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Greek Cabinet Approves New Austerity Plan

New round of cost-cutting follows blunt EU demands for deeper spending cuts

The Greek Cabinet has approved broad new spending cuts designed to save an extra $6.5 billion and defuse a debt crisis that has shaken the European Union and undermined the euro currency.

The measures include a two percent rise in sales tax, a freeze in pensions and additional salary cuts for civil servants.

Prime Minister George Papandreou said the country risked "catastrophe" if the government failed to impose decisive spending cuts. He said Wednesday that his government is now expecting European Union support for Greek austerity measures.

In Brussels Wednesday, EU Commission President Jose Manuel Barroso and the head of a group of eurozone finance ministers, Jean Claude Juncker, praised the budget cuts, saying they would help stabilize the euro. Mr. Barroso said corrective measures in Greece are now on track.

For his part, Mr. Juncker said eurozone governments are now ready to take coordinated action to back the Athens government.

The European Union had earlier given Greece until mid-March to show it is taking appropriate actions to lower its debt.

The new round of cost-cutting came after EU officials bluntly told Athens to make deeper spending cuts. International credit rating agencies have also warned of more damaging downgrades if Athens fails to rein in its debt.

Mr. Papandreou is set to meet German Chancellor Angela Merkel in Berlin Friday, and French President Nicolas Sarkozy Sunday.

Athens has already raised some taxes, frozen civil service salaries, and raised the retirement age to save on pensions in efforts to cut government spending.

The austerity measures are meeting stiff opposition from unions and leftist party leaders.