Greek PM keeps finance, foreign mins in new cabinet

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ATHENS, Sep 18 (Reuters) Conservative Greek Prime Minister Costas Karamanlis kept on his finance minister in the cabinet he formed today after a narrow election victory, signalling that reform efforts would stay on track.

Karamanlis has vowed to continue the crucial economic changes Greece needs to catch up with its euro zone partners, despite winning only a slim majority in parliament on Sunday.

Along with Finance Minister George Alogoskoufis, Foreign Minister Dora Bakoyanni was re-appointed to a new cabinet which focused on experience but brought in some new blood.

''The new government will be sworn in tomorrow,'' said government spokesman Theodore Roussopoulos.

Karamanlis, praised by the European Union for turning the economy around, had asked for a strong new mandate to push on with reforms such as shoring up the ailing pension system and planned privatisations.

But deadly forest fires and a series of scandals eroded his party's support, cutting his strength in the 300-seat parliament to just 152 seats from 165 when he swept to power in 2004.

Analysts said this would complicate efforts to overhaul a pension system expected to go bust in 15 years because of the ageing population, sell off utilities, ports and banks, and push through unpopular education reforms.

ECONOMIC RECORD Alogoskoufis, whose economic record is credited with securing the poll victory, has brought budget deficits below the 3 percent EU limit and kept the economy growing, most lately at 4.4 percent, one of the fastest rates in the euro zone.

''Markets expect Alogoskoufis to move faster and more directly on pushing forward reforms,'' said Vassilis Antoniadis, manager at Marfin mutual funds.

Karamanlis called the election six months early, convinced his achievements would secure an easy win. But last month's fires that killed 65 people, on the back of scandals such as the sale of overpriced state bonds to pension funds, soured voters.

Some went to the far-right LA.O.S. party, which won 10 seats, the first far-right party to get into parliament since military rule ended in 1974.

This may complicate the work of Foreign Minister Bakoyanni, who faced little trouble in the previous parliament, as opposition parties were nearly unanimous in wanting better relations with arch-rival Turkey.

With LA.O.S in parliament, the rhetoric is bound to heat up.

''This party will put pressure on the handling of foreign policy issues such as ... Cyprus, Greek-Turkish relations and Greece's stance in the Balkans,'' said political science professor Takis Kafetzis.

Karamanlis retained several other ministers but dropped Education Minister Marietta Giannakou, whose reforms prompted violent street protests. She was replaced by Evripidis Stylianidis, who was a deputy foreign minister.

Public Order Minister Byron Polydoras, criticised for his handling of the forest fires and other police issues, was dropped and his portfolio merged with the Interior Ministry under Prokopis Pavlopoulos.

REUTERS ARB BD1953

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