ATHENS, Sep 17 (Reuters) Greece's conservatives today faced the tough task of tackling reforms needed to catch up with euro zone countries after winning a second mandate with only a narrow majority in yesterday's election.
Prime Minister Costas Karamanlis, praised by Brussels for his economic record, vowed to push on with reforms but analysts say deadly forest fires and scandals have clipped his wings in parliament and may complicate economic efforts.
The conservatives saw their majority slashed from 165 seats in 2004 to 152 seats in the 300-seat parliament.
Ahead is the need to overhaul an ailing pension system, expected to go bust in 15 years due to an ageing population.
The conservatives have also said they will move forward a series of privatisations aimed at boosting competitiveness, and improve living standards.
''It's not a very comfortable majority, which makes it a little difficult but they can start to tackle the pension system,'' said Theodor Schoenebeck, an economist at Deutsche Bank.
Cheered by thousands of jubilant supporters out on the streets of Athens well into the early hours of today, waving flags, blaring horns and setting off firecrackers, Karamanlis said he was determined to continue reforms.
''You have given us a mandate for a new, more decisive start, to continue faster and with more determination,'' he said.
Karamanlis called the snap poll in August, sure his economic record -- 4.4 per cent economic growth and cut in unemployment -- would secure victory.
But last month's forest fires that killed 65 people on the back of scandals -- such as the sale of overpriced state bonds to pension funds -- turned a large number of voters away.
With almost 99 per cent of votes counted, Karamanlis was winning 41.8 per cent of the votes and only 152 seats compared to 165 in 2004, when his landslide election victory ended 11 years of socialist rule.
He also saw his embattled education minister Marietta Giannakou, who had led planned reforms that sparked months-long demonstrations, failing to retain her seat in parliament.
Opposition socialist PASOK party leader George Papandreou also lost pace to smaller groups, failing to capitalise on the government's problems. He now faces internal dissent after his party's worst showing since 1977.
Senior member Evangelos Venizelos did not rule out challenging Papandreou for the top post. ''I declare that I am present,'' Venizelos said after the first results were in.
PASOK was in second place with just over 38 per cent of the vote and 102 seats in parliament, compared with 117 seats in 2004.
The far-right LA O S party won 3.8 per cent of the vote, gaining 10 seats, the first far-right party to make it to parliament since a 7-year dictatorship in Greece ended in 1974.
''In everything good Karamanlis does for citizens and Greece, we will stand by him, for everything dubious, we will stand against him,'' LA O S leader George Karatzaferis told supporters.
Karamanlis has cut budget deficits and created 200,000 jobs but unemployment remains above the EU average despite the healthy GDP growth rate. Greek per capita GDP is the second lowest in the euro zone after Portugal's.
He appeared to get the message that economic reforms had not yet trickled down to the poor.
''In the new 4-year term, we will continue with steady steps for a stronger economy and to fight poverty,'' he said. ''To create more opportunities for young people, to strengthen and expand the social state.'' REUTERS SYU SSC1246