"We are all hurt when Greece is held up as an example to be avoided in the entire European Union."

'Painful' cuts

Among the measures announced by Papandreou were a reduction in defence spending in 2011 and 2012, the slashing of bonuses across the public sector, a 10 per cent cut in both social security and government operating expenditure, and salary caps for public utility directors.

He also called for taxes of up to 90 per cent on large bonuses for private banks, the closure of a third of Greece's tourist offices abroad, and the end of cost of living increases for higher-paid public sector workers.

The prime minister acknowledged that the measures would be "painful" but sought to reassure unions and the general public that ordinary workers would be protected.

"The stakes for Greece are clear. This concerns our sovereign rights, our right to have a social state"

George Papandreou,
Greek prime minister

"The stakes for Greece are clear. This concerns our sovereign rights, our right to have a social state," Papandreou said.

Vagelis Agapitos, a Greek investment advisor, said that Papandreou had to balance between pre-election commitments and persuading international markets that it can address the deficit.

"Effectively he needs to increase domestic demand and boost the economy, while at the same time reducing the deficit, but obviously the two cannot go entirely hand-in-hand," he told Al Jazeera from Athens.

Before he spoke on Monday, Greece's newspapers were sceptical about the effect of any cuts.

Left-wing newspaper Eleftherotypia warned: "Adopting decisive measures is easy ... implementing them will be tougher."

Ratings downgraded

Another daily, Ethnos, said any measures announced by Papandreou were unlikely to have an immediate impact on markets.

"Sadly, world markets do not base their stance on political criteria but on technocratic, and sometimes speculative, criteria," it said.

"And what is important to them is their own estimate of when the government's initiative will begin to show results."

Markets worldwide were rocked last week after Fitch Ratings downgraded Greece's long-term debt ratings to BBB-plus from A-minus last week.

This also sparked fears that other troubled eurozone members could suffer the same fate.

The European Central Bank has eased its rating requirements for government bonds in the wake of the global financial crisis but is expected to restore the minimum A-minus level in 2011.

A delegation from Moody's credit rating agency was in Athens on Monday as Papandreou spoke assessing whether to downgrade its rating for the country's economy.