Athens - Greece froze pensions and raised a string of taxes to cut spending by €4.8bn on Wednesday in a frantic bid to persuade its EU partners and the markets that it can dodge bankruptcy.
The government, sending a strong signal that European support might be in the air, said it would increase sales tax, tobacco and alcohol taxes and a institute a 30% cut in public sector holiday allowances.
The Socialist government said it hoped to muster an additional €4.8bn from the new measures. That amounts to about 2% of gross domestic product.
Pensions in the public and private sector were also being frozen.
"These decisions are necessary for the survival of the country and the economy," Prime Minister George Papandreou told reporters.
They would be carried out "so that Greece can exit the vortex of speculators and defamation, so that we can breathe and keep on fighting," he added.
The prime minister, who has warned Greece risks bankruptcy if it did not come up with credible measures, said he expected "solidarity" from Europe's big guns as he prepared to go cap in hand to France and Germany.
But he also applied some pressure of his own, reportedly saying that if the EU did not now offer support, he was not ruling out the option of asking the International Monetary Fund for help.
Enough for EU support
However, analysts said that the latest crisis package - the third announced so far - should be enough to open the door to EU support.
There is a growing sentiment in financial markets that a European aid plan of some kind may be in the making, conditional on tough measures to be announced in Greece later on Wednesday.
Papandreou is scheduled to travel to Berlin on Friday and Paris on Sunday for talks with German Chancellor Angela Merkel and French President Nicolas Sarkozy.
"We are awaiting European solidarity, the other side of this agreement," Papandreou told President Carolos Papoulias in statement broadcast on national television.
The European Union has told Greece that it must count on its own efforts to remedy its debt crisis which has put pressure on the eurozone, but Brussels has also said that it will help safeguard the single currency's stability.
"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.
Promised to reduce public deficits
Greek bonds rallied as the markets digested the new austerity measures.
The yield on the 10-year Greek sovereign bond fell to 6.012% at mid-day from 6.149% on Tuesday night. Bond yields and price move in opposite directions.
It is considered crucial for Greece that its credibility on financial markets rise enough for it to borrow at lower rates than has recently been the case. The last time it borrowed from international market, it had to offer a return of about 6.5%.
Greece must soon redeem old debt falling due to avert default, and must also raise huge sums to cover this year's public deficit. It has already promised the EU that it will reduce its public deficit this year by four percentage points from 12.7% last year.
The European Union is believed to have told Greece that measures until now 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.
The country has been at the centre of a fiscal storm since revealing last year that its budget deficit was more than double than originally thought, and over four times the allowed 3% ceiling imposed by the European Union.
It has also been at pains to persuade Brussels and sceptical markets that it can continue to finance a debt mountain of nearly €300bn.
- AFP