LISBON (Reuters) - Portuguese leaders agreed tough austerity measures yesterday, joining a coordinated euro zone push that has calmed market fears of a spreading Greek-style crisis but provoked talk by Spanish unions of a general strike.

Prime Minister Jose Socrates and opposition leader Pedro Passos Coelho drew up steps to slash Portugal's budget deficit, including five percent pay cuts for senior public sector staff and politicians, and increases of VAT sales tax, income tax and profits tax ranging from one to 2.5 percent.

The cabinet approved the programme later. The government said it would cut the deficit to 7.3 percent of GDP this year and 4.6 percent in 2011. Last year it hit 9.4 percent, prompting a sell-off of Portuguese assets by investors.

"I ask all my compatriots for us to make this effort to defend the country, to defend the euro and Europe," Socrates, a Socialist, told a news briefing.

In neighbouring Spain, painful measures were announced on Wednesday including five percent reductions in civil service pay and job cuts.

"We radically reject this austerity plan and both (main) unions are starting protests that could lead to a general strike very soon," said Ignacio Fernandez Toxo, general secretary of Spain's biggest union Comisiones Obreras.

A public sector strike is planned for June 2. Union leaders said the austerity plan breached pension pacts and that economies should come from tax increases rather than cuts.

The belt-tightening is the price indebted euro zone states must pay for protection by the 750 billion euro ($950 billion) safety net announced by the EU and IMF at the weekend.

German Chancellor Angela Merkel said yesterday the EU faced an "existential" crisis.

"If the euro fails, not only the currency fails. Europe fails too, and the idea of European unification," she said.

"We have a common currency, but no common political and economic union. And this is exactly what we must change. To achieve this — therein lies the opportunity of this crisis."

In the decade since the euro was created, Germany has resisted the idea of tightening economic policy coordination, fearful states like France could exploit such a discussion to try to exert influence over the European Central Bank.

German public opinion is resentful of the potential financial burdens being shouldered by Berlin in the rescue package for weaker economies. A poll yesterday showed waning public enthusiasm in Denmark for adopting the troubled euro.

World stocks have gained around six percent since the rescue package was announced.

The pan-European FTSEurofirst 300 has climbed more than eight percent this week, regaining losses suffered as investors' confidence in the euro zone withered last week.

But the single currency fell to a one-week low yesterday, weighed down by worries that fiscal tightening in the zone could stifle growth and that weak members of the bloc might not be able to deliver required budget cuts.

Safe-haven gold continued to trade near record highs.

"It's going to be a long, challenging and bumpy road in order to stabilise the finances of many countries within the euro zone, but it's absolutely necessary that they take those first steps," said Henk Potts, equity strategist at Barclays Wealth.

The new coalition cabinet in Britain, a member of the EU but not the euro currency club, met for the first time yesterday and agreed a five percent pay reduction for all ministers.