* Greek PM says worst fears confirmed on economy
* Vows drastic measures to exit crisis
* Says German WW2 reparations not settled, goes to Berlin
(Adds more quotes, background)
By Dina Kyriakidou
ATHENS, Feb 26 (Reuters) - Prime Minister George Papandreou on Friday vowed to ignore the political costs and take drastic measures to pull Greece out of a debt crisis threatening the stability of the euro zone.
Speaking to parliament after a visit by EU economic inspectors, Papandreou said Greece did not want other countries to pay for its debts but expected solidarity from its European peers as it struggled with worse than expected fiscal problems.
“Unfortunately, history has fully confirmed our worst fears,” he said. “Our duty today is to forget about political costs and only think about the survival of our country ... Past policies make it necessary to proceed to brutal changes.”
He appeared to be preparing the ground for a fresh set of fiscal measures expected ahead of a mid-March EU deadline to show results in cutting a double-digit deficit. Economic Affairs Commissioner Olli Rehn visits Athens next week. [nLDE61O1ED]
“There is only one dilemma: Will we let the country go bankrupt or will we react? Will we let the speculators strangle us, or will we take our fate in our own hands?” Papandreou said.
“We must do whatever we can now to address the immediate dangers today. Tomorrow it will be too late, and the consequences will be much more dire.”
Greece is also anxious to regain investor confidence by slashing its deficit and restoring the credibility of its statistics as it prepares to sell new bonds in the market with about 20 billion euros due to be repaid in April and May.
EU peers and markets were shocked when Papandreou’s socialists revealed after last October’s election that the previous government had understated its budget deficit by half.
Rating agencies downgraded Greece. Since they started raising concerns in early December, the euro has fallen almost 10 percent against the dollar EUR= and Greek stocks are down over 20 percent. <0#.INDEX.AT>
Meanwhile the cost of insuring Greek debt against default fault has more than doubled since early December to nearly 400 basis points.
The yield premium for holding 10-year Greek government debt GR10YT=RR over German government bonds has also soared, but narrowed around 14 basis points to 341 after Papandreou’s speech. [GVD/EUR]
“We became the weak victim, the guinea pig, we stood unprotected before the markets’ wild appetite,” Papandreou said.
Fellow eurozone members have endorsed Papandreou’s pledge to cut a deficit that hit 12.7 percent of GDP in 2009 by 4 percentage points this year.
He aims to get the deficit under the eurozone limit of 3 percent of GDP by 2012 with tough public spending cuts, tax increases and pension reforms.
Greek government officials say the EU inspectors, visiting Athens with IMF experts, have delivered a grim assessment of the economy. They say further measures worth up to 4.8 billion euros, will be needed to achieve deficit cutting targets. [ID:nLDE61O20P]
Despite crippling strikes, opinion polls indicate most Greeks support the government’s efforts and are ready to suffer the pain if it is distributed evenly and those responsible for the crisis are punished.
“I want to assure the Greek people that its efforts will pay off,” Papandreou said. “We must put an end to irresponsibility and cover-ups ... If someone has done something wrong, he should be charged, no matter who he is.”
EU leaders, grappling with crises at home, have given Greece political support but stopped short of outlining a specific aid roadmap. Polls in countries like Germany showed taxpayers oppose bailing out Greece, fanning tensions between Athens and Berlin.
Papandreou said Greece was dealing with its own problems and was expecting not aid but solidarity from its EU partners.
“No other country will pay for our debts,” he said. “It is a matter of honour and pride for our country to put our own house in order.”
Opposition politicians asked Papandreou whether he would renew demands for Germany to pay World War Two reparations, stemming from the occupation of Greece. Germany says it has fulfilled its obligations.
Papandreou, who will visit Berlin on March 5 at the invitation of Chancellor Angela Merkel, said the issue of reparations was not settled but he would not bring it up now.
“We have never given up on our claims,” he said. “But this is not an issue that we will use for our convenience now, when we are in a weak position and called to put our house in order.”