–Adds quote on urgent need for reforms in Spain post-crisis

VALENCIA, Spain (MNI) – Improvements in hard economic data and
confidence indicators along with a gradual normalization of financial
markets have produced a rosier medium-term outlook for growth, European
Central Bank Governing Council member Miguel Angel Fernandez said here
Wednesday.

“It’s a fact that the improvement seen in different indicators of
[economic] activity and confidence and the gradual normalization of
international financial markets have brought about an upward revision in
the growth forecasts for this year and next,” Ordonez, who heads the
Bank of Spain, said in a speech here.

He noted that the world economy had already passed the “most
critical moments of the severe crisis through which we are living and
has started to take its first steps towards recovery.” Those steps are
uneven – “firmer in the emerging economies than in the developed one,
and they are also uncertain steps, still supported by monetary and
fiscal stimulus of an unprecedented intensity, but which in many cases
have used up any available room to maneuver.”

Ordonez said the Spanish economy was “at the beginning of a phase
of recovery that will probably be weak and gradual and will be achieved
only if it is supported with major reforms.” Spain will only regain its
competitiveness within the Eurozone if the “necessary political
decisions are taken with ambitiousness and decisiveness,” he said.

A deficit-cutting plan presented by the Spanish government to the
European Commission is “terribly ambitious,” Ordonez said later in
response to a question from the audience. “It must be carried out
scrupulously,” he said.

Spain’s public deficit, at 11.4% of GDP, is nearly 4 times the EU
limit of 3%, putting it nearly in the company of severely-troubled
Greece, whose deficit is 12.8%. However, unlike Greece, whose public
debt is equal to a whopping 115% of GDP, Spain’s debt is comfortably
beneath the EU limit of 60%.

He noted that historically, public deficits and debt can build up
in a hurry and then, “they are very difficult to break given the major
factors of inertia that determine their dynamic.”

In the case of Spain, the budget plan to return to within EU
deficit limits by 2013 must be “strictly executed,” Ordonez said. “Any
significant deviation with respect to the commitments that have been
announced would raise big credibility problems and could harm the
chances for recovery.”

Ordonez said that Spain’s housing sector, whose extreme overheating
before the crisis led to a burst bubble that brought down the Spanish
economy, must now develop in line with “the new situation.” This means a
lot of excess supply will need to be absorbed, “which will undoubtedly
limit the expansion in residential investment for some time,” he said.

He noted that for as long as families and businesses continue
restructuring their balance sheets, consumption and investment “will
remain moderate.”

Ordonez hammered hard on the need for reforms in Spain’s economy.

“I will not tire of repeating it: We must avoid falling into the
grave error of thinking that the exit from the international crisis will
resolve our problems without any need for reforms,” he said. “If there
are no reforms, we will be facing a long period of mediocre jobs growth,
with the consequences that will have for public finances, the financial
system, social protection and, in general, the living standard and well
being of Spaniards.”

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