Greek PM warns over effect of high borrowing costs

Papandreou told a committee in the European Parliament that actions taken by Greece to resolve its debt problems showed it was committed to the stability of the euro and that it would carry out deep structural reforms.

"But if we keep borrowing at very high rates, and this is the challenge we have, we cannot sustain the deficit reduction that these hard measures aim to achieve," he said. "We should be able to borrow at rates that are normal."

Greece, which routinely has to pay a premium of at least three percentage points more than benchmark Germany to borrow money, acknowledged last year that it had cheated with its economic statistics to hide the depth of its fiscal problems.

Greece's new austerity measures are intended to bring its deficit down from 12.7 to 8.7 percent of gross domestic product this year, including cuts in public sector pay and tax rises.

At the same time, Greece needs to borrow around 53 billion euros (47.4 billion pounds) in financial markets this year and must refinance around 20 billion euros of debt in April and May, all at interest rates that analysts say are unsustainable.

Papandreou said Greece was responsible for sorting out its own problems and was not asking for financial aid, but needed political support.

He made no mention of turning to the European Union or the International Monetary Fund for help, saying, however, that Greece was implementing IMF style structural reforms without having access to IMF funds. He said he hoped Greece would not have to got to the international lender for help.

Papandreou said on Wednesday Athens counted on aid being available from the EU or the 16 countries that use the euro but did not rule out other options such as seeking aid from the IMF.

Bond yields have been buffeted by fears over Greece's ability to honour its debts. On Thursday the price investors demand to hold Greek debt instead of German benchmark bonds widened to 310 basis points.

(Reporting by Timothy Heritage and Marcin Grajewski, writing by Timothy Heritage; editing by Luke Baker)