AFP - Greece's fledgling government has scrambled to quell market fears of a default on its massive debt after Dubai's recent solvency scare put the spotlight on the struggling Greek economy.

With the Athens stock exchange reeling and investors speculating whether the broader eurozone was about to take a hit as well, Greek officials last week took to the international airwaves on a damage control offensive.

"There is zero risk of defaulting," Prime Minister George Papandreou told CNN in an interview on Thursday.

"We are taking all measures and are determined to shore up whatever deficit problems we have. We also have the backing and the recognition of the European Union," said Papandreou, whose socialist Pasok party came to power in October.

A day earlier, Greek Finance Minister George Papaconstantinou wrote to the Financial Times to insist that the government was going "to reduce waste and shift resources to growth-enhancing expenditures."

Greece has been singled out for its last-minute revelation of a public deficit expected to surge to 12.7 percent of output this year, and a ballooning debt which amounts to 113 percent of gross domestic product.

This in turn has led to discussion among analysts about the consequences that a default in one eurozone country could have on the bloc, although the widespread view is that the European Union would not abandon a member to a default.

"The situation is critical and volatile...It is imperative that the country regain its market credibility," Manos Hatzidakis, a financial analyst at Greek brokers Pegasus, told AFP.

Greece has pledged to put its house in order with a crackdown on chronic tax evasion and a public spending freeze -- but these pledges have been made before by successive Greek administrations.

The quickest means of raising cash remains the sale of bonds but the country's poor financial outlook -- coupled with uncertainty about whether the government measures will succeed in the face of a sceptical Greek public opinion -- have dampened the appeal of Greek securities which are under heavy selling pressure.

Greece is also one of the euro currency zone's lower rated members with a sovereign credit evaluation of A- for Fitch and Standard and Poor's, and A1 for Moody's.

But the storm could be weathered as long as the European Central Bank continued to accept Greek bonds as collateral, Moody's said.

"The eligibility of Greek government bonds for use as collateral in ECB operations means that there is an extremely low probability that the government's liquidity will be pressured," the agency said this week.

The country was already under EU excessive deficit supervision since April, long before the new government caused an uproar in Brussels by claiming that the shortfall was over twice that reported by the previous conservative administration.

The government has declined to confirm reports that it is now trying to push around 20 billion euros (30 billion dollars) of securities to Chinese banks.

"Many countries are looking to diversify their debt portfolio. But with whom and how is simply speculation," Papandreou said this week.

Papandreou's government has a strong majority in parliament but the prime minister already faces dissension in his own ranks.

One of his first edicts, an attempt to limit the salaries of highly-paid civil servants, was watered down at the last minute after a senior socialist cadre protested.

Another reform, targeting the country's ailing pensions system which in 2009 ate up an estimated 2.47 billion euros in state funds, is expected to meet strong opposition from labour unions.

"War has been declared," Greek Communist leader Aleka Papariga told Flash Radio on Saturday.