Greece’s government was tackling the thorny issue of pension and wage reform Tuesday, part of its plan to fight a debt crisis that has alarmed global markets, even as strikes were being planned nationwide.

The cabinet come came as Prime Minister George Papandreou’s centre left government accelerates austerity measures meant to calm markets and European Union partners, who have urged Athens to swiftly deal with the crisis.

Greece’s budget deficit stands at 12.7 per cent of annual economic output in 2009, more than four times the limit allowed by the EU, while the public debt has exceeded 113 per cent of annual economic output. This has forced the country to borrow at high rates from international markets, which fear the crisis could spread to other troubled EU economies such as Portugal and Spain, and has pushed down the euro exchange rate.

The government has announced €2-billion ($2.74-billion) in public spending cuts so far, and hopes to raise more than €5-billion from extra taxes and fighting endemic tax evasion.

But Mr. Papandreou’s Socialists, elected four months ago, have shied at further salary cuts or layoffs in the civil service, which employs some 750,000 people – all guaranteed lifetime jobs.

They have, however, said they will freeze salaries, increase retirement ages and cut stipends, which often make up a large proportion of a civil servant’s income.

Labor and Social Security Minister Andreas Loverdos on Tuesday announced a two-year increase in the average retirement age, to bring it to the age of 63 by 2015. Mr. Papandreou had said he would increase the retirement age, but not by how much or by when.

“The situation is dramatic, and our response is clear. We are changing the country’s social security system to keep it alive and allow it to have a future,” Mr. Loverdos said. “The reforms … will add life to the system and allow it to endure for the coming decades.”

The reforms announced so far have angered powerful labour unions, and civil servants have called a nationwide strike Wednesday.

The walkout will affect state schools, hospitals, tax offices and local government offices, while all Greek airports will be closed to international and domestic flights. Private sector workers will walk off the job on Feb. 24 in a separate strike.

Mr. Papandreou on Monday called on the unions to show restraint.

“We must all change, or we will all sink together — and we will not let the latter happen,” he said in Parliament late Monday.

Some experts have said Greece could need a bailout — but EU and Greek leaders are resisting the idea, and Athens insists it can weather the storm alone and that its measures will bring its deficit back to below the 3 per cent mark by the end of 2012.

A day after plunging by nearly 4 per cent, the Athens Stock Exchange was up 2.89 per cent in early afternoon trading.

The EU’s government-backed lender, the European Investment Bank, said Tuesday it cannot bail out Greece or any other European country that can’t pay its debts.

The EIB said it could “only finance economically viable projects” and that its rule would not allow it help an EU nation cover a budget deficit. The bank funds projects agreed with European Union governments, such as research into more fuel-efficient cars or infrastructure for poorer EU nations. It has €75-billion to lend this year.