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By Jan Strupczewski and Yvonne Bell
BRUSSELS, Dec 11 (Reuters) - Greece will meet its debt obligations and plans to reduce its budget deficit to below 3 percent of GDP in four years, Greek Prime Minister George Papandreou said on Friday, sending bond yields lower.
"We are cutting the deficit with systemic changes and we are planning to do this within four years. It is a very clear programme and we are absolutely determined to do so," Papandreou said in an interview on the sidelines of a European summit.
Greek Finance Minister George Papaconstantinou has pledged to reduce the now 12.7 percent shortfall, the biggest in the 27-nation European Union, to 9.1 percent next year.
"I support my finance minister, he is doing an excellent job," Papandreou told Reuters Television.
The prime minister dismissed rumours that Greece could leave the 16-country euro zone because of its large debt, which next year is expected to reach 125 percent of gross domestic product.
"There is no such possibility. We have two of the most prominent Europeans who know the economy very well -- the chairman of the Eurogroup, Jean-Claude Juncker, and the president of the European Central Bank, Jean-Claude Trichet -- who said we are not going to default," he said.
"I can say that we are a responsible country and we will live up to our obligations. We are a new government, we have a new mandate and the mandate is for change so we are moving ahead on this. People support us absolutely," he said.
Yields on two-year Greek bonds plunged after his remarks to 2.88 percent from 3.52 percent.
Asked what support Greece could count on from the European Union, if needed, Papandreou said:
"We are not expecting any gifts, only fair treatment. From the euro zone we had great support for the reforms which we are about to undertake."
He said Greek public finances had been savaged by systemic corruption, political favouritism and widespread tax evasion.
"We need to make major changes in Greece. This is our responsibility and we are going to take that responsibility and make the changes. That is in our interest," Papandreou said.
"We have already begun with simple things, like posting every single decision we make in the public sector on the Web to cut down corruption," he said.
He said Greece would eliminate two of its five levels of government to cut bureaucracy, corruption and the amount of wasted money, and improve transparency. It would move to a new tax system.
Prices of Greek bonds and shares have fallen sharply after credit rating agency Fitch downgraded Greek debt this week with a negative outlook because of the much larger-than-expected budget deficit this year.
"The markets are understandably jittery because there are problems around the world. We are not a Dubai, we are a sovereign nation in the euro zone, a responsible government ready for change," Papandreou said. (Editing by Dale Hudson)