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Greek PM says country risks sinking in debt

Greece’s prime minister has warned the country must seize control of a ballooning government budget deficit, saying it risks drowning in debt if it fails.

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George Papandreou on Monday 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 during 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 expenditures by 10 per cent each, and imposing 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 public sector workers with monthly salaries of more than 2,000 euros ($A3,000).

Other measures include the introduction of a 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 the 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 said. Papandreou pledged that Greece’s debt, which has soared to a staggering 300 billion euros ($A479.5 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”.

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 government last week unveiled a record four billion euros ($A6.39 billion) in budget cuts to combat its own runaway deficit.