ATHENS - Greece's prime minister announced a barrage of spending cuts Monday, promising to control a ballooning government budget deficit and warning that the country risked drowning in debt.
George Papandreou called for unity during a speech to business and union leaders in Athens. He pledged that his new Socialist government, elected in October, would take steps over the next few months that are decades overdue.
"Greece, with so much potential, is in critical condition," he said.
The raft of measures included a reduction in defence spending in 2011 and 2012; slashing bonuses across the public sector; reducing social security and government operating expenditure by 10 per cent each, and salary caps for public utility directors.
He also called for taxes of up to 90 per cent on large bonuses for private bankers; the closure of a third of Greece's tourist offices abroad, and eliminating cost-of-living increases for some public sector workers.
Other measures include the introduction of capital gains tax and the resumption of inheritance and property taxes abolished by the previous government.
Many measures would be painful, the prime minister acknowledged, but he promised that the weaker sections of society would be protected.
Greece has been facing its worst debt crisis in decades amid global recession. It faces political pressure from the European Union to straighten out its finances and obey deficit limits intended to support the shared euro currency.
"Greece faces the risk of sinking under its debt," Papandreou said, adding that the country "has lost every trace of credibility" and that financial markets want to see action.
"Our slogan of 'Either we change or we sink' is more pertinent than ever," he stressed.
Greece is not the only country in the eurozone facing debt problems. Ireland, Spain and Portugal all are suffering from extra scrutiny in bond markets.
The Irish last week unveiled a record euro4 billion (C$6.2 billion) in budget cuts to combat its own runaway deficit. But Athens has come under the most pressure from other EU countries to take drastic measures to bring its public finances into order.
Papandreou pledged that Greece's debt, which has soared to a staggering euro300 billion (C$465 billion), will begin to be reduced by 2012 at the latest.
He promised to bring deficit spending, currently projected at 12.7 per cent of economic output for 2009, to below the EU's euro-zone requirement of three per cent by the end of 2013, when his Socialist party will be completing its first four-year term.
European Union officials have warned that Greece must deal with its problems itself and not expect a bailout.
"We are all hurt when Greece is held up as an example to be avoided in the entire European Union," Papandreou said. "We are all hurt when we hold the negative records in corruption, lack of competitiveness, in the deficit, the national debt."
The prime minister also pledged to crack down on corruption, carry out a major reform of health care finances and bring immigrants - tens of thousands of whom work in the country illegally - into the social security system.
"The stakes for Greece are clear. This concerns our sovereign rights, our right to have a social state," Papandreou said, adding that he did not want to "take half-measures which target the wrong problems and the wrong groups of people."
Papandreou spoke on the day a delegation from Moody's credit rating agency was in Athens to review the economic situation. The deficit is currently projected at four times the three per cent limit imposed by the EU for euro currency countries, and twice the previous official projection, while debt, estimated at 113.4 per cent of GDP in 2009, is forecast to reach 120.8 per cent of total economic output next year.
Moody's put Greece's government credit rating under review for possible downgrade in late October, and a verdict is expected by early next year at the latest. Last week, Fitch Ratings downgraded Greece from A- to BBB+ - the lowest rating of any of the 16 countries using the euro.
Lower ratings mean that the government will likely have to pay higher interest rates to borrow, making it even harder to cut the deficit.