* Euro ministers press Spain to come off fence
* Spain says will detail reform timetable by end-Sept
* Sources say aid bid may come in October, Germany reluctant
* IMF's Lagarde says Greece could get more time
By Julien Toyer and Francesca Landini
NICOSIA, Sept 14 Spain told euro zone finance
ministers on Friday it will set clear deadlines for structural
reforms by the end of the month, in a move European diplomats
said would pave the way for an aid request before long to help
it tackle its debt pile.
Madrid's borrowing costs have fallen sharply since the
European Central Bank said it was ready to buy Spanish bonds but
big borrowing needs before the year-end and a deepening
recession mean most analysts and policymakers believe it is only
a matter of time before it will require help.
"We will adopt a new set of reforms to boost growth ... It
will be in line with the recommendations of the European
Commission," Economy Minister Luis de Guindos told reporters
after meeting his peers in Cyprus.
Euro zone policymakers have said that to get aid, Spain
would need to adhere to strict conditions, which usually entail
detailed reforms and concrete deadlines, rather than vague
Madrid's move is therefore seen by EU diplomats as a
precursor to a request that pre-empts any euro zone calls for
further reforms in an attempt to limit a political backlash at
home, although de Guindos insisted the package was unrelated to
any bailout terms.
"This is a blueprint for a fiscal and structural programme,
this is a blueprint for a way forward," said one senior EU
diplomat on condition of anonymity.
"Yes, we're moving towards a bailout but now a decision has
to be taken by (Spanish Prime Minister Mariano) Rajoy. And right
now, it's hard to know his intentions," the diplomat added.
The new reform programme will be made public along with the
2013 budget on Sept. 28, the day Madrid will also publish the
results of a final stress test of the country's banking sector.
A second official said the measures, if credible, would give
a clear indication that Spain was willing to seek aid.
"They are discussing it with the European Commission, which
gave rather positive feedback. If the measures are credible, the
way is clear," the source said.
Both EU officials said the most likely form of help Spain
could seek was a precautionary credit line from the European
Stability Mechanism (ESM) rescue fund.
Such a credit line would allow the ESM to buy Spanish bonds
at auctions, leaving the European Central Bank free to intervene
on the secondary market. The euro zone could barely afford a
full bailout of the sort given to Greece, Portugal and Ireland.
"No one wants Spain to ask for a full bailout, that wasn't
even discussed," French Finance Minister Pierre Moscovici said.
Euro zone officials have speculated Spain could apply in
time for the next meeting of euro zone finance ministers on Oct.
Madrid has so far resisted austerity conditions that go
beyond the EU policy recommendations it is already implementing,
while north European creditors led by Germany are adamant that
any aid would come on tougher terms.
ECB President Mario Draghi, who attended the Nicosia talks,
stressed any bond-buying would require strict conditionality and
Executive Board member Joerg Asmussen noted there was nothing
automatic about ECB starting on Spanish bond purchases, even
once Madrid were to formally apply for ESM help.
But one diplomatic source said that there were
teleconferences almost every day among the members of the
committee working on the bond-buying scheme.
"Euro zone central banks are getting ready to buy bonds on
the markets," the official said. "If interventions start, the
ECB will decide the daily amount and pass to the national
central banks the responsibility to act on the secondary
For the first time in months, ministers met at a moment when
market pressure for immediate action to solve the sovereign debt
crisis is easing, rather than mounting.
The ECB's announcement that it could buy unlimited amounts
of Spanish bonds, should it agree a programme with the euro zone
bailout fund, has brought Spanish 10-year bond yields down more
than two percentage points from a peak of 7.64 percent on July
Italian yields have fallen to around 5 percent and the euro
rose above $1.30 after the U.S. Federal Reserve announced a new
programme of asset purchases to support the economy.
"I am not an expert on the markets but my impression is that
we still have a bit of time," Moscovici said.
That increases the temptation for Spain, and EU paymaster
Germany, to try to get by without an assistance programme that
would be politically difficult in both Madrid and Berlin. Each
time market stress has eased in the nearly three-year crisis,
German leaders have said they see no urgent need to act.
"There is no more room for complacency than there was six
months ago, but we are moving in the right direction," European
Economic and Monetary Affairs Commissioner Olli Rehn cautioned.
A German official said Berlin did not want to see Spain
pushed into an unnecessary rescue application at a time when its
funding conditions were improving, adding that a Spanish bailout
was not inevitable.
MORE TIME FOR GREECE?
The Nicosia meeting also devoted time to Greece, the cradle
of Europe's sovereign debt crisis.
EU officials have told Reuters that Athens is way behind on
its debt-cutting programme but, having made strenuous efforts to
shore up Spain and Italy, it would make no sense to tip Greece
into default now and plunge the currency bloc back into chaos.
International Monetary Fund chief Christine Lagarde said it
was worth considering giving Greece more time to make the cuts
demanded of it by its bailout programme, something Athens has
"It seems to us quite clear that Greece has already produced
a huge effort but will have to continue to do so," Lagarde said.
"And the target when it comes to achieving debt sustainability
is very high, so there are various ways to adjust: time is one
and that needs to be considered as an option."
International lenders are likely to reach final decisions on
the revised financing programme for Greece in the second half of
October, Greek Finance Minister Yannis Stournaras said.
Austrian Finance Minister Maria Fekter said Greece could be
given more time to reach its fiscal targets but not more money.
She also said the Cyprus had told the meeting it would not be
able to continue without financial assistance.
Another euro zone official said Spain should have euro zone
support ready when international lenders present their report on
Greece in October, because it will make grim reading and could
upset markets, boosting Spanish and Italian borrowing costs.
Draghi said the central bank's policy decision was just one
of a number of measures which had turned market sentiment.
"Many things seem to fall into place of late: progress in
the euro area governance, significant progress at national level
in pursuing the right policies in all euro area countries and
now you have a fully effective backstop mechanism that is meant
to remove to the tail risk from the euro area," he said.
"I think it is a combination of all these elements that have
produced the positive effects that we have seen on financial
Markets rallied after the German constitutional court
cleared the way to set up the 500 billion euro permanent euro
zone bailout fund ESM. Pro-European parties won elections in the
Netherlands and the euro zone is moving towards a banking union
with the ECB as the single supervisor.
But many policymakers and market analysts believe that for
yields to fall further, or even stabilise at these levels, the
ECB will have to back up its words with action.