(Adds comment from Canada on fiscal stimulus)
* Germany gives no ground on question of Greece
* IMF's Lagarde makes case for flexibility to meet budgettargets
* De Guindos says no political resistance to aid for Spain * Mixed reviews on IMF call for slower budget cuts * EU's top economic official shows the way for Spain By Jan Strupczewski and Koh Gui Qing
TOKYO, Oct 12 (Reuters) - Germany held firm on Friday ininsisting it was too soon to say Greece deserved more time tomeet its deficit-cutting goals even as the head of theInternational Monetary Fund laid out the case for leniency.
Although Greece, Spain and the euro zone's slow progresstoward debt reform was centre stage at International MonetaryFund meetings, there were some signs that Europe was edgingforward in tackling the three-year old debt crisis.
The EU's top economic official for the first time indicatedhow possible aid for Spain could work and a European CentralBank policymaker endorsed a suggested extension of Greece'sbudget deadlines.
This week, in a softening of earlier advice, the IMF hasargued that forcing Greece and other debt-burdened countries inEurope to reduce their deficits too quickly iscounter-productive because it hurts the economy.
IMF Managing Director Christine Lagarde, sitting next toGermany's finance minister, said Athens needed more breathingspace.
"Given the... lack of growth, given the market pressure,given the efforts that have been undertaken, a bit more time isnecessary," she said, amplifying on remarks made on Thursday.
Any steps that would raise Athens' chances of succeedingwere welcome, European Central Bank board member Benoit Coeuresaid. But he noted that a mooted two-year extension of Greece'sbudget balancing goal would come at a price of extra financingneeds.
Reform bogged down by delays, deadlock
HIGHLIGHTS from IMF meeting:DIARY of IMF events:TAKE A LOOK:
BREAKINGVIEWS-Lagarde is right on austerity
-Spain could get ESM precautionary credit-Rehn
The shift was welcomed by some emerging market countries aswell as long-time critics who say that the tough conditionsattached to IMF loans make it harder for countries to grow theirway out of debt.
"We have been arguing for some time that single-minded anddraconian fiscal policies may be counterproductive and have atendency to backfire," said Brazilian Finance Minister GuidoMantega.
In a sign that growth was a top concern, Canadian FinanceMinister Jim Flaherty told reporters on a conference call thatsome finance ministers at the meetings had discussed thepossibility of additional fiscal stimulus if Europe's economictravails worsened. He did not give any details.
QUESTION OF CREDIBILITY
But Germany, Europe's largest creditor country and the keyto any lasting fiscal reforms, warned against actions that couldundermine credibility of deficit-cutting steps.
Finance Minister Wolfgang Schaeuble said Europe had madeplenty of crisis-fighting progress, echoing comments from otherEuropean officials who said there should be greater attentionpaid to U.S. fiscal troubles and emerging economies slackeninggrowth.
He criticised Lagarde for calling for flexibility evenbefore the "troika" of Athens's lenders -- the IMF, the EuropeanUnion and the European Central Bank -- complete a review oftheir 130 billion euro bailout programme for Greece.
"Until we have the troika report, we must not speculate," hesaid.
Lagarde and Schaeuble shared the stage as part of a paneldiscussion, their first public joint appearance since the IMFhead surprised investors on Thursday by stating unequivocallythat Greece and Spain needed more time.
Spain's economy minister, Luis de Guindos, said there was"absolutely" no political resistance from within the euro zoneto a Spanish bailout request, an apparent reference to Germany.Spain is under pressure to seek a bailout as it struggles torein in central government spending but Germany has sent strongsignals it should hold off.
EU Economic and Monetary Affairs Commissioner Olli Rehn toldReuters in an interview that Spain could get a precautionarycredit line from the euro zone's permanent bailout fund with thepossibility of buying Spanish bonds at primary auctions, ifMadrid decided to ask for financial help.
U.S. officials have expressed support for giving Europeancountries extra time to deal with their debt.
In Lisbon, Portugal's Prime Minister Pedro Passos Coelhosaid his country was adjusting austerity measures to reality soit would not have to request more rescue funds.
But Italy's economy minister, Vittorio Grilli, said in Tokyothe economic pain from fiscal consolidation was "a necessaryprice to have for a much brighter future in the medium and longterm."
Even as the euro zone debt crisis rages, the European Unionwas awarded the Nobel Peace Prize.
"Despite some gloom in the economy in Europe, still this isa great day for Europe," Rehn said.
CHANGE OF TUNE
The IMF's change of tune on the speed of budget cuts stemsfrom research it released this week showing that aggressivefiscal consolidation crimps growth more sharply than previouslythought.
It also reflects a desire by Lagarde, a former Frenchfinance minister, to demonstrate the IMF is willing to get toughwith Europe. Big emerging economies, who have helped top up theIMF's crisis-fighting coffers, had worried about the Fund'sindependence.
"Let us not delude ourselves: without growth, the future ofthe global economy is in jeopardy," she said.
"One lesson is clear from history: reducing public debt isincredibly difficult without growth. High debt, in turn, makesit harder to get growth," she said.
Nobel prize-winning economist Paul Krugman called the IMF'snew research, contained in its latest World Economic Outlook,"an extensively documented exercise in hand-wringing."
"Kudos to the Fund for having the courage to say this, whichmeans bucking some powerful players as well as admitting thatits own analysis was flawed," Krugman wrote on his blog.
While the IMF has advocated a slower approach to debtreduction, it urged swifter policy action, both in Europe andthe United States, to remove economic uncertainty and help liftanaemic global economic growth.
In Europe, the IMF wants to see more progress towardpromised reforms that would create a tighter fiscal and bankingunion.
In the United States, the IMF has sounded the alarm over the"fiscal cliff" of automatic spending cuts and tax increases thattake effect early next year unless Congress acts. Withoutaction, the tightening could plunge the economy back intorecession, the IMF said.
ECB's Coeure said that unlike in April, when the IMF heldits spring meetings, Europe was no longer the only risk to theglobal economy and the United States and Asia both heldpotential peril.
"The discussions on tail risks in the global economy do notfocus entirely on Europe any more," he said.
The Fund lowered its global growth forecast this week forthe second time since April. Host Japan offered another reminderon Friday that its own economy was losing steam as thegovernment downgraded its forecast for a third straight month.
But many officials pointed out that the global economy isstill growing, and expressed confidence that Europe would find away out of its mess.
"In Europe, the decision-making process is slow andcumbersome. But it's always delivered in the end," Portugal'sFinance Minister Vitor Gaspar said.
(Reporting by Reuters IMF team; Writing by Emily Kaiser;Editing by Tim Ahmann and Neil Fullick)
Keywords: IMF ECONOMY/