Greece on Sunday pledged to take the tough decisions needed to avoid default but announced no new austerity measures to secure international bailout funds next month.

Prime Minister George Papandreou canceled a visit to the United States to chair a cabinet meeting on Sunday, a day before European Union and International Monetary Fund inspectors hold a conference call with Finance Minister Evangelos Venizelos to hear how Greece will plug this year's budget shortfall.

Venizelos told reporters after the meeting Greece needed to fully meet 2011 and 2012 budget targets, stop generating debt and start producing surpluses next year, but did not outline how these would be achieved.

If we want to avoid default, to stabilize the situation, to remain in the euro zone ... we must take big strategic decisions, he said.

The cabinet will meet again after talks with the EU and IMF inspectors to specify policy, he said. He hinted at steps to further shrink the public sector by saying Greece would focus on cutting state spending rather than generating revenues in 2012.

At stake is an 8 billion euro ($11 billion) loan tranche from a 110 billion euro bailout secured last year, which Greece needs by October before it runs out of money.

Papandreou canceled his U.S. visit to deal with the deepening crisis at home as euro zone partners made clear further funding for the debt-ridden country would hinge on adhering to agreed fiscal targets.

Last week, the government blamed the shortfall on a deeper-than-expected recession and decided to put a new tax on real estate in the hope of collecting about 2 billion euros annually.

But international inspectors, known as the troika, expressed doubts this one-off tax measure would work and demanded more details on how the government hoped to catch up this year and the next.

The troika thinks the recently announced property levy will not suffice to plug the budget hole and is pressing for measures on the spending side -- cuts in public sector wages and employment, said a government official who asked not to be named.

Lenders have long warned Greece against one-off measures and more taxes as a way out of the crisis. They want urgent reforms and privatisations to make the economy more competitive and reduce the bloated public sector.

EU MINISTERS WAVER

EU finance ministers made clear to Greece over the weekend it must meet targets to get fresh funds but broke no new ground in dealing with the debt crisis shaking the euro.

German Chancellor Angela Merkel, under fire for her hesitant leadership in the euro zone crisis, suffered a heavy defeat in a regional Berlin election on Sunday, weakening her hand before a crucial euro zone vote in parliament at the end of the month.

Her junior federal coalition partner, the Free Democratic Party (FDP), whose leader had said orderly bankruptcy of Greece should not be taboo, failed to clear the threshold to win seats in the poll, dealing an additional setback to Merkel's coalition.

The best part of the result tonight is that the voters showed the FDP they won't get anywhere with populist attacks against Europe, said SPD leader Sigmar Gabriel, celebrating his center-left party's sixth win in seven regional votes this year.

International lenders are also concerned with the lack of political consensus within Greece on the measures needed to emerge from the crisis. The conservative New Democracy opposition has criticised the government for overtaxing the economy and driving it into a tail spin.

Its leader, Antonis Samaras, called for snap elections on Saturday saying the policy mix was wrong and was not yielding any results despite peoples' sacrifices.

A renegotiation with our lenders to restart the economy is a condition to get out of this crisis, Samaras told a news conference on Sunday.

The conservatives have been buoyed by growing public discontent after two years of austerity measures and are proposing tax cuts and growth boosting measures instead.

Papandreou's socialists have a majority in parliament but political analysts say internal dissent and public unrest, such as strikes and violent protests, may force snap elections.

(Additional reporting by Renee Maltezou; Writing by Dina Kyriakidou; Editing by Sophie Hares)

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