Greek Prime Minister Costas Karamanlis announced plans for immediate spending cuts, including a freeze on public-sector wages and hiring, to defend the country from the effects of the global economic crisis at the 72nd International Trade Fair in Thessaloniki.

He said the opposition socialist PASOK did not understand the magnitude of the global financial crisis.

“Today the effects of the crisis leave no room for doubt about the way forward,” Karamanlis said in Thessaloniki. “We have two very difficult years ahead of us. 2010 will be, in particular, definitive for the economy. If we don’t act immediately and decisively, the risks are great.”

Along with a freeze next year on new public sector workers, Karamanlis announced no increases for public sector pensions and a two-year 30 percent cut in overtime. The measures are part of his attempt to tighten control of public spending and curb tax evasion.

The polls on October 4, are to be held two years earlier than scheduled, as Karamanlis said he needed a new mandate to confront Greece’s economic problems.
Greece’s economy will shrink in 2009 for the first time since 1993, ending its run as one of the European Union’s fastest-growing. New Democracy has trailed the opposition socialist PASOK party in polls for more than a year.

“The easy road of mere promises leads to a dead end. The difficult road of responsible policy is the only way towards prospects and hope,” Karamanlis said.

With only a one-seat majority in parliament, Karamanlis has hesitated to push ahead with far-reaching reforms that would reduce the budget deficit and improve competitiveness. Greece needs to rein in spending as its deficit is set to exceed the EU’s 3 percent limit for a third straight year.

The ND government adopted a one-time levy on people earning more than 60,000 euros ($85,600) and froze the wages of civil servants. The government also raised taxes on cigarettes, alcohol, yacht owners and gambling.

Karamanlis, reiterated his commitment to state-asset sales and shrinking the wider public sector.

The country faces a period of “prolonged slow growth” unless it can get its public finances under control a

nd tame the EU’s second-biggest debt as a percentage of gross domestic product, the IMF said on August 6.

PASOK, led by George Papandreou, 57, son and grandson of former prime ministers, has 31.5 percent support compared with 25.1 percent for New Democracy.

If those percentages are replicated on polling day, PASOK wouldn’t be able to form a majority in the 300-seat parliament.

That could lead to either some form of coalition government, or new elections.