Greece announces more cuts, EU welcomes steps

The Socialist government increased sales, tobacco and alcohol taxes and cut public sector holiday allowances by a third to save 4.8 billion euros (6.5 billion dollars), equal to about two percent of gross domestic product (GDP). Facts: Greece\'s budget cuts

Pensions in the public and private sector were also frozen. Related article: Pensioners protest against cuts

"These decisions are necessary for the survival of the country and the economy," Prime Minister George Papandreou said.

Warning of a "race against time" to raise money for maturing debt, Papandreou also turned the heat on Brussels, saying Athens was now "justly awaiting" a positive response.

"Europe has a historic responsibility," Papandreou told President Carolos Papoulias, adding: "We are awaiting European solidarity, the other side of this agreement." Related article: EU underlines Greece \'solidarity\'

Papandreou travels to Berlin and Paris later this week for talks with German Chancellor Angela Merkel and French President Nicolas Sarkozy, with analysts saying it was likely they would offer support after the latest measures.

"The vote (on whether to support Greece) should now be positive and open the door to EU aid if necessary," said Christoph Weil, an analyst for Commerzbank.

"Additional consolidation measures are likely to be welcomed by the market as they reduce the likelihood of Greece defaulting," he added.

Papandreou wants the EU to help Greece meet its borrowing target of over 50 billion euros (68 billion dollars) this year at competitive loan rates.

He reportedly added further pressure by saying that if the EU did not now offer support, he might take the option of asking the International Monetary Fund for help.

Such a move could seriously dent credibility in the eurozone as a whole since it would suggest that it could not manage its own affairs.

The head of the European Commission, Jose Manuel Barroso, said Brussels had always shown "solidarity" to its members.

"We have always shown solidarity to all EU member states and we\'ll show that in the future," he told reporters.

"Greece can count on this solidarity," he added.

Both Barroso and Jean-Claude Juncker, head of the eurozone finance ministers\' group, called Greece\'s programme ambitious. Key dates: Greece\'s debt crisis

"Greece\'s ambitious programme to correct its fiscal imbalances is now credibly on track," Juncker said.

The government\'s announcements were greeted with consternation by unions who have already held protests and a general strike in opposition.

"These measures are unjust and one-sided to an unprecedented degree," the head of the Adedy civil servants union Spyros Papasypyros said.

Adedy has announced plans for a four-hour work stoppage on Monday and a one-day strike on March 16.

The head of Greece\'s largest union GSEE, Yiannis Panagopoulos, also termed the measures "socially unjust." The two unions are reportedly in talks for another general strike later in March.

Greece\'s borrowing costs shot up late last year when it was hit with a triple downgrade by credit agencies after revealing that its official budget deficit figures had been grossly under-reported.

Greek bonds rallied on the measures Wednesday. The yield on the benchmark 10-year Greek bond fell to 6.012 percent at mid-day from 6.149 percent Tuesday night. Bond yields and prices move in opposite directions.

The all-important "spread" -- or differential -- with the benchmark German Bund narrowed to 288 points from 303 points on Tuesday, reflecting improved confidence that Greece will be able to put its finances in order.

The latest package "provides further evidence of the government\'s commitment to do whatever is necessary to gain EU support, and most importantly, to win back market confidence," Citi European Economics said in a note.

The EU had previously told Greece that it must count on its own efforts to remedy its debt crisis before it could expect any help.

Greece has already promised the EU that it would reduce its public deficit this year by four percentage points from 12.7 percent last year.

The European Union is believed to have told Greece that the previously announced measures would have produced only half of the promised four-percentage point reduction. The new cuts on Wednesday amount to the missing 2.0 percentage points.

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