TA NEA METRA

* Greek cabinet decides on new austerity steps - source
* Tough measures seen as crucial for winning EU debt support
* S&P says less gloomy on Greece than markets
* ECB's Nowotny says Greece's rating fate "unacceptable"
* Economists still sceptical of Greek consolidation drive

By Lefteris Papadimas and Renee Maltezou
ATHENS, March 3 (Reuters) - Greece's cabinet approved a
sweeping new austerity programme on Wednesday, the third in as
many months, in a drive to rein in a bulging budget deficit and
secure European financial support, a government source said.
"Measures which will yield 4.8 billion euros ($6.5 billion)
have been decided," the source, who took part in the cabinet
meeting, said. "Half will be from spending cuts and another 50
percent from tax increases."
The measures include an increase of value added tax by 2
percentage points to 21 percent and trimming public sector
salary bonuses by 30 percent, the source said.
In a dramatic speech to members of his ruling PASOK party on
Tuesday, Prime Minister George Papandreou compared his country's
fiscal crisis to a war and said he would have to take harsh and
possibly unfair measures.
All of Europe would be threatened if Greece failed to take
brave decisions to cut a 300 billion euro debt mountain, bigger
than the country's annual economic output, he said.
The new measures also included a freeze on public sector
pensions this year.
The euro rose on foreign exchange markets on the news and
Greece's borrowing costs fell further, with the risk premium on
Greek 10-year bonds over benchmark German bunds at 291 basis
points, the lowest since early February.
"The relief was evident in the money markets once Greece
announced its additional austerity measures. This ... increases
their chance of navigating through these troubles," said Peter
Chatwell, rate strategist at Credit Agricole CIB.
About 500 pensioners rallied in central Athens and marched to
the finance ministry in a first protest against the new
measures. Civil servants also planned an anti-austerity
demonstration outside the ministry.
Taxi drivers were on strike in Athens and the communist
trade union was to hold a protest rally in the capital's central
Syntagma square later in the day. However, opinion polls suggest
the government retains majority public support for the austerity
plan.
Papandreou is due to travel to Berlin on Friday to meet
German Chancellor Angela Merkel, who had demanded additional
fiscal steps from Greece before considering any European
financial safety net for the euro zone's weakest economy.
The Greek leader received a small boost earlier from credit
ratings agency Standard & Poor's when the debt watchdog's global
head of sovereign ratings said he was less pessimistic about the
Greek crisis than financial markets were.
"The political standing of this government is still very
high, if recent polls are to be believed," S&P's David Beers
told Reuters in Singapore.
S&P rates Greece BBB+, two notches above the lowest
investment grade, with a negative outlook. If Moody's, the last
ratings agency that still gives Greece an A grade, follows suit,
Greek government bonds would no longer be eligible as collateral
for European Central Bank lending from the end of this year.

"UNACCEPTABLE"
ECB governing council member Ewald Nowotny said on Tuesday
that situation was not acceptable, without saying how it could
be changed.
"The fate of Greece, and if you are going to be more
dramatic, the fate of Europe, depends on the judgment of one
rating agency. That is an unacceptable situation," the Austrian
central banker said at a panel discussion in Vienna.
European government sources have said Germany and France are
working on contingency plans under which state-owned financial
institutions would directly purchase billions of euros in Greek
bonds or offer guarantees to commercial banks that bought them.
"While the scale and form of any package remains unclear, it
seems likely that some formal support will be in place by April
and May, when a large chunk of Greek debt matures," said Ben
May, European economist at Capital Economics.
"Nonetheless, considerably more fiscal tightening will be
required beyond 2010 and the crisis is far from over."
In his speech on Tuesday, Papandreou said Greeks should not
be lulled into thinking a government default was a "remote
nightmare scenario", saying new holes in the budget deficit were
appearing on a daily basis.
Although market pressure on Greece has eased in recent days,
a Reuters poll of economists showed on Tuesday that scepticism
about the government's ability to meet a goal to slash its
defi cit by four percentage points this year still runs deep.
Only 18 of 47 respondents said they believed Athens would
meet that target, with most predicting a "slow burn" scenario
through 2010 in which the government makes only limited progress
in reducing the deficit.
One Greek celebrity offered a symbolic sacrifice for the
government's austerity drive. Singer Nana Mouskouri, 75, was
quoted by German magazine Der Spiegel as saying she would give
up her pension as a former Socialist member of the European
Parliament to the Greek state.
(Writing by Noah Barkin and Paul Taylor; Editing by Ruth
Pitchford)