Greece is preparing severe austerity measures to secure the bailout of up to 120 billion euros, which investors hope will stop the debt crisis from sinking other fragile EU countries, but faces a battle with unions angered by the scale of cutbacks.

Union officials said the International Monetary Fund asked Athens to cut the deficit by 10 percent -- roughly 24 billion euros -- by raising sales taxes, scrapping bonuses amounting to two extra months pay in the public sector, and accepting a three-year pay freeze.

They have called a series of strikes in the days ahead.

But Greek Prime Minister George Papandreou said the measures were vital to securing aid.

"Many talk about red lines. The only red line is the country's interest. Today the top priority is the survival of the nation. This is the red line," Papandreou told parliament.

"The measures we must take, which are economic measures, are necessary for our country's protection, for our future, for us to be able to stand on our feet."

German politicians have said the aid package could be worth 100-120 billion euros ($133-160 billion) over three years, against an original plan for 45 billion euros of aid in 2010.

France's Economy Minister Christine Lagarde told Reuters she hoped solutions for the Greek crisis would be found before a euro zone summit announced for May 10.

"The work is in progress and it looks good," Lagarde said. "We are really working on the essentials to arrive at a solution as quickly as possible."

EURO GAINS

Hopes of a quick Greek aid deal helped push up global equities on Friday and the euro was 0.5 percent higher on the day at $1.3301. The spread between Greek and German 10-year government bond yields narrowed.

"The background does seem to be definitely improving for the euro zone's public debt crisis," said Mike Lenhoff, chief strategist at Brewin Dolphin.

But the euro was still on track to fall some 1.5 percent for the month and concerns remained over euro zone debts.

European Commission President Jose Manuel Barroso said on Friday the Greek aid package would be hammered out within days and will prevent the crisis from spilling over to other countries.

"It is about safeguarding the overall financial stability of the euro zone," he said, adding it would "prevent further possible effects of contagion."

Fears have grown of the contagion spreading to other indebted eurozone countries.

Economists said euro zone states could end up footing a bill of half a trillion euros ($650 billion) to save several nations if they failed to engineer a Greek bailout that calmed markets.

Markets have been concerned that other heavily indebted nations like Portugal and Spain -- whose debts were downgraded by ratings agencies this week -- could be threatened unless they tackle their deficits swiftly.

Portugal's main opposition leader, Pedro Passos Coelho, said his Social Democratic Party (PSD) supports the government's austerity plan and hopes to agree a pact that may allow a cut of this year's budget gap by an additional 1 percentage point.

His comments were likely to reassure investors concerned about Lisbon's ability to tackle its deficit.

In Spain, unemployment rose to a record high above 20 percent in the first quarter, stifling attempts to recover from recession, but Economy Minister Elena Salgado said Spanish debt was under control and Madrid would not have to seek aid.

"Our debt is clean, and we will not have to ask for help," she said.

"ARMAGEDDON IS COMING"

Germany has expressed deep reservations about bankrolling a profligate Greece, which misled partners over its catastrophic finances, and demands fierce budget rigor in return.

But business daily Handelsblatt said Germany will ask German banks to increase their investments in Greek bonds once Greece's austerity plan is submitted.

Citing unnamed government sources, the newspaper said Finance Minister Wolfgang Schaeuble will speak individually with banks' top management to convince them to increase their Greek bond holdings.

The Greek talks are being closely watched for details on whether the aid will start in time for Greece to refinance an 8.5 billion euro bond coming due on May 19 and if the deal will be big enough to handle Athens' 300 billion euro debt pile.

The planned austerity measures include cuts aimed at Greece's system of public wage allowances, which often include generous extra pay for activities such as using computers or getting to work on time.

These are primarily meant to keep base salaries and pensions low, and a 5-15 percent cut could save the state about 300 million euros a year.

More measures are bound to meet resistance. Opinion polls show a majority of Greeks oppose outside aid and expect the rescue package to hit living standards
"Armageddon is coming. The situation caused by speculative mechanisms will be tackled only because the Germans have realized the domino effect that would have followed," Greece's conservative daily newspaper Eleftheros Typos said.

"But the lenders are setting the terms, and they are incredibly tough. At least for three years they will drink our blood. And this is not an exaggeration."