THESSALONIKI, Greece (Reuters) - With his craggy face, diamond earring and tattooed wrist, Thessaloniki mayor Yannis Boutaris looks an unlikely candidate to turn around the finances of Greece's second biggest city.
But the 70-year old, who stands apart from the political mainstream, is pulling off reforms that have so far evaded the national government in a three-year-old debt crisis that has sucked in some 150 billion euros of international aid.
In contrast to the rest of Greece, this sea-front city of one million is shrinking debt, cutting business taxes to help firms and paying city employees and contractors on time.
It is saving money by holding competitive tenders for the paper, plastic bags and milk it buys - a departure from past practice of relying on a few, chosen providers.
"There was unacceptable inertia, even incompetence. I just couldn't believe it," Boutaris said in an interview. "I said 'folks, from now on we change the way things are done and whoever doesn't like it can walk out of the door'."
City officials now pay for snacks and coffee. Thessaloniki residents bring their own envelopes and rubber bands when submitting applications and requests.
Changing mentalities in Greece is about as hard as getting off booze, said Boutaris, a recovering alcoholic who has not touched a drop in 20 years.
Direct to the point of admitting in a TV interview shortly after his election in November 2010 that he had used drugs, Boutaris advocates that state workers' jobs-for-life status should be scrapped, anathema to almost all Greek politicians.
In a country that reeks of corruption but where no politician has yet been convicted, Greece's first big corruption trial started in the city in September. Boutaris's predecessor and 17 other former officials are charged with embezzling 51 million euros from city coffers, about as much as Thessaloniki is spending on public construction each year.
Many citizens appreciate the style of their mayor, who won office two years ago by a mere 300 votes, the second time he had run for the post.
"The city functions better now, I wish all of Greece would work like that," said pensioner Zaharias Vavelidis.
Thessaloniki will run a budget surplus this year and is boosting construction projects such as a new promenade, said 49-year old Hasdai Kapon, a former broker whom Boutaris appointed to run the city's finances.
"We let the market work and manage to do more with less," Kapon said at his office, where a shelf is laden with finance and management books.
Such efforts earned Boutaris the title "Mayor of the month" from the City Mayors' Foundation, a London-based international think tank for urban affairs, which said the rest of Greece should follow his example.
Boutaris visited German cities to tap their know-how. He says he understands Germans' frustration with Greek failure to reform.
"They have become convinced that by spending money on Greece they throw their money out of the window. I myself am convinced that without big reforms, no matter how much money is thrown at Greece, it will be wasted."
The ancient city was hit harder than any other by the economic crisis. The local unemployment rate has more than tripled to 29 percent since 2008, when the country plunged into recession. Joblessness is five percentage points above the national average.
Hundreds of jobs were lost as one industry after another, including companies such as Coca Cola and Siemens, moved to cheaper, former Communist countries nearby.
The crisis has even taken a toll on the city's renowned night life. Seaside cafes and clubs, usually teeming with students, are half-empty. Shopping streets are dotted with barricaded shops that went out of business.
To mitigate the crisis, Boutaris has revived tourism, drawing visitors from new markets but also the ire of Greek nationalists. In 2011 foreign arrivals rose by 37 percent.
"I travel to Sofia, Belgrade, Tirana, Skopje and say 'come to Thessaloniki and have a good time'," said Boutaris, who breathed new life into his family's abandoned mountain village of Nymfaion in the 1990s by setting up a hotel, restaurants and a wildlife reserve there.
To lure tourists to Thessaloniki he staged the 12th edition of Womex, a big world music festival, and a gay pride parade, infuriating the city's conservative clergy.
Arrivals from Turkey and Israel soared in the past two years after he helped lure Turkish Airlines and travelled to Israel to evoke the city's flourishing Jewish, pre-Holocaust past.
Thessaloniki was known as "Second Jerusalem" before most of the Jewish population perished in German concentration camps. Boutaris said his first girlfriend was Jewish. Kapon is proud to be the city's first Jewish municipal counsellor since 1937.
But Boutaris' moves to highlight the city's Turkish Ottoman and Jewish past as well as his outspoken stance against Greece's ultra-right Golden Dawn party, have enraged some.
"This is a proud city. It's unacceptable for him to say that Greeks had a good time under Ottoman rule," said shopkeeper Ilias Drakopoulos, objecting to some of Boutaris's proposals to give streets their old Turkish names back and raise a statue of modern Turkey's founder Kemal Ataturk, who was born in the city.
Boutaris's failure to deal with the city's garbage is providing fodder to his rivals.
"The city is drowning in it," said his conservative opponent Costas Gioulekas, 51. "Street lights are not being fixed, it's the darkest city in Europe."
Away from the main streets, garbage bins are overflowing. Stray dogs are seen chewing bones on a mouldy abandoned mattress outside the Rotunda, a late Roman monument on the UNESCO World Heritage list. Parking is a nightmare, even by Greek cities' appallingly low standards.
"He is fixing the finances and improving transparency but this still doesn't show in how the city looks," said local management consultant Nikos Papadopoulos, who complained about dumped garbage bags under his balcony.
Boutaris admitted he has failed to deliver on a pre-election promise to clean up the streets in six months, saying that it was harder than he thought to move garbage workers from desk jobs out to the streets.
"It's hard to clean up the city without having the people," he said.
He also blamed bureaucratic snags for failing in some of his planned projects, such as bicycle paths and traffic changes to ease congestion, which must first be approved by government authorities.
"Dealing with them is like getting stuck between a rock and a hard place," he said. "But citizens, of course, blame me."
Editing by Philippa Fletcher/Janet McBride