Greek Prime Minister George Papandreou said on Saturday he would do whatever it takes to rescue his country from bankruptcy and stay in the euro zone, as doubts in Europe grew over its membership in the bloc.

Sending a message to international lenders increasingly frustrated with delays in reforms and missed fiscal targets, Papandreou said his government was determined to take the difficult decisions and make the sacrifices needed.

We decided to fight the battle to avoid a disaster for the country and its people and to stay in the euro, he said in his annual economic speech at a trade fair in the northern city of Thessaloniki. Any delay and wavering is dangerous for the country.

Anger at the country's failure to meet fiscal targets under its EU/IMF bailout has reached boiling point, prompting senior euro zone policymakers to cast doubt on its ability to avoid default or even its membership in the single currency.

The embattled premier, who was heckled by angry labor unions on Friday, said he would redouble efforts to fight endemic tax evasion, a main hurdle in achieving fiscal targets.

His Finance Minister Evangelos Venizelos said earlier Greece may even take additional fiscal measures in 2011 to make up for budget deficit slippage that threatens the disbursement of an 8 billion euro EU/IMF loan tranche.

Venizelos pledged to further cut the civil service payroll, push privatizations and deepen labor market reforms.

Civil servants, who have seen about a fifth of their wages slashed, will suffer more after the government decided to put thousands of them in a so-called Labor Reserve, in which they will draw 60 percent of their salary and possibly face dismissal if they find no other public sector job within a year.

But austerity measures are throwing the economy into an ever deeper recession. GDP will shrink by more than 5 percent this year, Venizelos said, topping earlier projections in its third straight year of contraction.

PUBLIC DISCONTENT

More than 20,000 protesters gathered in the northern city to mark Papandreou's speech. Police fired tear gas at youths smashing shop windows and setting fires on the main shopping streets. Police said 106 people were detained.

Demonstrations were organized by civil servants, students, taxi drivers and even football fans. Some restaurants in the city shut down to protest a VAT hike that took effect earlier this month.

We are suffering an unprecedented tax raid ... we deeply worry about tomorrow, George Kasimatis, chairman of Greece's Chamber of Commerce Federation, told Venizelos during the conference.

About 7,000 police were patrolling the city's streets, cordoning off the fairgrounds. Ministers canceled plans for their usual walkabouts in the city and Papandreou avoided touring the fair in the morning, as prime ministers traditionally do on the event's first day.

While vowing to keep its side of the bargain, the Greek government sharply criticized its EU partners for delaying ratification of a second, 109-billion-euro bailout for the country, agreed by euro zone leaders on July 21.

Europe must rise to the challenge and move toward implementing the July 21 decisions, to put an end to the Sisyphean ordeal the Greek people is going through, said Development Minister Mihalis Chrysohoidis.

Doing nothing is disastrous for all of us, he added.

A G7 source said the troika (EU/IMF/ECB), which suspended talks with Athens last week in frustration at Greece's struggle to stick to its deficit reduction plan, would probably come up with a form of words in its next report to allow the next tranche of bailout funds to be paid.

But the working assumption is that Greece will not avoid default indefinitely.

However, a bond swap plan for private bondholders, which is part of the second bailout plan and is supposed to ease Greece's debt payments was progressing well, Venizelos said.

The private sector is responding very well to the PSI (private sector involvement), he said, without elaborating, one day after an initial deadline for banks to express interest in the scheme expired.

(Additional reporting by George Georgiopoulos and Yannis Behrakis; Writing by Dina Kyriakidou; Editing by Janet Lawrence)

European central bank