EU finance ministers backed plans on Tuesday by countries in the euro area to help debt-stricken Greece financially if it becomes the first state in 11 years of monetary union to seek such aid.

It will be decided by the European Council (of EU leaders) when the time comes, if and when Greece were to ask, Spanish Economy Minister Elena Salgado told a news conference at the end of two days of talks in Brussels.

Ministers from the 16-country euro zone said late on Monday they had agreed the technical modalities that would permit aid to be rapidly rolled out but gave no figures and few details of a plan likely to involve bilateral loans.

They reconvened on Tuesday with the other finance ministers from the 27-country EU, where Germany, Spain and others reiterated that Greece needed no help for now.

European Commissioner Olli Rehn said the Greek government's plans to slash the country's public deficit by a third this year were realistic and took account of recently downgraded forecasts of a 2 percent economic contraction this year.

Initial financial market reaction was muted, with no drastic change in the euro exchange rate or bond yields, both of which have been buffeted by fears for Greece's ability to honor its debts and what this would mean for the wider monetary union.

German Finance Minister Wolfgang Schaeuble, who left Brussels early, told the German parliament there was increasing cause for concern that speculators were targeting currencies and the competitiveness of all EU states must be strengthened.

Ministers refrained from saying when a final aid move for Greece might come. A German government spokesman said Berlin did not expect any decision to be taken at an EU summit next week.

Germany, Europe's biggest economy and the country that would be the linchpin of any support, is reluctant to bail out Greece and above all to rush into anything before Athens shows it is willing to take the painful steps needed to fix its finances.

GREECE COULD GET BILATERAL AID

Help for Greece could take the form of bilateral aid but ministers ruled out loan guarantees, said Jean-Claude Juncker, the Luxembourg prime minister who chaired the key talks on standby planning among euro zone ministers on Monday.

A statement published by the euro zone ministers provided no figures. It commended Greece's redoubled efforts to repair its public finances and said the rest of the Eurogroup club of common currency countries stood ready to help.

Greece this month unveiled extra austerity measures to knock its deficit from 12.7 to 8.7 percent of gross domestic product this year, including cuts in public sector pay and tax rises. A poll on Sunday showed most Greeks saw this as a good step.

The measures and the euro zone's verbal backing have helped ease the premium Greece must offer over benchmark German bonds as it seeks to refinance some 20 billion euros ($27.5 billion) in debt coming due in April and May.

But the so-called spread remains unsustainable at levels upwards of 6 percent, financial analysts and Greece say.

It will be very hard to live with 6.3 on all the remaining borrowing we have for this year or obviously for next year's borrowing requirements, Greek Finance Minister George Papaconstantinou told reporters in Brussels.

However, that's a theoretical question because we will not live with 6.3. The borrowing costs of the republic will continue to improve.

The price investors demand to hold Greek debt instead of German benchmark bonds narrowed on Tuesday morning. It came in 12 basis points in early trading, but remained close to 300 basis points, or 3 percent, above German Bund yields.

Visiting Hungary, Greek Prime Minister George Papandreou said the standby aid announcement made by finance ministers late on Monday was a very important step forward.

We have said we are not asking for a bailout or for money, Papandreou said.

But we do need some form of instrument, which, if necessary, can intervene in the market and make sure that we borrow at rates which are similar to the rates of other countries in the euro zone and which are not too expensive.

EU LEADERS TO HAVE LAST WORD

Belgian Finance Minister Didier Reynders suggested aid options were far from set in stone. The European Commission said the EU executive was ready to propose an aid framework, positioning itself as a possible conduit through which bilateral aid lines would be funneled or coordinated.

Italian finance minister Guilio Tremonti was non-committal on Italy's contribution, saying the matter was for leaders to decide if it came to that.

Economists said the announcements were a step in the right direction even if the situation remained fuzzy.

There is still much uncertainty over exactly how the package would work, not least over what would actually trigger it, said Ben May, analyst at Capital Economics, a consultancy.

Goldman Sachs economist Erik Nielsen said Greece would need to raise another 8-10 billion euros on markets before mid-May and that this could be the trigger point if the refinancing proved too stressful.

If this is not feasible at an acceptable cost, then help will be provided, he said.

Dutch Finance Minister Jan Kees De Jager said any help would be tied to tough conditions of the kind that the International Monetary Fund applies when rescuing countries in trouble.

Italy's Tremonti is keen to keep his country's high debt under control too and suggested to reporters that the IMF not be ruled out as a source of help for Greece.

(With reporting by Marcin Grajewski, Brian Rohan, Tamora Vidaillet and Francesca Landini; Writing by Brian Love; Editing by Dale Hudson)

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