gold jewelry and heading to bars offering pricey bottles of Veuve Clicquot. Tourists sailing the Aegean on 15-deck cruise ships ducked into designer boutiques on day trips of unbridled shopping.

Along the island’s famed turquoise coastline, exclusive beach clubs were busy extending restaurants on the fine sand, girding for an influx of billionaires, celebrities and influencers.

With more than two million visitors a year, Mykonos is one of the world’s hottest vacation destinations — and a source of prosperity in Greece’s economic revival. Since the country’s decade-long financial crisis ended in 2018, Greece has surfed on a recovery fueled by tourism and investment. Investors have come to Mykonos in droves, eager to cash in on a gold mine of development for luxury properties, sprawling hotels and high-wattage nightclubs for the free-spending crowds.

But a darker side surfaced recently amid the glamour, when a state archaeologist who had been documenting building violations on the island was mysteriously attacked. The civil servant, Manolis Psarros, 53, was left unconscious with a broken nose, broken ribs and black eyes in a beating that sent shock waves across Greece.

Nowhere has the reaction been fiercer than on Mykonos, where a tightknit coterie of locals have long whispered about illicit and sometimes assertive activity by deep-pocketed developers, and a lax enforcement system that they say enables anyone with enough money to operate above the law. The Greek government has carried out a swift crackdown.

“The situation in Mykonos has spiraled out of control,” said Despina Koutsoumba, the head of the Association of Greek Archaeologists. “The attack on Mr. Psarros was a mafia-style hit designed for intimidation,” she added. “It is clear that big business interests are at play.”

The police have opened an investigation into the assault, which took place on a March night outside Mr. Psarros’s Athens home, but declined to comment on the case.

Apart from its Instagram glam, Mykonos happens to be one of Greece’s most important locations for antiquities. Neighboring Delos, an ancient sanctuary for the god Apollo and a UNESCO World Heritage site, is often packed with travelers from around the world.

To preserve such treasures, the Culture Ministry’s archaeologists inspect land before new structures are built. Twelve ancient sites were discovered within eight years on Mykonos during excavations for building foundations, halting construction in some cases and forcing relocation in others.

The state archaeologists’ mandates have increasingly bumped up against the surge in developments and the pressure from the investors behind them. Mr. Psarros had reported multiple infractions on Mykonos before he was attacked. He was scheduled to testify about the infractions in a trial in November that was postponed, the latest in a string of adjournments since 2018.

Prime Minister Kyriakos Mitsotakis, who faces a contentious election on Sunday, has moved to restore order. Last week, the government ordered one of Mykonos’s most famous beach clubs to close until further notice for building violations, and this week ordered the partial closure of another one.

He also recently dispatched 100 police officers, as well as financial crime investigators and environmental and building inspectors, to step up controls: More than 75 arrests related to illegal buildings have been made, compared with 36 arrests for all of 2022. The police are also investigating reports of corruption by their own officers for tipping off developers on Mykonos about inspections.

The government has suspended most new building permits on parts of the island pending the completion of a new zoning blueprint. And Greece’s Supreme Court prosecutor ordered further inquiries into illegal construction, describing the situation on Mykonos as “wretched.”

Citizen action groups, which work to address concerns in the community, said the government had turned a blind eye.

“What’s been happening in Mykonos is no secret. State authorities have known for years,” said Markos Pasaliadis, a spokesman for one of the groups, the Movement of Active Citizens. “If the attack on Mr. Psarros hadn’t come to light, everything would continue as it was.”

Residents lament the chicanery, but they are cautious of speaking badly about the island that many remember nostalgically as a cultural destination made popular by Jacqueline Onassis and Princess Grace in an era of quiet elegance.

Many are wary of the investors coming from outside their world, and speak nervously about development that in recent years has been accompanied by an influx of black vans with tinted windows and forbidding guards.

Whether the government’s crackdown will work remains to be seen. Some coastlines are already wrapped in a phalanx of concrete housing. Near Super Paradise Beach, one of the biggest party havens, no fewer than 50 hollow shells blanket the surrounding hillsides, awaiting completion.

Local authorities are trying to halt new hotel megacomplexes, including a multimillion-euro Four Seasons resort that the government in Athens approved.

Houses have sprung up like mushrooms along mountain slopes and in areas that had been classified as “unbuildable,” and some villas are larger than authorized. Some construction sites have lookouts, and workers vanish when the police arrive. Ms. Koutsoumba said some small businesses and hotel owners had reported facing pressure to sell their properties to bigger interests.

Big clubs have also cashed in with extensions of bars, restaurants and walls that block access to public beaches.

Among them is Nammos, a jet-set playground featuring open-air luxury boutiques and a beachside restaurant, owned by Monterock International, a Dubai-based private equity holding company, and Alpha Dhabi Holding. On Friday, the government called for Nammos to be shuttered, and the police closed one of its beach restaurants. A Nammos lawyer called that order illegal and said the company would contest it. A Greek court has also rejected an appeal by Nammos of a separate government order to demolish illicit structures on the site.

There is also Principote, a destination for the affluent that for years has expanded over Panormos Beach, along a picturesque bay, despite multiple citations. The authorities have levied a €22 million fine for illicit building extensions, with the option of lowering it to just €500 if the structures are removed. Principote, which is registered to a holding company in the Marshall Islands, has contested the infractions and resulting fines. The police last week ordered it closed until further notice. The company has appealed that decision.

In 2016, Mykonos’s mayor, Konstantinos Koukas, closed the business after reports of unauthorized building extensions. “But the owners just kept reopening, and there was little we could do,” he said.

Principote’s activity raised red flags at the Greek Archaeological Service, which has identified antiquities beneath hills near the club. Panormos is among the areas being targeted for inspections by archaeologists. In a media briefing after his hospitalization, Mr. Psarros said archaeologists had requested police protection after facing armed guards when trying to inspect building extensions.

A lawyer for Principote did not respond to requests for comment.

Tasos Xidakis, the owner of the neighboring Albatros Club Hotel, has watched the club’s expansion with alarm. In 1989, his father built small bungalows above Panormos, a public beach once accessible to all. Mr. Xidakis and his brother expanded the business into a bucolic hotel complex with a bird’s-eye view of the Aegean Sea — and of Principote.

Mr. Xidakis watched as Principote morphed from a rustic beach taverna in the 1970s into a destination for a party crowd paying thousands of euros for sun beds and sushi. He said his hotel customers had routinely complained about being blocked from the beach.

The local authorities say that they lack enforcement resources, and that once investigators and police squads leave, the illicit building will probably just start all over again. Mykonos’s police force is small, and its planning authority was relocated to Syros, the administrative capital of the Cycladic islands, after the official in charge on Mykonos was suspended in 2017 for corruption.

“We want to protect our island, and we’re asking the state for help,” said Mr. Koukas, a two-term mayor. “Everyone wants to build everything in Mykonos, but understaffing creates conditions in which people can break the law.”

There are plenty of opportunities to do so. Only three government-appointed archaeologists, including Mr. Psarros, are assigned to approve building permits on Mykonos and inspect sites.

“Some people don’t want to wait for approvals that can take nine months to a year,” said Antonis Kyrantonis, the head of the Association of Project Engineers on Mykonos. “They say, ‘I’ll build something illegally, and we’ll see what happens.’”

Christos Veronis, the mayor from 1991 to 2009, said years of treating tourism like a money grab had come back to bite the island. But the government crackdown was sure to help things improve, he said.

The ugly wrangle over real estate does not appear to have tarnished the appeal of Mykonos, which was already buzzing with visitors from the United States, France and China several months before high season.

“It’s an international destination,” said Mr. Koukas, the current mayor. “It’s the star island of Greece.”