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By Paul Day
MADRID, June 17 The Bank of Spain warned that
global easing of monetary policy coupled with a push for returns
had become risky as investors chased profit, suggesting some
were paying too little attention to assets' underlying value.
He said Spain - whose bonds were spurned during the euro
debt crisis but are now being snapped up by investors seeking
higher returns - must keep trying to prune its budget deficit
and hold down its debts.
"Some valuations (in financial markets) are at record highs
in a context of a search for returns by investors, which is
playing a predominant role over other considerations based in
the fundamental value of the assets," Linde told the lower house
"This international monetary and financial market situation
has risks, in that it is susceptible to sharp changes due to
expectations of the removal of monetary stimulus."
Spanish short-term debt yields fell to record lows on
Tuesday as investors searched for some returns after the
European Central Bank cut its reference interest rates in early
Spain has sold nearly 60 percent of its 2014 debt target as
investors rush to buy the Treasury's paper which, just two years
ago, saw yields hit unsustainable highs on concerns over the
euro zone and that the government couldn't control its expenses.
Linde said Spain must continue efforts to cut the deficit
even as the economy returned to growth and noted that tax reform
proposals must improve efficiency without putting budget
balancing measures at risk.
"Pending fiscal consolidation efforts are still significant
... the culmination of the fiscal consolidation process must
continue to be a priority for Spain's economic policy," Linde
He said the ECB's monetary policy has helped the euro zone's
economy to recover, with Spain registering growth for the first
time in over two years in the second half of 2013.
RECOVERY STILL AT FIRST STAGES
But the recovery was still in its early stages, Linde said.
"The effects of the crisis, in terms of unemployment and
indebtedness, have been great and their absorption will take
time," he said.
"Improvements in competitiveness and the reduction of
private debt must continue. And they must do so in an
environment of low euro zone inflation and a very strong euro,
which makes it more difficult."
Spain has passed a slew of economic reforms and austerity
measures since the economic downturn began six years ago, but is
still struggling with 25.9 percent unemployment and one of the
highest public deficits in the euro zone.
Details of the proposed tax reform, which is expected to cut
income and corporate taxes in an effort to further stimulate the
economic recovery, will be announced on Friday, Economy Minister
Luis de Guindos confirmed on Tuesday.
(Additional reporting By Jesus Aguado, Editing by Sonya