Greece approves F-16 fighter jet upgrade deal with the United States

ATHENS (Reuters) - Greece on Saturday approved a deal with the United States to upgrade dozens of its F-16 fighter jets at a cost of roughly 1.2 billion euros, a measure the bailed-out country said would not harm its future fiscal progress.

The potential deal to overhaul the aircraft came to light during a visit by Greek Prime Minister Alexis Tsipras to the White House in October.

Greece's top decision-making body on foreign affairs and defence matters, KYSEA, which Tsipras heads, unanimously sealed the agreement for the upgrade on Saturday, the premier's press office said in a statement.

Three of the 85 jets earmarked for modernisation will be upgraded in the United States while the rest will be refurbished in Greece, a Greek defence ministry source said, adding that the cost would be about 1.2 billion euros ($1.45 billion).

The government said last year the overhaul would be paid in annual instalments of about 110 million euros over a decade.

Athens said on Saturday that Washington had accepted a revised Greek proposal that takes into consideration the country's fiscal obligations in the coming years. It did not give details on the revised proposal.

Greece, which will exit its third international bailout in August but will still have to attain primary budget surpluses in the medium term, has said the deal should not worry its EU lenders.

Defence spending has been reduced during Greece's seven-year debt crisis, which shrank the size of its economy by more than a quarter and drove its jobless rate to nearly 28 percent.

However, the country still spends about 2 percent of its gross domestic product -- roughly 3.5 billion euros -- on defence, more than the EU's average. That is largely due to long-standing tensions with its neighbour and fellow NATO member Turkey, which have risen in recent months.

(Reporting by Angeliki Koutantou; Editing by Helen Popper)