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Greek Prime Minister: If Greece Can't Borrow At Normal Rates, Fallout Will Be 'Worse Than Catastrophic'

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ATHENS, Greece — Prime Minister George Papandreou called on Greeks to brace for more painful spending cuts to deal with an unprecedented financial crisis, saying their sacrifices were essential to national survival.

In a dramatic speech Tuesday to his Socialist party's deputies in Parliament, Papandreou said time was running out to pull the country out of the crisis. His government is to announce further spending cuts on Wednesday – likely to include more tax hikes and deeper reductions in civil servants' pay.

The cuts are aimed at reducing the deficit, winning firm backing from the European Union and convincing bond investors that Greece is creditworthy so they will keep lending.

"We would have liked to have had more time for the results of our big structural reforms to become apparent. ... But this time simply doesn't exist today," Papandreou said. "Our creditors, on whom we unfortunately depend, won't give it to us."

The speech came a day after the EU's finance chief, Olli Rehn, told Athens it must impose more painful, permanent spending cuts soon if it is to emerge from the crisis, which has undermined the 16-country euro.

"We must take decisions today, not tomorrow. Yes, we must take further measures," Papandreou said.

He stressed that his country faced catastrophic consequences if it could not borrow on more reasonable terms. The crisis has made the cost of Greek borrowing rise as international markets show concern over whether Athens can pay back its debts.

"If our country doesn't manage to borrow on similar terms to those of other European Union countries, the results will be something worse than catastrophic," Papandreou said, adding that "we are borrowing from international markets that simply do not believe us."

Greece saw its credibility plummet after Papandreou's newly elected government in October sharply revised the deficit put out by the previous government to a staggering 12.7 percent of annual economic output – over four times the EU limit and up from an initial estimate of under 4 percent of GDP.

Greeks will fight "to save Greece, its citizens and our children from whatever the nightmare scenario of bankruptcy could be," he said, adding that "we are today in a state of war in front of negative scenarios for our country."

Finance Minister George Papaconstantinou told the AP that Athens expects an 'immediate' reaction from the EU once the measures are announced. An EU endorsement of the new plan could help calm jittery markets, bringing down the cost of borrowing for Greece – currently about twice that of Germany – ahead of a planned bond sale, and give the government breathing space to focus on structural reforms.

Papaconstantinou said Greece expects EU reaction to be "immediate, within the day."

The government will wait to gage market reaction to the measures before going to the markets with new bonds, government spokesman Giorgos Petalotis told the AP earlier in the day.

"We are waiting a bit to finish with the announcement of the measures ... and to judge the reaction of the markets," Petalotis said. He said no decision had been taken as to when the bonds would be issued, how much Greece will be seeking to raise in the sale or whether it will aim to sell five or 10-year bonds.

The decision to wait for market reactions to its latest budget cuts reflects a growing exasperation with financial speculators and their role in the debt crisis.

France's minister for European affairs, Pierre Lellouche, lashed out Tuesday against speculative traders who listen to "every word, every comma" uttered by government officials so they can bet on currencies. He insisted the 16-member euro-zone, to which Greece belongs, "is big enough and powerful enough" to manage its "monetary destiny."

In January, Greece sold euro8 billion ($11 billion) worth of government bonds in its first issue of the year, which was heavily oversubscribed despite concerns over the debt crisis. It had initially aimed to raise euro3-5 billion, and attracted a total of euro25 billion in offers.

Greece plans to borrow some euro54 billion through sovereign debt issues this year, and has so far raised around euro13 billion, including treasury bill sales. Some euro20 billion ($27 billion) worth of government bonds mature in April and May. Papaconstantinou had said Athens would seek to raise half its total borrowing requirements for the year in the second quarter.

Although the prime minister didn't outline any of the measures to be announced, he indicated they would include pay cuts for civil servants – notably in their so-called "14th salary," part of annual pay held back as a holiday bonus.

"The government is forced to ask for a contribution from all citizens, and for civil servants to get by with less," Papandreou said.

Unions, which have already held a series of strikes, have said abolishing the 14th salary would be taken as "an act of war."

Greece's civil servants' umbrella union, ADEDY, announced another 24-hour strike for March 16, adding it might hold further walkouts along with the private sector umbrella union. Taxi drivers were already on strike, walking off the job Tuesday for 48 hours, while tax officials will strike on March 8-9.

Among previous measures announced were public sector pay freezes and bonus cuts, an increase in the average retirement age and higher consumer taxes.

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Associated Press writers Nicholas Paphitis and Derek Gatopoulos in Athens, and Jamey Keaten in Paris contributed to this report.

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