(Agencies)
Updated: 2007-09-17 10:46

Athens - Greece's conservative prime minister won re-election with a diminished majority in parliament after a financial scandal and devastating forest fires that killed more than 65 people last month.

Greek Prime Minister Costas Karamanlis waves to a crowd as he arrives at the Zappeio conference hall early Monday, September 17, 2007.[AP]

The slimmer majority could make it harder for the government to carry out crucial economic and education reforms, including overhauling Greece's fractured and debt-ridden pension system. But the conservatives inflicted a stronger defeat than expected on their rival socialists, who were seen as being in disarray after receiving the lowest number of parliamentary seats in 30 years.

"Thank you for your trust. You have spoken loud and clear and chosen the course the country will take in the next few years," Prime Minister Costas Karamanlis said Sunday as thousands of party supporters thronged the streets of central Athens, honking horns, chanting slogans and waving the blue flags of his New Democracy party.

George Papandreou, the leader of the main opposition socialist party PASOK, conceded defeat.

"The people have chosen and their decision is respected. PASOK fought hard but it did not succeed," Papandreou said. "People sensed that the poor state of public administration, with the scandals and fires, had deeper causes."

The results indicated that New Democracy would win enough seats in the 300-member parliament to form a governing majority after the elections, which were called by Karamanlis six months early.

"I asked you to vote for a stable government. Today that government exists, a determined government which will abide by its commitments," Karamanlis said.

With 94 percent of the votes counted, New Democracy was ahead with 42.16 percent, while PASOK had 38.22 percent. The number of spoiled or blank ballots - often considered a protest vote - stood at 2.6 percent.

Both major parties lost some support - but it was PASOK that fared the worst.

"The electorate's message is that we, too, have responsibility for the state of the nation. I ask that we all listen to this message," said Papandreou, who heads the party founded by his father, former Prime Minister Andreas Papandreou.

PASOK looked set to win just 103 seats in parliament - the lowest number it has held since 1977, when it had 93 seats.

Papandreou immediately faced a challenge to his party leadership from former Culture Minister Evangelos Venizelos.

"While PASOK could and should have won, for the good of the country, it lost. We have unfortunately suffered a clear and great defeat," said Venizelos, who effectively declared his candidacy for Papandreou's position.

Karamanlis, 51, easily won the last election in 2004, becoming the youngest prime minister in modern Greek history. The country's economy has done well under the conservatives, with robust consumer spending and strong property market. Growth was expected to continue at more than 4 percent this year - one of the fastest growth rates in Europe. Unemployment has also plummeted.

When he called the early election in mid-August, Karamanlis had seemed assured of victory despite widespread anger over a financial scandal in which state pension funds bought bonds at inflated prices.

But a week later, massive fires devastated large parts of southern Greece, leaving his government reeling from accusations of mismanagement and incompetence in its response. Karamanlis quickly ordered aid and cash payouts for the fire victims, and pledged to rebuild each burned home.

"Mr. Karamanlis is a Teflon prime minister. He has prevailed despite all the negative events: the bond scandal and the recent fires," said Alexis Papachelas, editor of the conservative daily Kathimerini. "The question is whether Karamanlis will show strong leadership despite his slender majority or worry about party factions."

Sunday's results showed New Democracy was likely to win 153 of the 300 seats in parliament, compared to 165 in the outgoing legislature. Karamanlis had vowed to push through the reforms even with a weak government.

"The size of the majority will not affect how effective our government is," said Health Minister Dimitris Avramopoulos. "Even with 151 deputies in parliament, we will proceed with our reform program."

In the fire-ravaged villages of southern Greece, many of which remain without water or electricity, prefabricated containers were used as temporary voting centers.

In Makistos, about 300 kilometers (200 miles) southwest of Athens, residents were bitter.

"We are expecting nothing from these elections," said a woman, whose home was destroyed by fire. She gave only her first name, Hariklia.