Greek PM sounds alarm, eyes tough new fiscal steps

ATHENS (Reuters) - Prime Minister George Papandreou painted a grim picture of the Greek economy in a speech to parliament on Tuesday, preparing the nation for new austerity measures needed to avert default and a broader euro zone crisis.

Papandreou is expected to announce further deficit cutting steps in the next two days in the hopes of allaying market fears about the country's strained finances and secure concrete support from fellow EU members.

"Today we must make tough, harsh decisions which in many cases are unfair. This is not a choice, it's a necessity," he told members of his ruling socialist PASOK party.

"We will not let the country sink, whatever the temporary cost, whatever the reactions," he said, using some of the most dramatic language since he came to power in October.

Papandreou, who will discuss the economy with his cabinet on Wednesday, is under pressure to identify up to 4.8 billion euros ($6.49 billion) worth of measures, possibly ranging from a VAT hike to public sector salary cuts and new taxes, before going to Germany on Friday to push for concrete help.

"Without brave decisions from us and from (the EU) the whole of Europe and Europe's economy is threatened," he said, repeating that Greece was counting on its peers' support.

Without providing details, Papandreou sent signals about the new measures he is considering by warning civil servants that they must help carry the burden.

"The government is forced to ask for the contribution of all citizens, to ask public servants to get by with less," he said.

Papandreou also accused his conservative predecessors of corruption and cronyism that had brought Greece to the brink of collapse with a deficit at 12.7 percent of gross domestic product (GDP) and debt of about 300 billion euros -- well above the country's economic output of 240 billion.

"If anyone thinks that this is a remote nightmare scenario, they don't realize what the situation is," he said. "Each day we discover new holes, new debts new landmines, in the budget."

He said his government was determined not to leave the country at the mercy of market speculators and stressed that he was determined to fight the root causes of the crisis.

"Now is the time for the entire country to turn the page," he said. "In this hour of historic decisions citizens expect every one of us to assume our responsibilities. We are ready and determined to assume our responsibilities.

(Additional reporting by Renee Maltezou and Harry Papachristou; editing by Noah Barkin)