- Associated Press - Friday, September 14, 2012

NICOSIA, Cyprus — Greece may get more time to cut its budget, its creditors indicated Friday in another sign of increasing flexibility and optimism across the 17 countries that use the euro, while Spain appeared to be inching closer to making a formal request for financial assistance.

Greece is currently being assessed by international debt inspectors, whose verdict could theoretically spell the end of its involvement in the eurozone. If the inspectors decide it hasn’t done enough to meet the strict conditions of its bailout, vital funds would be cut off and it could be forced to default on its mountain of debt, potentially triggering another bout of turmoil in the markets and its exit from the euro.

The new Greek coalition government is seeking a two-year extension to meeting a budget reduction program to 2016, as the country’s recession is proving worse than anticipated at the time the program was negotiated. By the end of this year, the Greek economy is expected to have contracted by a cumulative 20 percent since 2008.

There were signs Friday as finance ministers meeting in Cyprus for an informal meeting that Greece’s his pleas may be getting a hearing.

“It is on the table,” Greek finance minister Yannis Stournaras.

However, any chance that Greece will get a third bailout look slim.

“If the deficit turns out to be somewhat worse than expected because of a temporary downturn in the economy, there could be some time but not money, not extra money,” Dutch finance minister Jan Kees de Jager.

And Austria’s finance minister Maria Fekter said the Greek government is making “ambitious” proposals to deal with its debts and echoed De Jager in saying that the country may get more time to get its finances in order.

“We will give Greece the time that they need for this,” she said. “There will probably not be more money.”

However, the crisis-hit country was told that it won’t find out whether it’s done enough to get its next batch of bailout cash for at least a month.

Jean-Claude Juncker, the head of the eurogroup of finance ministers, told a press briefing following an informal meeting in the Cypriot capital, that the report from the “troika” of the European Union, European Central Bank and the International Monetary Fund is unlikely to be ready before the beginning of October, pushing on a decision on Greece’s bailout loans into the second half of October.

Greece wasn’t the only topic of debate among finance ministers, who gathered in the island’s capital Nicosia a time of relative calm in the financial markets. The ECB bond-buying plan, the creation of a new government in Greece following two elections and a German court ruling in favor of Europe’s new bailout fund have all calmed markets and politicians nervous at the eurozone’s debt problems.

Spain, which is the eurozone’s fourth largest economy, was also high on the agenda in Nicosia. The country is widely-expected to make a request to use the ECB facility at some stage but the conditions attached have yet to be determined.

Its finance minister Luis de Guindos said the government was readying to present a bold new economic reform plan by the end of the month.

“De Guindos also informed the eurogroup today that the Spanish government intends to adopt a national reform program by the end of September based on recommendations of the European Union, with very clear commitments and precise timetables,” Olli Rehn, the European commissioner for monetary affairs, said.

The Spanish government has shown its unwillingness to bow to conditions attached to any help, and its plan could allow it to say that it’s already meeting any austerity and reform measures implicit in a deal.

De Guindos also told his counterparts that the country would do more to achieve its targets, if required.

“We were reassured that the fiscal target for this year remains reach,” the eurogroup’s Juncker said. “The Spanish minister reiterated the full commitment of the Spanish authorities to meet their budgetary targets …. including additional measures if needed.”

This is the first gathering of euro finance ministers since the ECB’s president Mario Draghi announced the new plan to buy up unlimited amounts of short-term debt to help struggling countries lower their borrowing costs.

The ECB proposals have helped calm the mood in markets over the past few weeks, reducing the pressure on Spain to tap the new facility because its borrowing rates in the markets have fallen dramatically.

Draghi though refused to take all the credit for the marked improvement in markets, which has helped the euro clamber above $1.30 for the first time in four months and seen the borrowing costs of countries like Spain and Italy plummet.

“There’s been significant progress,” Draghi said.

Menelaos Hadjicostis contributed to this story.

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