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Spain closer to seeking financial help; new set of economic reforms will be unveiled

By Pan Pylas and Nicholas Paphitis

Associated Press

Published: Friday, Sept. 14 2012 9:52 p.m. MDT

German Finance Minister Wolfgang Schuble, right, talks to the Managing Director of IMF Christine Lagarde prior of the Informal European economic and financial affairs council in capital Nicosia, Cyprus, Friday, Sept. 14, 2012.

Associated Press

NICOSIA, Cyprus — Spain revealed Friday that it will present a new set of economic reforms by the end of the month in a move that raises hopes that the struggling country will soon ask for financial help.

The economic reform plan — discussed at a meeting in Cyprus of finance ministers from the 17 countries that use the euro — will be unveiled by Sept. 27. It is expected to be the launch-pad to Spain's tapping of a new European Central Bank bond-buying plan.

Meanwhile, Greece's creditors indicated that it may get more time, but not money, to get public finances into shape.

The two countries topped the agenda off the first day of an informal meeting of European finance ministers in the Cypriot capital Nicosia, which is being held following a run of positive news in Europe's three year debt crisis.

The ministers, as well as ECB president Mario Draghi and Christine Lagarde, managing director of the International Monetary Fund, cautiously acknowledged that conditions have recently improved. 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 are nervous at the eurozone's debt problems.

However they acknowledged that hurdles still need to be cleared if the euro currency is going to emerge intact from the crisis.

The two biggest hazards at the moment remain Greece and much-bigger Spain. While Greece is fighting for its survival in the eurozone, Spain is considering whether it will tap the new ECB facility.

The ECB bond plan is designed to help lower the borrowing costs of struggling countries such as Spain by buying up unlimited amounts of short-term debt on the open market. For the ECB to start buying, a country must first approach the eurozone's bailout fund for help and commit to deficit targets as well as more economic reform.

Spain's finance minister Luis de Guindos gave a broad hint at the meeting that the Spanish government was readying a request to tap the ECB facility — by announcing a new range of reforms that will be strict enough to satisfy the conditions of the ECB bond-buying plan.

"Spain will adopt a plan to boost growth and competitiveness in its economy," de Guindos said. "The idea is that the government will on September 27 announce specific plans to boost the economy and its competitiveness."

Olli Rehn, the European commissioner for monetary affairs, said the Spanish plan would be "based on recommendations of the European Union, with very clear commitments and precise timetables."

Chris Beauchamp, market analyst at IG Index, said Friday's developments have "raised hopes that Spain might ask for assistance soon."

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