Greece prepares for more spending cuts

Greece will announce more draconian spending cuts today, after the country's prime minister warned of "catastrophic" consequences unless markets were persuaded to lower lending rates.

The new austerity package - likely to cut more civil servants' pay, freeze pensions and increase consumer taxes - comes after European Union officials told Athens bluntly to make deeper spending cuts.

Ratings agencies have also warned of more damaging downgrades if Greece keeps losing money.

"We are today in a state of war in front of negative scenarios for our country," prime minister George Papandreou said.

Today's measures were expected to be announced after a Cabinet meeting this morning.

Greece has already imposed pay cuts and a recruitment freeze in the civil service as part of an existing austerity plan.

"We would have liked to have had more time for the results of our big structural reforms to become apparent," Mr Papandreou said.

"But ... our creditors, on whom we unfortunately depend, won't give it to us."

Greece says it wants EU help to borrow money at lower rates, but European officials have remained tight-lipped over any potential bailout plan, insisting Athens must first improve its finances.

Mr Papandreou is scheduled to meet German chancellor Angela Merkel in Berlin on Friday and US president Barack Obama in Washington on March 9 in talks also expected to focus on the financial crisis which has shaken confidence in the euro.

Last week, Greece's labour minister said the EU was looking for additional spending cuts worth £1.3bn - but that estimate was made before EU finance commissioner Olli Rehn visited Athens on Monday and tersely told Greek officials to make more cuts.

The Greek national debt has reached £270 billion, while Athens has promised to reduce its budget deficit from 12.7% of gross domestic product in 2009 to 8.7% this year.

The European Central Bank and International Monetary Fund are helping the EU assess Greek finances after Athens revealed a major budget shortfall last year and was accused of misreporting figures.