The prime minister said tough measures were needed in the face of such an "unprecedented crisis", including a 10% cut in wages and spending in the public sector, a higher retirement age and an increase in fuel prices.
He also pledged to go after tax evaders and said those who could afford to pay more would be forced to do so.
"The time has come to take brave decisions here too in Greece as others have done in European Union countries," Mr Papandreou said.
BBC Europe editor Gavin Hewitt, who is in Athens, says the view of the European Union is that the Greek plan is risky but achievable.
The bloc is likely to offer its support, but on the condition that Greece accepts outside scrutiny of its accounts, he says.
"A deficit of such a magnitude must be decisively corrected. Moreover the government debt in Greece is excessively high," European Commission President Jose Manuel Barroso told reporters.
EU rules state that no nation in the euro bloc should have an annual budget deficit which is higher than 3% of its gross domestic product. The Greek government aims to shrink it to 9.1% of overall economic output this year, down from 12.7% last year.
Meanwhile Greece's national debt stands at about 300bn euros ($419bn, £259bn).
Our correspondent says the first challenge for the austerity package may come on the streets, with public sector workers planning a strike next week.
"The government's policies are clearly aimed exclusively at raising money and once again lay the burden on those who have been exploited for years - workers and pensioners," Ilias Iliopoulos, general secretary of the civil servants' union, told the Associated Press news agency. "These policies will lead nowhere."
Farmers are already blocking major roads across the country in a bid to get financial help from the government, which has so far refused.
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