Greece outlines plan to cut massive deficit

NEW YORK (CNNMoney.com) -- Facing firm demands from the European Union and financial markets to cut its deficit, Greece announced cost-cutting measures Wednesday that will save the debt-challenged country €4.8 billion, $6.53 billion, this year.

The Greek government plans to cut civil service workers' entitlements by 12%. This includes a 30% decrease in holiday bonus payments, according to The Wall Street Journal's online edition. Officials also said civil service pensions will be frozen for the year.

To increase revenue, the Greek government said it will raise the value-added tax to 21% from 19% on items including clothing and footwear. Sales tax on food and medicine will rise to 10% from 9% and the tax rate on printed products will increase to 5% from 4.5%.

The country will boost the tax on alcohol by 20% and raise the tax on tobacco to 65% from 63%. Taxes on gasoline prices will be hiked by €0.08 per liter.

Officials expect the measures will reduce Greece's budget deficit to 8.7% of the country's gross domestic product this year from a level of 12.7% last year, according to the report. The European Union had given Greece until March 16 to show it is making progress in cutting its deficit from more than four times the allowed level.

Umbrella union for civil servants ADEDY is already speaking out against the measures and has called for a 24-hour general strike on March 16, said the Journal.

In a speech to parliament Tuesday, Greek prime minister George Papandreou said the country risks bankruptcy if it neglects to find lenders to cover its €300 billion, $409 billion, in debt, the Journal said.

Greece is preparing to raise between €3 billion and €5 billion, $4.1 billion and $6.8 billion, in a 10-year bond sale.