Greece's government was considering further cuts to defence spending and public sector salaries Tuesday to secure approval for a multi-billion-euro EU/IMF rescue package, government sources said.

The cuts were on the agenda of a cabinet session chaired by Prime Minister Lucas Papademos that began at 4 p.m. (1400 GMT).

The government is rushing to find 325 million euros in budget cuts to satisfy euro zone finance ministers due to decide Wednesday whether to sign off on a 130-million-euro (109 billion pounds) bailout to save the country from a chaotic default.

With Europe deeply sceptical that the Greek leadership will stick to the terms of the deal, political leaders are also under pressure to produce written commitments by the Wednesday meeting.

The as-yet unspecified 325 million euros were written into 3.3 billion euros of cuts in wages, pensions and jobs endorsed by parliament Sunday as rioters torched buildings in Athens and fought running battles with police.

But the European Union and International Monetary Fund want Greece to account for every cent before they approve the rescue, which includes a bond swap cutting the real value of private-sector investors' bond holdings by some 70 percent.

Two government sources, who declined to be named, said the cabinet was considering trimming 125 million euros from the defence budget, already cut by 300 million in the austerity bill adopted by Sunday.

A further 200 million would come by bringing forward public sector salary cuts.

That is what is being discussed but there is no final decision yet, a government official told Reuters. The sources said ministers were also looking at cutting funding for local municipalities.

Athens needs the funds to avoid a disorderly default when 14.5 billion euros in debt repayments fall due on March 20.

But the punishing austerity measures are fuelling social turmoil in Greece, where unemployment hit a high of 20.9 percent in November and half of young Greeks are jobless.


The country posted yet more dire economic figures on Tuesday, with flash estimates showing GDP shrank 7 percent in the fourth quarter of 2011 after a 5 percent contraction in Q3.

Critics say the drastic belt-tightening is deepening the recession, and anger erupted Sunday in the worst violence for years. With an election expected in April, the politicians who take power might find it impossible to implement yet more scathing cuts.

The frontrunner to become prime minister, conservative New Democracy leader Antonis Samaras, indicated during Sunday's parliamentary debate that he would try to renegotiate the terms of the bailout, further sowing doubt in the minds of European leaders who say they are tired of broken promises.

There were some signs of encouragement.

Austrian Finance Minister Maria Fekter said Tuesday she was confident that - as far as I know the details - Greece will get more help.

The European Central Bank also said it could use profits from Greek bonds to help restructure the country's debt.

They could use it to contribute to the sustainability of Greek debt, ECB Executive Board member Benoit Coeure said in an interview with French daily Liberation.

Greece managed a successful T-bill auction Tuesday, selling 1.3 billion euros of 3-month paper with the yield easing by 3 basis points to 4.61 percent compared with the previous auction in January.

But even as all sides pushed to seal the deal, there was a growing sense that even the latest bailout, Greece's second since 2010, might only delay the inevitable - bankruptcy and exit from the single currency.

It might be something which would allow Greece also to get a new start ... to create an economy that can create jobs, Luxembourg Finance Minister Luc Frieden said Monday in Washington.

Frieden said it was not the preferred scenario, but the impact on the euro zone would be less important than a year ago.

Asked if the euro zone could survive Greek bankruptcy, German Finance Minister Wolfgang Schaeuble told ZDF public broadcaster on Monday: We are better prepared than we were two years ago.

Other European countries have become increasingly concerned about the impact on their economies from the debt crisis.

U.S. rating agency Moody's downgraded the ratings of six European countries late Monday and put Britain, France and Austria on negative outlook, citing growing risks from Europe's debt crisis and worries about its ability to make needed reforms.

Uncertainty about the resources that will be devoted to tackling the crisis, and Europe's increasingly weak macroeconomic prospects were other factors behind its action, it said.

(Additional reporting by Karolina Tagaris, Ingrid Melander and Tatiana Fragou in Athens; Writing by Matt Robinson)