Greek Finance Minister George Papaconstantinou said he’s confident European leaders will forge a “comprehensive” agreement next month to stem Europe’s debt crisis that will narrow bond spreads and allow the country to return to capital markets.

“The current market situation is one of expectations,” Papaconstantinou said in an interview in Athens today. “It would be a big mistake to conclude an agreement that falls short of these expectations.”

A European Union summit in Brussels on Feb. 4 will “point to the direction and give a timetable for the comprehensive package to be agreed upon” next month, he said. The difference between the yield on Greece’s 10-year bond and comparable German debt fell to 760 basis points, the lowest in almost six months.

European leaders are seeking to advance a plan to strengthen the EU’s bailout mechanism in a bid to end the debt crisis that forced Greece and Ireland to seek emergency aid. The Feb. 4 meeting will seek to keep markets at bay until a late- March deadline to bridge differences over budget rules, rescue- loan rates and bond buybacks.

A pledge to allow Greece to stretch out the maturities of its 110 billion-euro ($152 billion) bailout package, crafted before the EU forged its broader bailout fund, will “very much help in assuaging these fears,” Papaconstantinou said. A comprehensive package “will soothe markets, will bring down spreads throughout the periphery and thereby allow Greece to return to capital markets sooner rather than later.”

Lower lending rates for the EFSF ‘will also apply for obvious reasons of equal treatment to the loan package for Greece,” he said.

“The time for fire-fighting is over and we all realize that,” Papaconstantinou said. “The euro zone has proven that even though the decision-making process is complicated, it always rallies and it is there when it’s necessary to act.”

German Role

Germany, the biggest of the 17 euro nations, is making approval of the new measures conditional on tougher controls of countries’ finances, say four officials involved in the talks who declined to be named because the deliberations aren’t public. Existing budget rules have gone unenforced since the euro’s debut in 1999.

Greece’s 300 billion euros ($414.1 billion) of debt sparked the European sovereign-debt crisis after Prime Minister George Papandreou revealed the country’s budget gap was four times the EU limit. The bailout from the EU and the International Monetary Fund has failed to stem soaring borrowing costs amid concern that Greece may default. The crisis threatens to engulf Portugal and Spain after Ireland sought aid late last year.

Spain will “never” need an EU bailout, Deputy Finance Minister Jose Manuel Campa said today on Bloomberg Television’s “The Pulse” with Andrea Catherwood.

“We’d like to support any ideas that come up with a stronger euro, with more European integration and stronger commitment to euro-area stability,” Campa said when asked about expanding the EU rescue fund’s powers. “But in no way is this something we are viewing as specific for Spain to use.”

The euro climbed to a three-month high today and bond-risk premiums for Spain, Portugal, Italy and Belgium narrowed for a third day as investors bet Europe would succeed in reinforcing its arsenal to battle the crisis. The yield on Greece’s 10-year bonds is at 10.73 percent, the first time it has fallen below 11 percent since Nov. 3.

Papaconstantinou said a complete package wasn’t a substitute for Greece’s attempts to rein in its deficit, which soared to 15.4 percent of gross domestic product in 2009 after an EU review of hidden debt and loss-making state enterprises.

Greece’s central-budget shortfall shrank 37 percent last year as Papaconstantinou cut wages and pensions in an overhaul demanded in return for the bailout funds. The government is working on measures to shave a further 5 percentage points of GDP off the deficit between 2012 and 2014, with two-thirds coming from spending cuts, he said.