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Finance Minister George Papaconstantinou talks to the media in Athens on Sunday about strict new austerity measures required for an international financial bailout. ((Dimitri Messinis/Associated Press))

Greece has reached an agreement with the International Monetary Fund and European Union on spending cuts that will open the door to a financial rescue package for the debt-laden country, Prime Minister George Papandreou said Sunday.

The deal, following 10 days of talks in Athens, will cut Greece's budget deficit by  $40 billion Cdn over three years, through a range of austerity measures.

"These sacrifices will give us breathing space and the time we need to make great changes," Papandreou said. "I want to tell Greeks very honestly that we have a big trial ahead of us."

Savings would be achieved through public service and pension pay cuts, higher taxes and streamlining government, Finance Minister George Papaconstantinou told reporters in Athens.

Later in Brussels, for an emergency meeting of the bailout partners, he said there is a "good chance" that his country will approve a joint eurozone and IMF rescue package for Greece by Friday.

Under the plan, the IMF and the other 15 EU countries that use the euro would extend emergency loans.

Greece has been trying to secure more than $50 billion in loans to avoid defaulting on a debt that, according to Papaconstantinou, is expected to reach 140 per cent of GDP in 2013 and start falling from 2014.

"We will follow this road because this is the only road that will save the country. And we're absolutely convinced that in doing so we will have the vast majority of Greek citizens behind us," Papaconstantinou told reporters in Athens.  

Cutbacks in the civil service

Under the terms of the agreement announced in Athens, annual holiday bonuses will be capped at $1,330 per year for civil servants and scrapped for those with gross monthly salaries over $3,995, he said.

Pensioners' bonuses will also be capped at $1,066 and cancelled for those paid more than $3,330. Salary cuts will not extend to the private sector, as had been widely feared.

Greeks receive their annual pay in 14 salaries, receiving extra at Christmas, Easter and for their summer vacations. Taxes would also be increased, including further hikes on fuel, alcohol and tobacco. The top bracket of sales tax rises from 21 per cent to 23 per cent.

With files from The Associated Press