Greek PM calls snap election for Sept 16

ATHENS, Aug 17 (Reuters) Greek Prime Minister Costas Karamanlis today called an early election for September 16, aiming to win a new mandate for economic and social reforms.

Karamanlis said in a speech after meeting the president that he needed voter approval for measures, including constitutional changes, that would further spur the economy.

''We need to continue with change and reforms on the basis of fiscal stability and move ahead with greater speed and a new dynamism,'' he said.

The election date is six months before his conservative government's term ends. Recent opinion polls show Karamanlis's centre-right New Democracy party leading the socialists by only one or two percentage points.

Despite strong growth, Greece still lags behind its euro zone partners on a range of economic and social issues.

The government has won praise from the European Union for turning the economy around, cutting deficits and pushing ahead with privatisation of the state sector.

But it has faced increasing protests at home over economic belt-tightening and a series of political and economic scandals, as well as its slowness in fulfilling a promise to gradually raise public spending on state education to five per cent of GDP.

Greece is under pressure to reduce an annual budget deficit running at 2.4 per cent of GDP, and also a public debt mountain of 104 per cent of GDP -- one of the highest in the 13-nation euro currency zone.

PENSIONS AND BENEFITS One of the biggest hurdles to balancing the books is an expensive state pension system creaking under the burden of an ageing population.

The government says if it is not reformed it could collapse within 15 years, and Karamanlis has pledged to start overhauling it in a second term. This will entail raising the retirement age and merging a number of pension funds.

The conservatives also want to reduce the state's involvement in running the economy to improve competitiveness. They have pledged to reduce inflation, and to rein in expenditure with a view to balancing the budget by 2010.

Ports and airports could be the next privatisation targets.

Karamanlis also wants to secure a constitutional change to allow the creation of private, fee-paying universities, a move vehemently rejected by students and teachers' unions.

Karamanlis, whose election in 2004 ended 11 years of socialist rule, said next year's budget needed to be drafted by a government that had won the renewed trust of voters.

''Drafting the new budget, a budget of development, a budget of responsibility and social solidarity, is a national matter,'' he said.

George Papandreou, leader of the Socialist PASOK opposition party, which favours a model that couples pro-business policies with a solid welfare state, sounded confident.

''I am certain of victory,'' he told reporters. ''At last, the end. On September 17 the new PASOK government starts work.'' ''We will start by repairing the inequality gaps that have been opened by the Karamanlis government,'' he said.

Economic analysts welcomed the fact that the announcement had removed an element of uncertainty hanging over financial markets -- but agreed with Karamanlis that a new government will need a strong parliamentary majority to continue with reforms.

However, changes in electoral law mean it is likely the new parliament will include five parties instead of the traditional four, chipping away at the winner's majority.

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