Greece wields axe with £4.4bn cuts in 'economic war'

Greece today announced a further 4.8 billion (£4.4 billion) of spending cuts, including axing civil service bonuses and raising sales tax to 21% to ease its financial crisis.

Prime Minister George Papandreou, who has said the country is in a "state of war", hopes the latest cuts will provide a breathing space for his government to raise up to 5 billion on the international bond markets.

The European Commission is expected to approve the latest cost-cutting but Papandreou will inevitably face more industrial action from the likes of taxi drivers, who were on the second day of a two-day strike today.

Papandreou has said all Greeks will have to accept painful sacrifices and warned of "catastrophic" consequences unless the country can borrow on international markets at lower lending rates.

Unions were angry at the extra cuts, warning that chipping away at salaries would be a "declaration of war".

"It is a very difficult day for us ... These cuts will take us to the brink," said Panayiotis Vavouyios, the head of the retired civil servants' association. "Brussels is demanding cuts and the government is doing nothing to stop them. To make poor pensioners pay for this crisis is a disgrace."

"People are under a very heavy burden and they do not have enough to get by. I wonder after these measures are implemented, what will be left? At some point, you have to say that this is enough," said Ilias Iliopoulos, general secretary of the civil servants' union.

Greece says it wants EU help to borrow money at lower rates, but European officials are not commenting on a potential bailout, insisting Athens must first improve its finances.

The Greek national debt has reached 300 billion (£259 billion), while Athens has promised to reduce its budget deficit from 12.7% of gross domestic product in 2009 to 8.7% this year.