Bank of Spain Chief Luis Maria Linde: Risks have not Disappeared

Spain's politicians must realise that "risks have not disappeared" and the country's economy remains fragile, warned the head of Spain's central bank.

Luis Maria Linde, governor of the Bank of Spain, said too many problems still existed in Spain's economy for it to be regarded as being in a safe and sustainable position.

"It would be wise to avoid any complacency because the risks have not disappeared and the drivers of a sustainable recovery are still very weak," Linde said in a speech before a senate committee debating the 2014 budget.

Linde told the committee that financial assistance for Spanish banks will add to the 2013 public deficit by 0.3% to 0.4% of gross domestic product.

Economic news from Spain has been mixed.

At the end of October, Bankia, Spain's largest nationalised bank, posted a better-than-expected net profit, as the Spanish banking sector works hard to heal itself despite ongoing weakness in the domestic economy.

The state-backed bank said its net profit hit €362m (£308.6m, $500m) during the nine months to the end of September. It posted a €19.2bn loss the year before off the back of Spain's collapsed real estate market, but has displaced much of its toxic assets into a so-called "bad bank".

Spain struggled clear of a two year recession in the third quarter, recording 0.1% GDP growth.

Linde's caution about the prospects for Spain's economy might be well qualified, however. He is a member of the European Central Bank's governing council that sets interest rates for the eurozone.

The governing council has been worried about the fall of prices or deflation becoming entrenched in the eurozone. This could lead to a long period of stagnation, as was the case in Japan's "lost decade" in the 1990s.

The latest consumer price index from the National Statistics Institute in Spain fell by 0.1% in October on an annual basis.

In addition Spain's annual inflation rate turned negative last month.