Greece debt places country towards crisis

[newsroom]

The Greek prime minister has warned that the country is at risk of "sinking under its debts".

George Papandreou said the government would over the next three months announce major spending cuts. "We must change or sink," he said.

Greece's deficit has risen to more than 12% of national output this year.

Last week, international ratings agency Fitch downgraded the country's credit rating - meaning that it thought Greece was now a riskier place to invest.

Mr Papandreou added that Greece had "lost every trace of credibility", and the country had to "move immediately to a new social deal".

Indicating that some spending cuts would be painful, he added that "we must all lose our comfort".

Finance Minister George Papaconstantinou earlier defended Greece's position in the eurozone, despite its deficit being far above the European Union limit of 3%.

He said Greece was worthy of its place because it "abides by the rules" and was "not the only eurozone country with a deficit of that order".

Mr Papaconstantinou told the BBC: "Greece is not the next Iceland, nor is it the next Dubai... it is tackling the very serious situation that we have.

"It is doing it with specific measures that cut expenditure and increase government revenue and also it is a government which is immediately tackling long-term structural problems," he added.

Since last week's decision by Fitch, Greece has come under increasing pressure to take action over its deficit from the European Central Bank.

However, Collin Ellis, European economist at Daiwa Securities, says that "the idea that the euro area is on the the brink of losing Greece and possibly other members is simply absurd".

He believes there is still time for the Greek government to sort out its finances, and, should it not be able to, "it is inconceivable that other euro area member states and, if necessary, international organisations would not step in".

The country's public debt stands at 300bn euros ($442bn; £269bn).