Greek Prime Minister George Papandreou announced a raft of spending cuts Monday.

It was a move to soothe international financial markets worried about the country's $442 billion US debt.

Greek Prime Minister George Papandreou addresses the country's ballooning public debt and budget deficit on Monday, trying to soothe international markets. (Petros Giannakouris/AP Photo)

The cuts include reduced military spending in 2011 and 2012, slashed public sector bonuses and 10 per cent less for both social security and the government's operating budget and salary caps for the directors of public utilities.

Papandreou also called for taxes of up to 90 per cent on large bonuses for private bankers, the closure of a third of Greece's tourist offices abroad and the elimination of cost-of-living increases for some public sector workers. His government will also introduce a capital gains tax and restore inheritance and property taxes, which the previous government had done away with.

"Greece, with so much potential, is in critical condition," Papandreou said in a speech to business and union leaders in Athens.

He pledged that his new Socialist government, elected in October, would take steps over the next few months that are decades overdue. Greece has been facing political pressure from the European Union to straighten out its finances and obey deficit limits intended to support the shared euro currency.

'Greece faces the risk of sinking under its debt.'— George Papandreou, Greek Prime Minister

"Greece faces the risk of sinking under its debt," Mr. Papandreou said, adding that the country "has lost every trace of credibility" and that financial markets want to see action.

He promised to begin reducing the country's debt by 2012 at the latest.

The Greek deficit is now projected at four times the three per cent limit imposed by the European Union for euro currency countries. The debt is estimated to exceed the total value of the Greek economy by more than 13 per cent in 2009 and is forecast to reach 120.8 per cent of total economic output next year.

Greece is not the only euro-zone country with debt problems. Ireland, Spain and Portugal all are suffering from extra scrutiny in the bond markets.

With files from The Associated Press