Greece warned on Tuesday its fiscal troubles were part of a wider euro zone problem, with Spain and Portugal next in line, and said a joint euro bond could be one way out of the crisis.
Greece's ballooning deficit and debt have reverberated across the euro group, hitting the euro currency and bond prices and prompting speculation of a bailout plan, which European Union officials have denied.
"Following Greece, there are other countries, like Spain and Portugal," Finance Minister George Papaconstantinou told an economic conference. "This is why the Greek issue, despite its particular Greek characteristics, is also a euro zone issue."
Prime Minister George Papandreou, who won October elections pledging to tax the rich and help the poor, said Greece was the victim of an unprecedented speculative attack, which has pushed how much it costs it to borrow to euro-era record highs.
"The country cannot remain at the mercy of its lenders and markets," Papandreou said at the conference, adding the large spread between Greek government bond and German bunds was "completely unjustified" and strangling the economy.
Greece has been pounded by markets after revealing its 2009 budget was 12.7 percent of GDP, more than four times the EU ceiling of 3 percent and three times initial estimates.
Greece won some respite after EU Economic and Monetary Affairs Commissioner Joaquin Almunia said on Monday that its fiscal cutback plans were ambitious but achievable.
The EU will unveil its recommendations to Greece on its austerity plan on Wednesday. Papaconstantinou said he was confident it would give Greece the green light.
"A less than favourable judgment would intensify the pressure on Greece to announce much more decisive measures to improve its fiscal position, whatever the potential damage to the economy," Capital Economics said in a research note.
Athens has pledged spending cuts and tax hikes to claw its way out of the crisis but the socialist government has been slow to implement concrete measures, fearing a popular backlash.
Thousands of farmers demanding more subsidies and higher prices for produce have been blocking highways and border crossings with Bulgaria for more than two weeks, piling pressure on the government as it struggles to save the country's economy.
The farmers' protest is seen as the first test for the ruling socialists as they brace for strikes later this month.
The spread between Greek and German 10-year bonds widened to 344 basis points on Tuesday, having tightened to 327 basis points earlier from last week's record of 405.
EFG Eurobank, the country's second top lender, said Greece could not afford spreads of 300-350 basis points for long.
SPILLOVER FEARS
It is feared Greece's problems may spill over into other vulnerable euro-zone countries, most notably Spain and Portugal.
"That's Portugal, Ireland's next, and then Spain. And then you'll get a domino effect," Dutch Finance Minister Wouter Bos told Dutch business channel RTL Z.
German Foreign Minister Guido Westerwelle, on a visit to Athens on Tuesday, said Greece's deficit-cutting reforms were "a matter of stability for the EU."
European Central Bank Governing Council member Vitor Constancio said Portugal needed to make significant adjustments to its economy, which was in a "serious and difficult moment". "Portugal has once again a budget deficit which is high and there is an imperative need to reduce it," he said.
Constancio, who also heads the Bank of Portugal, said he was relatively pessimistic about the short-term outlook, adding difficult spending cuts were needed, and most likely a hike in indirect taxes, to cut the deficit from last year's 9.3 percent.
Portugal's government, however, ruled out any tax hikes in the medium term. The spread between Portuguese and German bonds hit its highest level since April at 132 basis points.
News from Spain was also worrying, with the number of unemployed up 124,890 in a single month to top 4 million.
Unemployment, which the government expects to rise to 20 percent this year, is set to complicate government efforts to slash spending and cut the budget deficit to 3 percent of GDP in 2013 from 11.4 percent last year.
Germany, France and the Netherlands have opposed the idea of a joint euro zone bond as a possible solution to the turmoil.
"There are no plans to do such a thing, and no discussions about that either," a German finance ministry spokeswoman said.
