Greek PM says sacrifices vital to avert bankruptcy

Greek Prime Minister George Papandreou yesterday said his country was fighting for survival against bankruptcy and urged civil servants and pensioners to accept sacrifices to save the debt-burdened nation.

In a dramatic speech to his Socialist Pasok party on the eve of a cabinet meeting expected to approve new austerity measures, Mr Papandreou said: "I will fight to save the fatherland from whatever the nightmare possibility of bankruptcy might entail."

Under pressure to meet European Union demands to find up to €4.8 billion in additional savings before he visits Germany on Friday, he played up the risk of default, saying speculators had made borrowing costs prohibitive.

"If anyone thinks that this is a remote nightmare scenario, they don't realise what the situation is," he said. "Each day we discover new holes, new landmines, in the budget deficit."

Mr Papandreou did not spell out specific measures but he said public employees would have to get by on less, and the state could not go on subsidising pensions. That could hurt two of Pasok's key support bases.

"We need to take tough decisions, decisions that can be unfair," he declared.

Government sources said measures under consideration included raising value added tax (VAT), increasing duty on fuel, cutting public sector pay, freezing pensions and higher duty on fuel, tobacco, alcohol and luxury goods.

Greece's borrowing costs fell to their lowest level in weeks on Tuesday amid growing expectations that the government will announce new austerity measures that will in turn help it secure European financial support.

"There is considerably more confidence now that there will be some form of support mechanism to help Greece," said Kornelius Purps, a strategist at UniCredit in Munich.

However, German Foreign Minister Guido Westerwelle said it was inappropriate to talk about financial aid until Athens had done more to clean up its public finances.

"Before there are discussions about aid, we expect Greece to complete its homework on consolidation policy," Mr Westerwelle, who is also vice-chancellor, told reporters.

His liberal Free Democratic Party has been a leading voice opposing a bailout of the highly indebted eurozone country, but his comments did not preclude eventual financial support.

European government sources have said Germany and France are working on contingency plans involving state-owned financial institutions guaranteeing the purchase of Greek bonds by banks or buying them directly.

Credit rating agency Moody's said in a research note the reported plan could involve the purchase of about €30 billion in Greek debt by French and German state-owned banks, and by private investors.

Details might be announced on Friday when Mr Papandreou meets German Chancellor Angela Merkel in Berlin, it added.

That might give Greece a window to issue a syndicated 10-year bond which the market expects by mid-March, when EU finance ministers will review its progress in cutting the budget deficit. It has vowed to cut it by four percentage points to 8.7 per cent of gross domestic product this year.

Without waiting for the ann-ouncement of more austerity, Greece's main public sector union called a 24-hour strike for March 16 in protest against the new measures, expected to deepen cuts in civil servants' pay and benefits.