UPDATE 1-Spain c.bank says deficit goals within reach

Wed Nov 21, 2012 5:40am EST

* Linde says 2012 deficit target not impossible

* Prolonged weak economy may put deficit goals at risk

MADRID Nov 21 (Reuters) - Spain's budget deficit goal is within reach although there is no sign of an easing of a prolonged economic downturn that may make meeting targets a struggle, the Bank of Spain's governor said on Wednesday.

Spain's deep recession and record unemployment are at the root of concerns that the country will not be able to bring a high budget deficit in line with European targets, pushing it toward the need for a euro zone bailout.

Governor Luis Maria Linde warned in a public speech on Wednesday that the economy was not showing improvement, although he offered a more upbeat view later talking to reporters.

"Recent data is moving in the right direction. I think it's not impossible for us to meet this year's deficit goal," Linde told reporters after a speech to the Spanish Senate.

"Meeting the (deficit) target will depend on different tax measures bearing fruit in the last quarter of the year to compensate for higher debt financing costs and unemployment and pension payments," Linde said.

Spain aims to reduce its budget deficit to 6.3 percent of gross domestic product this year and to 4.5 percent in 2013 from over 9 percent last year.

Prime Minister Mariano Rajoy has so far held off from requesting euro zone aid, which would trigger a European Central Bank bond-buying programme designed to give Spain access to capital markets at a reasonable cost.

However, Linde warned that ECB monetary policy, both in the form of interest rates and liquidity measures, must be used with policy that addresses underlying problems in the euro area in order to be effective.

"The roots of the current crisis in the euro area are not of a monetary nature and, consequently, monetary policy alone cannot resolve those problems," he said.

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