Greek parliament approves tight 2008 budget

By George Georgiopoulos

ATHENS, Dec 20 (Reuters) - Greece's parliament on Thursday approved the conservative government's tight, EU-pleasing 2008 budget that aims to cut the deficit and set the stage for balanced books by 2010.

Greece, removed from the European Union's list of budgetary offenders earlier this year after shoring up its public finances, targets a fiscal deficit of 1.6 percent of GDP in 2008 from 2.7 percent this year.

After under-reporting its budget deficit to Brussels for years, including in 2001 when it joined the euro zone, Greece has tightened spending and boosted tax revenues to bring the gap under the EU's 3 percent of GDP ceiling and avoid sanctions.

"The budget is the first one after the country's exit from the excessive deficit procedure and supports our big reforms," Prime Minister Costas Karamanlis told parliament.

"The budget targets a fiscal deficit of 1.6 percent and high growth."

After days of heated debate, parliament voted by 152 to 148 to pass the budget, which sees the economy growing by 4.0 percent, a touch slower than this year's 4.1 percent pace. It projects inflation will rise to 2.8 from a 2.7 percent target this year.

Greece's 220 billion euro economy has been growing briskly this year, at a 4.1 percent annual pace in the first three quarters, outperforming most of its euro zone partners.

In their first term, after 11 years of socialist rule, the conservatives shrugged off labour protests against a tight wages policy and state asset sell-offs, confident in their wide parliamentary majority.

This time around, with only 152 deputies in the 300-seat house after elections in September, speeding up economic reforms will be a challenge -- especially pension reforms to make the country's ailing social security system viable.

So far, the government's proposed measures have met stiff union opposition with repeated strikes paralysing the state apparatus.

More divestments in state holdings are also part of the plan next year to raise 1.6 billion euros in privatisation proceeds. They include the government's stake in telecoms group OTE (OTEr.AT), Attica Bank (BOAr.AT), Post Savings Bank (GPSr.AT), Olympic Airlines [OLY.UL] as well as Greece's main international airport.

Revenues will be needed to make good on preelection pledges to cut personal income taxes, raise the basic pension and help the poor.

Unions and the political opposition parties slammed the budget for lowering social spending, hurting the poor and favouring the rich. (Additional reporting by Lefteris Papadimas; Editing by Gary Hill)