ATHENS: Between a media row over

German war reparations

and an imminent EU audit

of its finances that could

bring fresh austerity cuts, Greece is set for another tough week on its quest to slash its massive debt.

Under pressure from Brussels, the crisis-hit Socialist government is expected to announce new measures to limit state spending before Prime Minister George Papandreou flies to Berlin for talks with Chancellor Angela Merkel.

The measures, expected

to coincide with the arrival

of the European Union’s economic and monetary affairs commissioner Olli Rehn on Monday, could include

bolder benefit cuts and a two per cent hike in sales tax according to reports.

Papandreou’s meeting with Merkel on Friday comes amid talk of a German rescue plan that intensified last week after he met Deutsche Bank CEO Josef Ackermann in Athens.

Ackermann declined to comment when asked if a rescue plan was in the works, but Greek press reports say Germany plans to help through the purchase of Greek bonds. A new 10-year bond issue has been expected for weeks.

On Saturday, Ta Nea newspaper in Athens said Berlin planned to support

future Greek bond issues through its state lender

KfW, with assistance from France’s Caisse des Depots,

and provide backing worth up to 22 billion euros.

And a report in German financial daily Handelsblatt said Berlin planned to make allowance for a possible

Greek “rescue action” in its 2010 budget.

Papandreou and Merkel are also likely to discuss a damaging Greek-German media row that came at the worst possible time for Athens.

The spat began after Germany’s Focus magazine displayed on its cover the ancient Greek statue the Venus de Milo making an obscene hand gesture with the caption: “A cheat in the euro family.”

The story reflected anger in Berlin and other European capitals that Greece racked up debts nearing 300 billion euros ($408 billion) despite receiving significant funding from EU coffers over the past decades.

But the jibe sparked a backlash in Athens where in

addition to media reprisals, the city mayor and the government’s deputy chairman accused Germany of historic complicity in Greece’s woes.

“You owe us 70 billion for the ruins you left behind after World War II,” Athens’ conservative mayor Nikitas Kaklamanis charged in a statement.

And deputy government chairman Theodoros Pangalos told the BBC that Greece’s German occupiers “took away the Greek gold that was in the Bank of Greece, they took away the Greek money and they never gave it back.”

Both governments officially played down the row, and

the Greek PM told parliament on Friday that although the reparations issue “has not been finally resolved”, Athens will not make a “flag of opportunity” out of the issue.

The euro has slipped considerably against the dollar, trading on Friday at around 1.36 dollars compared to 1.45 dollars in December, and last week plunged to a one-year low against the yen.