In extolling the virtues of self-sacrifice for the public good, Metaxas sought to reshape the national character. He established a variety of national organizations such as the National Youth Movement to foster those virtues in Greek citizens. For the working classes, he instituted a coherent program of public works and drainage projects, set wage rates, regulated hours of labor, guaranteed the five-day work week, and passed other measures aimed at making the workplace safer. The bureaucracy and the military were revamped and streamlined.

The price of such a program was deprivation of freedom. The secret police became all powerful; communists and other leftists were subjected to especially brutal repression. Over 30,000 persons were arrested and incarcerated or exiled on political grounds, and torture was routinely used to extract confessions or accusations that others had acted against the state. A new form of the National Schism, now left versus right, was being created as the old one lapsed.

The main dilemma for the Metaxas regime was foreign policy. Metaxas saw his fellow dictators in Germany and Italy as natural allies, and Germany made major advances into Greek markets in the late 1930s. But Greece's national security remained closely tied to Britain, whose fleet remained a dominant force in the eastern Mediterranean. Moreover, as Italian policy developed in the 1930s, Mussolini's plans for a "new Rome" obviously conflicted with Greek ambitions to control the Aegean and the Dodecanese Islands and exert influence in Albania. Italian expansionism in the region placed Metaxas and Mussolini on a collision course. As war approached in Europe, Metaxas found it increasingly hard to walk the fine line between the Allies and the Axis powers.

Mussolini's persistent provocations settled the issue. In October 1940, Italy demanded that Greece allow Italian occupation of strategic locations on Greek soil. Although Metaxas's resounding refusal plunged Greece into war, it also significantly improved Greece's national self-esteem.